This XSeed blog was written by Venture Partner, Jeff Thermond, and originally appeared on Forbes.
Whenever I talk to a startup CEO, the conversation moves quickly to the company’s growth rate for bookings and revenue. Too often, they’re not what the entrepreneur had hoped for. I want to offer a few thoughts on why that might be and how to fix it.
At XSeed Capital, one of our partners likes to say to entrepreneurs “You want to be more like a pain killer and less like a vitamin as you determine product market fit.” That simple saying bears an important truth. Not all customer reasons to buy a product or service are created equal. Some demand immediate attention. Others are interesting but can be deferred.
We see a lot more of the latter “pain point” than we’d like as venture capitalists. More importantly, we see entrepreneurs who don’t see the difference between an immediate need to act on a sales prospect’s part versus an action which does not demand immediate attention. Some of the time, the entrepreneur doesn’t understand the importance of that distinction. In other cases, the entrepreneur simply cannot see the distinction. But why this is one of the most important facts for an entrepreneur to ascertain? And what can an entrepreneur do to make this critical analysis accurately and quickly?
Prospective customers buy in almost every case when there is a significant disparity between where they perceive they are or will be, versus where they expect to be in their market position in their industry. That disparity could exist right now or it could be a problem looming in the future. If it is right now, it is likely that the prospective customer wants to take action immediately. It is likely that he may try to cut through existing procedures for buying. And it is likely he isn’t going to want to argue contract terms or price nearly as much as he usually does. After all, he is in immediate pain. A great example of immediate pain would be a security breach and theft of a company’s IP assets.
Future pain does not require immediate action and rarely gets it. This kind of prospect can be confused sometimes with a prospect that is likely to buy soon because the prospect will show great interest in your product or service. He’ll ask a lot of questions and will want to schedule a lengthy trial. He’ll want to go over your contract in great deal and may cause several rounds of bidding. Naïve sales people and entrepreneurs when questioned about why they’re spending so much time with this one prospect will insist that he is ready to buy. After all, why would he take all this time if he weren’t ready to buy now?
Actually, the question needs to be reversed. If he’s ready to buy now, why does the startup have to spend so much time on pricing, contract terms, and trial duration? The answer is because the prospective buyer can afford to defer his commitment. The pain he’s trying to avoid does not exist today: it’s in the future. It’s beyond this quarter. It’s way beyond when the sales person will forecast this deal to close. If this failure to distinguish between immediate and deferrable pain is repeated, the startup will over forecast this quarter and perhaps future ones as well.
Entrepreneurs with a history of missed forecasts are going to have a very hard, if not impossible, time raising a future round of funding. Entrepreneurs who do not appreciate how important this distinction between immediate pain and future pain is are risking the very existence of their startup.
Assuming you’re convinced seeing this distinction clearly is a make or break factor for every successful startup, how do you get better at making it? There are two approaches.
The simple one is to ask. Every time the prospect asks you for something, ask back what he is going to do for you to get closer to the sale. Ask constantly how many more things you’ll have to do to get the order. And every time you talk, ask if anything about that list has changed.
Many sales people are afraid to do this. They’re afraid to put pressure on the prospect, failing to recognize that it is the pressure of immediate pain which will cause a quick purchase. If the prospect is in acute pain, the persistent sales person’s pressure won’t even be noticed. If putting pressure on the prospect becomes an issue, it is precisely because he feels no other pain. If he feels no other pain, he will not buy in this quarter and maybe for many other quarters. In that case, the time the sales person spends with that prospect is utterly wasted time. And the forecast of that deal is no more real than a mirage.
Great sales people believe in their product, know how to distinguish prospects with immediate pain versus future pain, and are constantly checking to see if anything has changed. All others should be on performance plans and managed out if they don’t adapt their behavior.
The other approach is to recognize that immediate pain has a few characteristics which can be judged independently. Although asking the prospect directly about his pain and the sales process is far preferable to independently assessing this on one’s own, it can be a valuable backup technique to test the answers of the prospect.
Immediate pain is severe, unrelenting, and disruptive. Anything else is inconvenience. The example I gave earlier of a security breach which resulted in the theft of IP assets is an illustrative example. Theft of assets is something auditors will pay enormous amounts of attention to, which will divert time and money from day to day operations.
Although possibly a one-time event, it will cast a constant pall over operations until the vulnerability is diagnosed and fixed. The presumption of safety will be gone until it can be reestablished. That pain is unrelenting.
Until an understanding of how the problem occurred is known, management will likely choose to forego normal business processes and will insist on redundant steps to provide protection. Redundancy is almost always inefficient, and this will disrupt business operations until the “all-clear” is sounded.
If you ever doubt what a prospect is telling you about his pain, filter his answer through these three criteria for a second check on his accuracy. However, do not take the short cut and skip asking the prospect and merely rely on your evaluation of his pain. It does you no good if you see his pain but he doesn’t feel it. He is the one who has to act in order to buy. He must feel immediate pain which is severe, unrelenting, and disruptive in order for you to forecast with confidence.
The real goal of every sale has to be more than just getting the order. It must be to make the prospect a very eager and happy reference you can depend on to sway future sales prospects. If you don’t take away a great deal of pain for him, he’ll never be that awesome reference which rewards you long after his check has cashed. And if you don’t provide a product or service which relieves great and immediate pain, you’ll have a hard time building a great startup.