Editor’s note: This is the third in a series of three columns about revenue. Teaching Startup is published weekly on Tuesdays. Joe Procopio is the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Spiffy, Automated Insights, and ExitEvent. More info at joeprocopio.com.

DURHAM – No matter what your startup is selling or who you’re selling it to, in order to survive you’ll need big customers and you’ll need lots of them. But how do you land million-dollar deals with limited resources and no credibility?

In over 20 years of building companies and products, I’ve learned that in the grand scheme of the startup lifecycle, acquiring your first customer is relatively easy. Any good salesperson can sell a good product to the prospect of their choice. Hell, any mediocre salesperson, even when they’re hawking complete crap, can get lucky once. Your first customer is a great signal, but it’s just a signal, not a savior.

Photo courtesy of Joe Procopio

Joe Procopio

What actually matters is what we learn from that first signal and all the signals that follow.

Aggregate value to target prospects

The process starts way before the first sales pitch. Your chances of closing your first big sale are going to be directly related to how well you’re targeting your prospective customers. So let’s begin with a discussion of aggregation and targeting.

All product and service sales come down to usage and aggregated value. It doesn’t matter if your target customer is a consumer or a business. It makes no difference if your price point is dollars or thousands of dollars. It doesn’t matter if your transaction is completely frictionless or requires a six-month hand-hold by your sales team.

If your customer is a consumer, they’re going to have limited usage with your product or service and the value needs to be tightly wound into that small usage window. If your customer is a business, they’re likely going to have multiple users and almost continuous usage of the product or service, so the value will be delivered over time.

So a “lot of customers” for your product or service might be 100 or it might be a million. Either way, you’re offering the same value per dollar based on usage. You’re aggregating that value into the sale, so you need to be targeting those customer prospects with the highest expected usage.

A classic rookie mistake made by most entrepreneurs is spraying and praying at large prospect audiences for the sake of their largeness alone, hoping that those shards of value surface for the right people at the right time.

Don’t do that. Instead, for B2C sales, you’re going to need some intelligence about your prospect list, and this means more than Facebook ad demographics, it’s being able to predict the usage based on the source of the prospect. For B2B sales, you need to determine the optimum type of business to sell into: Their size, their industry, their appetite for innovation, and anything else you can use to narrow your focus.

Figure out who is going to get the most aggregate value for their usage and target them.

Targeting customer prospects based on value aggregation is not only going to increase the chances of closing, it’s also going to dictate the near future in terms of the growth of your startup. A targeted, good customer is going to make your life a lot easier. A random, poor customer is going to fill your world with complaints, support requests, change requests, feature requests, and ultimately severe changes to your product roadmap.

Consolidate and find a champion

When you’re a startup, your customers are buying innovation. The tricky thing is, no one needs innovation. Rather, they need the derivatives of that innovation — time, simplification, throughput, security.

In order to close a big sale, in other words, the aggregation of many, many units of that usage and value, you’re going to have to consolidate that usage and find a champion of value on the customer side.

So the question becomes: Who benefits the most from the derivatives of innovation brought about by maximizing the usage of your product or service?

I know. Whew.

What it means is that in the innovation world, our champion might not be who we traditionally think of as our champion.

An example: At Automated Insights, we generated content from data at scale. Our first big sale was to Yahoo, who used our platform to deliver automated fantasy football matchup recaps to millions of fantasy football players over the course of a couple hours.

The usage was driven by the millions of fantasy football players reading those recaps. The value was aggregated for Yahoo, who consolidated all those players and in return got huge increases in engagement of their product thanks to our innovation. Our champion was the team at Yahoo who sold ads against that engagement.

Large corporations aren’t your only consolidators. Organizations, associations, government entities, basically any group you can partner with to bring together large amounts of prospects who can benefit from the derivatives of your innovation.

If you’re a B2B business, then your usage is probably already consolidated within the company itself, and your champion will come from the inside. Be mindful though, that in an innovation environment, your champion might not be the leader or manager of the department or team that will bear the bulk of the usage. When it comes to innovation, your champion is probably further up the corporate chain. In fact, it’s probably the CEO.

The rookie mistakes here are plentiful, from picking a poor match for consolidation because of ease of access (for example, social networks or college campuses) to picking the wrong champion (the super-enthusiastic person with no influence over the purchasing decision).

Don’t discount, but do throw in freebies

When you’re a startup and you haven’t sold anything yet, you’re not going to get full price. But I can’t tell you how many times I’ve had to implore other entrepreneurs: Don’t discount your product.

Discounting your product or service devalues the product for the customer you’re selling to, giving them tacit permission to misuse and waste it. This can turn a good customer into a mediocre or poor customer. Furthermore, try removing the discount from a price once it’s promised. Never happens.

Instead, your first few customers should be on a pilot program that has different, not discounted, pricing. The pricing is different because it allows for something in return. It doesn’t matter what that something is as long as it aligns with your business goals. Limited support because your team is out landing more big customers? Sure. Allowing for experiments being run through the pilot to test viability? Great. Limited functionality while you figure out what that extra functionality is? Just don’t tell them that.

Make sure the pilot program and the different pricing have a defined and communicated end date.

Another approach to counter the expectations of a startup discount is to throw in free stuff. Again, it doesn’t matter what this is, it’s just a way to soften the blow of the sticker price, both for your prospect as a brave new customer and for you while you’re proving your value. Free unlimited support, free shipping, two for the price of one. As long as it doesn’t devalue the product or service itself, it doesn’t matter what you give away.

Be prepared to lose money

There are three things you have to nail on your first few sales.

  • The demo/pitch has to be over the top professional and great.
  • The pilot has to have a 100% conversion rate to full-tier customer.
  • The product or service has to overcome a much higher bar for retention.

Executing those three things at such an early stage is always more expensive than you plan for. You’re probably going to lose money on your first few customers for at least a little while.

In fact, this is a phenomenon that hurts and even kills some growth stage startups. You need to expect a certain percentage of your customers to be unprofitable. Doesn’t matter what your offering is, where your margins are, how long you’ve been in business, or how good you are at what you do. Between fraud and squeaky wheels and mistakes and VIPs and a host of other factors, be prepared to lose money sometimes, especially early.

Because you’re learning

At the beginning of the post, I said you’ve got to have a LOT of big customers to survive. One of the reasons is that in the early stages, your first few customers are going to be more learning experience than financial windfall.

So make sure you learn from each of the signals from each new customer prospect at each stage of the sale. Because as you scale, the challenge will be to wring more and more profitability out of each subsequent sale — big, small, and in between.

If you can do that, you’ll survive and thrive.