Sometimes You Have to Say “No”

by Vlad Loktev

For an entrepreneur, one of the hardest things to learn is when to say “No!” to a customer. After many sleepless nights at the keyboard, all you want is somebody to welcome you with open arms and tell you how awesome your product is by signing a big fat check. Before celebrating, moving into an actual office, and expanding your team, pause, and think about the ramifications… you may actually need to tell the customer that his or her proposal is flattering but you aren’t ready to hit the dating scene just quite yet.

Early on, when you are searching for the right first market to enter, you can easily get sidetracked by a vocal and ambitious customer. Some software startups begin with a B2C vision, but somewhere during the development process, a B2B opportunity presents itself.

It’s tempting to jump at the opportunity as there are many advantages:

1. The first customer is always the hardest to get and subsequent sales pitches become easier as you can now assure future customers that somebody else out there believes in you.
2. Getting a big customer to use your product is a huge morale boost to you and your entire team. All that hard work is finally beginning to pay off!
3. If you make a good enough impression servicing the client, you can get introduced to other potential clients through the client’s network.
4. Money. If you’re strapped for cash, a customer can fund your product development.
5. Most importantly, you can get product feedback, not from your friends or your mom, but a real customer with a real need whose money is on the line.

It would be a no-brainer if the list stopped there, but the reality is that there are many potential risks and disadvantages:

1. The customer may disrupt your timelines and launch strategy. Before and during product development you should be reaching out and talking to potential customers. A large sample set of customers during every step of development can help you establish a viable feature set and a launch timeline. But a demanding customer can completely disrupt your entire strategy by diverting your attention to servicing their needs such that you may forgo focusing on winning the bigger pie.
2. The customer may disrupt your product roadmap. Not all markets are won in a feature war – less can be more. Simplifying the user experience, and focusing on a limited set of features that a large number of potential customers value may be the winning strategy. Not all customers will see eye to eye with you on this one and may demand a long list of features that could detract from the user experience.
3. By saying yes to a major customer, you aren’t only saying yes to that money, you are also saying yes to that entire vertical. You will inherently spend more time investigating the needs of the customer’s vertical and may end up incorrectly positioning your product.
4. The customer may make it difficult to pivot. Enterprise customers take time to train their employees to use a new product, making it difficult for you to push new releases based on the data received from the marketplace. You might have to spend significant time doing damage control for a client who is unhappy with your frequent product changes.

Not all customers are created equal. Often times, the benefits far outweigh the risks, but you have to be mindful of what can go wrong. It’s often very difficult to judge whether the customer will end up being good or bad, but there are definitely some steps you can take to mitigate some of the risks. First, ask yourself many questions before taking on your first handful of customers. How will this customer be using my product? What features is he most excited about? If the customer could have his way, how would he change my product? How demanding is this customer? How does my product roadmap and vision fit with the customer’s needs? Will this customer give me constructive feedback along the way? These are just some of the questions that you should be thinking about.

Second, get a good lawyer to draft a licensing contract. Make sure your contract isn’t contingent on building any additional functionality. If the customer is being pushy on the features, take a lower price, and sell what you already have. Don’t sell the future: you don’t know where you’ll be and your priorities may change as you get more data. You can always agree to develop additional features for the client as part of a separate custom work agreement. Make it explicit that you’ll be changing and pushing product releases often without the need for customer’s consent… you don’t want to sit with your hands tied. Finally, incorporate a formal feedback schedule into the contract. This isn’t only for the benefit of the customer, but is also to help you get as much data from the customer as possible.