Three Lessons on Early Customers
Your early customers do not look like your late customers. Use this to your advantage.
In his book Crossing the Chasm, Geoffrey Moore explains how a market adopts a technology. He observes that most phenomena are distributed on a Gaussian distribution - a "bell" curve - and that this most often applies to customers. From left to right, you have when customers adopt you. As time progresses, you start slow, get the main body of customers, then a trickle as you have already saturated the market.
Built into this is the idea that the early customers are different from the customers you get later. He describes the work to transition from early customers to the prominent "hump" of the bell curve "the chasm" because these two groups are so different. He spends a goodly part of his book asking how to cross it.
Bootstrappers trying to crack product-market fit with limited resources would be well-served to focus on the more fundamental question: how are early customers are different from later customers?
First, early customers exist. They need to be found, not convinced. Any market or idea is hyper-unlikely to be completely novel. They have had this pain before and are doing something about it. Finding these people in terms of articulated pain is a matter of market discovery. Surfacing those needs is where techniques like Rob Fitzpatrick's The Mom Test or Steve Blank's first step in The Four Steps to the Epiphany become super valuable. But go looking - they want you to find them.
This early-customer finding takes time since they often do not describe their pain the way you would initially. They are lost voices in the wilderness, calling out in a way that makes sense to them, but might not for you. Put in the time to listen and accept that you will do it wrong many times.
In my first business that felt this strong pull, an early lighthouse customer had to tell me, "bring it here, and we will pay you." They found me through discovering an article I had written with the hope of influencing the industry. My cycle was getting a first and second customer. I wrote a case study for an industry periodical's special issue (these always need content). Then the more prominent customer saw the piece and called me. To reach this point, I serviced customers for revenue that could not even cover health insurance - which was more expensive pre-ACA - while trying several experiments in product development that went nowhere. Mine was a slow path, undisciplined and sporadic.
In retrospect, I could have accelerated my market development if I had been consistent in my market research time allocation over a few months. It's what I try to do now.
With experience, I have learned to time-box market research. The box has two components: how much of my time to spend on it and how long the whole project should run. They are best when separated - time becomes my ally. For example, dedicating 40 hours over ten weeks can be more productive than a single focused week because it lets time between your focused efforts work for you. If you are unsuccessful at the other end of the time box, perhaps accept that the market might not exist in the form you expect, and it's then time to revisit the thesis.
Second, Early customers are visionary. They have their proprietary ideas of what the product should be and what their needs are. This pre-fabricated construct makes them annoying. After all, it was your great idea - right?
Wrong. The customer probably had an idea about their needs first - long before you came on the scene. They have had time to form a perhaps over-engineered vision of a proper solution. And likely, your idea or offer does not match that exactly when you first meet. As a result, they will be full of feedback to get you to conform to their ideas.
Many entrepreneurs find this aggravating. But they are your best allies! Listen under their statements to discover the needs that drive their perspectives and serve those better. The fact that they have strong opinions means they want to talk about them, so let them. Spending time listening in meetings and looking over their shoulder can be of much higher value than just coding away on an emailed list of requests.
A secret of many organizations is that the authority for hiring consulting is much broader than that for buying products. This opening is one of the hacks Salesforce used to sell their SaaS to the line of business executives when IT departments were frozen after the dot-com crash. Today, the SaaS loophole is tighter, but direct services are easier to sell. Small organizations that don't have formal rules will often imitate more prominent companies in their industry.
They will pay for your time. Services are just easier to sell. Either consulting to help get more value or custom development. And many times, I have seen the critical path requests of a customer boil down to attributes that don't require core development.
I like how this creates permission on both sides to create more value. In "free" tweaking, the customer is sending out their list of firm feature-level requirements before they would be willing to pay. They think they have to be clear, so they don't take the risk of buying the wrong thing. At the same time, they believe this is how to be kind - limiting their call on the vendor's time. The vendor, in turn, is always worried about spending time on a product that will not serve a broader market and wants to keep this work to a minimum.
By charging for time, the vendor gives permission to the customer. They focus on their needs rather than a fixed list of requests. And the vendor can focus on addressing those needs in a way that maximizes value rather than minimizing distraction. As a side effect, being able to zero in on best serving the customer does remove distraction. Charge a usual consulting rate - 2x to 3x your direct market salary and don't be afraid of charging per hour: the whole point is that this is bespoke help. Assign the intellectual property from the engagement back to the vendor so the product can benefit. The customer will want that too!
Improving the conversation, getting better data for the product, and reducing burn is a fantastic combination. I highly recommend it.
Third, Early customers have a greater willingness to pay - if you handle their needs. A lot of software startup founders get tripped up on this. I know I did back in my first couple of software companies. Charge first. They will want your product to succeed. This up-front charging is in addition to the idea of charging for consulting above. They will often gladly pay more cash today to make sure you can serve their needs that are otherwise poorly addressed.
I remember a customer who was concerned when they thought I was charging the monthly rate for a year. They wanted our product to be long-lived and feared the fee level would not let us survive. When I hesitantly - thinking I was about to price-shock the client - clarified the actual price structure, the buyer was happy and told me to send an invoice along with the SLA.
What they don't want is a worse deal than later customers. They want to be part of your success and profit from their early participation - ideally as competition over others.
So don't discount their monthly fees at first! Give them the chance to pay more so everyone can survive and profit. But add a deal to give them the best rates as the market evolves. So if you are initially charging them $1,000 per month, and then your fees for later customers are $700 per month, pass that along, so they are never treated poorly. The principle is fair treatment: they were with you first, so don't give them a lousy deal late. One can structure that the early customers are getting something the late customers are not to justify a differential but make sure it is substantive and fair: early customers are like early investors. They deserve returns on their faith.
One trend I see in the market is the lifetime deal. This trend works great with "early customers are more willing to pay." The lifetime deal finances their early use, making more customer "profit" as the product persists. The entrepreneur should be cautious about depreciating the lifetime deal rather than treating it as just current income. People make leaps of faith once: reward them.
Early customers are not like late customers. They are odd and sometimes even treated as strange by their peers in other institutions. Selling to them does not guarantee that the rest of the market will adopt - that's the point of the chasm in Moore's book. But utilizing their attributes will let you serve them and start to build your business. For bootstrappers and self-funders, this is the most challenging part: our A-to-B. Focus on success here, and you have a position from which to confront and bridge the chasm.
The journey of a thousand miles begins with a single step, and your early customers desperately want to take it with you.