Getting to a successful initial public offering is not an easy road for enterprise startups selling to Fortune 500 customers. Earlier in the lifecycle, the first question of death they encounter is: "Who are your other customers?"
This can be effectively addressed by taking your startup on the other IPO roadshow: the initial product offering roadshow targeted at Fortune 500 enterprises.
Unlike consumer products, where early users will join a platform to discover something new, CIO offices in Fortune 500 companies are trained to play it safe. Many companies stick to Oracle, VMWare, EMC and Cisco not because their products are the best in the world, but because no one got fired for selecting one of them. Asking about your other customers is a way of de-risking the purchase decision – air cover in case something goes wrong.
There are a few simple and concrete steps available to founders to develop this "quotable referencability." Never before has it been easy for startups to engage CIO offices. In this era when cloud computing, big data, international cybercrime and mobile are simultaneously disrupting decades-old legacy infrastructure in most CIO departments, Fortune 500 enterprises realize that they will be left behind if they don't use innovative products from startups. So how do you programmatically exploit this opening to win reference customers?
Start with an ‘Initial Product Offering' Roadshow
“Sell first and code next” is my advice to any enterprise entrepreneur trying to win Fortune 500 reference customers. Selling starts before you develop your alpha/beta product and not after it.
Once you have convinced your VCs to fund your seed or series A round, it is your privilege to ask them to help you organize an initial product offering roadshow, aka a design customer roadshow. While most VCs are great in helping with ultimate initial public offering roadshows, very few can guide you through the first initial product offering roadshows. This is more than just making a couple of customer introductions. You need guidance in planning a trip to NYC and Boston to meet with 10-30 of the top financial institutions, pharma companies, insurance majors and media conglomerates.
Many companies stick to Oracle, VMWare, EMC and Cisco not because their products are the best in the world, but because no one got fired for selecting one of them.
Getting to the right person in these organizations is key. Busy Fortune 500 executives will give you guidance only if the intro comes from a prior entrepreneur they have engaged with or from a trusted VC who is familiar with the problem domain. It is also important that the founders (not product managers or sales engineers) represent the startup in these early discussions.
In my work as a venture capitalist, I find this roadshow to be the most crucial eye-opening experience for engineer-founders who have no prior interaction with Fortune 500 companies in a sales role. It helps them understand the meaning of the notoriously long enterprise sales cycle that may include RFPs, the complexity of the decision-making processes involving many stakeholders and the importance of finding a “budget.”
Develop The Minimum Viable Product With Your Customers
When you are on this roadshow, you are not expected to have a beta product, but you can still engage these prospective customers on key sea changes in the industry, their perceived needs and your mission on changing the world. Jointly brainstorm an architecture/product design that can help them address this change in a 10x cost-efficient and 10x faster manner. Make them feel a part of the company's creation process. The output of this roadshow is to select three to five design customers who are willing to engage on paid PoCs (proof of concept). Select only those design customers who have been quotable references to other startups before.
After securing soft commitments from design customers, it is time to start developing your alpha product. This may take 3-12 months. Keep your design customers engaged through this long hiatus by giving them key milestone updates and organizing joint design discussions. Make them feel like they are developing the product with you. Be well-informed on their budget changes and ensure that they still have a budget allocated to engage you on a paid PoC.
Undertake Only Paid PoC Engagements
Do not use unpaid PoCs even if you have to wait one to two months to get a paid PoC. The best VCs realize this and will tolerate such delays. The conversion rate of a paid PoC to a “production-referencable” sale is significantly higher than the conversion rate of an unpaid PoC. Understand what success in a PoC means. Define clear parameters and talk to other startups that have undertaken PoCs with the same customers. Make sure your sponsor has experience in helping other startups through this conversion process. Once you have completed a PoC, convince your design customer to be a reference for future investors and other customers.
It is a good practice to hire a program manager and a sales engineer to ensure the smooth running of these PoCs. I have also seen a few startups first engage in testing the waters with alpha PoCs before starting an almost-feature-complete beta PoC for a much larger group of customers. This is specifically useful when you have a complicated product that has a long development cycle and also has multi-week testing cycles for customers to appreciate its complete value proposition.
Power and influence in the early days can come from public silence for enterprise startups.
Use Stealth Mode
Don't talk about your product until you're ready for its general availability. This serves three purposes. First, it keeps you focused on the proof-of-concept game. I have seen enterprise startups that stay in stealth mode for two years after funding to ensure that they have a few key reference customers before announcing the product publicly. You can't open many war fronts. An all-out PR war front is unnecessary, as you already know who your design customers are.
Second, power and influence in the early days can come from public silence for enterprise startups (unlike consumer startups). Your competitors, the media and your customers like a game of treasure hunt to find out what you are doing. As you are selling to a select group of Fortune 500 customers, there is no point in announcing to your powerful enterprise tech competitors (e.g Cisco, Oracle, IBM, HP) what you are up to. Convince your design customers first before you open up the kimono.
Finally, stealth-mode PR is highly recommended instead of an open all-out PR strategy where all details are disclosed publicly. The cornerstones of stealth-mode PR are: a) speaking in industry conferences about where the world should be headed to enable a key transition and how you may have a unique plan to enable that key transition; b) getting your design customers to talk to their fellow CIOs and to the investment community; and c) engaging industry analysts and mentors.
Engage Analysts And Industry Mentors
Successful startups almost never sell to just two to three customers. There is a major risk that is built-in to the design customer PoC strategy described above. You can become hyper-focused on solving the problems of your design customers and forget that the product you create should be widely usable in the industry. You can mitigate this risk by engaging a few key external stakeholders in this phase.
Firstly, recruit a strong sales oriented entrepreneur to be a mentor, adviser or a board member. Such a person can provide expert advice on the problem described above, guide you in converting paid PoCs to production sales and help craft your recruitment strategy.
Start briefing industry analysts such as Gartner, IDC, 451 Research and Forrester. Boutique analysts such as Bernd Harzog and Curt Monash also have influence in the customer community. Get them to talk to their Fortune 500 clients about you and to provide you with the feedback.
It is also a good practice to open early discussions with key channel partners such as Trace3 and Cambridge Computer, who have experience in guiding early-stage startups to expand your beta customer pipeline. They give you an extraordinary amount of leverage in helping you focus your resources on your direct engagements.
Keep these stakeholders informed of your PoCs and reference wins. At the same time, keep these interactions limited to two to three industry analysts and two to three channel partners to maintain the stealth-mode effect.
General availability
Once you are through these steps you have validated your product-market fit. You have a few quotable reference customers and solved the first chicken-or-the-egg problem. And you're now ready for GA of your product, which will be the next inflection point in your startup's lifecycle.
This is when you start talking publicly about your company and vision. The next sales steps are to create a repeatable sales process and scale the revenues. For that you will have to raise a series B, hire a strong sales team, win the love of channel partners, start your public-facing content marketing strategy, create a top-notch customer advisory board, raise a few larger rounds to reach $100M in annual revenue and establish thought-leadership in CIO forums. And that will position you well for a successful IPO roadshow.
