Why do customers often think they can strike a better deal with you simply because you’re a startup? It’s a common dilemma for new businesses and one that can be hard to push back on. There are of course some customers that recognise a startup needs revenue quickly and so they will use that to their advantage to get a good deal at the outset and probably for a year or two afterwards.
From an entrepreneur’s perspective, you can’t really blame them. And, as long as the relationship is successful, the startup needs those customers to pay it back by being advocates for the business and giving referrals for the startups’ products and services to others. That makes the deal more balanced for both parties. That said, the startup should be upfront about the ‘deal’ in the very beginning when giving a discount as well as insisting that they get paid on time or even up-front (hugely important for the startup in terms of cashflow).
Leveraging your existing relationships
The best early customers are the ones with whom the owner has had a relationship with in another life. That is the most common way of getting your first clients through the door. But what goes around comes around. So, always be fair to the arrangements that have been made and don’t ignore the restrictions you agreed to.
Good relationships last the test of time, but you will also be surprised how many customers you thought would jump don’t when the chips are down.
As a startup, you should have considered product-market fit and carried out research to be sure your product or service is actually appealing to your target customer. But it’s also important to be aware of what targets you need to achieve in your initial trading period.
Every new business needs customers and turnover. Depending on your funding arrangements and time plan you may also need to make some margin off those early sales. It is a good idea to establish your targets at the outset and decide on the absolute bottom price that you will accept (and then stick to it).
Once you have your costs set out, then it is about agreeing on payment terms and the payback (what you want out of your early customers in return for offering a better deal). It's useful to put a clear time limit on how long this deal is available to create a sense of urgency around making a deal too.
It’s worth bearing in mind that the customer will want to barter because they will need to prove to their bosses and peers that they got a great deal for changing to the startup, which can be perceived as a riskier option than existing suppliers.
There always has to be a reason for change and a great deal with someone who has a really good name in the business and good future plans is as good as any.
Bite the bullet: when you need to drop prices
As a startup, you will now be prepared for any eventuality, but you have to be prepared to walk away from a customer if they are asking you to go lower than your bottom line. That said, always leave the door open, so even though the customer knows you have reached your final price and you won’t budge there’s a possibility they will buy in the future.
You may also decide that the potential customer is so important for your primary market that you’ll just have to bite the bullet. That is a call only the owner can make.
Looking for customers who are prepared to support your startup is the way forward; the best relationship is the one where it is fair on both sides. Look for customers who have a need, and will benefit from your product or service. Don’t be afraid to tell them how confident you are and if necessary give them a free trial period if the customer is prepared to either pay for setup or backdate the payment if they take it on. This is a great way of testing their commitment, but only if you have a positive relationship.
Failure to prepare is preparing to fail
So how can startups push back to customers to ensure they get the deal they want, but retain the relationship with the customer?
The answer is, by preparing properly. The old adage ‘failing to prepare is preparing to fail’ rings true. Be on time, prepared, polite, and look the part for your chosen market sector. Always be open and direct with your customers too, and never try to avoid any questions as the customer needs to be confident that you will be able to deliver if they take a risk and support you.
Coping with customers looking for a better deal is something that I have grown used to over the years as I have always launched businesses from scratch. My modus operandi was always down to a (very) large smile and direct eye-to-eye contact; this creates a level of confidence and comfort for the customer to jump over the edge with you. So it was no surprise to me when one customer once said that they ignored a sales presentation as they felt a human connection and they were comfortable enough with that.
Of course, you then have to back it all up and deliver as that customer is putting their neck on the line to support you. That level of instant advocacy is the greatest bond to have and you should be careful never to disrespect that.
Man with a smile, some very cool eProcurement software... and a charity!