How Startups Get A Foot In The Door - InformationWeek

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8/17/2007
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How Startups Get A Foot In The Door

How do startups attract those crucial first customers? A venture capitalist shares four key steps. In a previous post, I wrote about balancing the risks and rewards of buying from a startup.

How do startups attract those crucial first customers? A venture capitalist shares four key steps. In a previous post, I wrote about balancing the risks and rewards of buying from a startup.Now let's look at it from a startup's perspective. Tim Guleri, managing director of Sierra Ventures, describes the key requirements for landing enterprise deals.

First, your product or service must demonstrate a powerful return on investment or provide a substantial competitive advantage. "The value proposition has to be a step function as opposed to an increment," says Guleri. Startups with a product that's "nice to have" vs. "must-have" will struggle to crack that first enterprise customer.

  • Second, know what you're talking about. Potential customers are understandably jittery when dealing with new companies. You can ease those jitters by demonstrating a clear understanding of the business problem your product addresses, and the technology you're using to solve it. "Founders and teams with extremely deep domain expertise help put a CIO of a large IT shop over the hump of taking the risk," says Guleri.

  • Third, keep your VCs on the hook. Customers will want direct access to the financial backers, so make sure your investors are reachable. "It gives the buyer some confidence that there are deep pockets behind the company -- and a tighter bear hug in case things don't go well," says Guleri. "CIOs can come to me in case they aren't happy."

  • Finally, pick the right targets. For Guleri, this means "alpha" IT shops -- companies that are aggressive in deploying new technologies to advance the business, such as financial services and technology companies.
  • To add to Mr. Guleri's points, I'd note that entrepreneurs don't always have to aim at the Fortune 1,000. Small and medium-sized enterprises face many of the same problems as their larger brethren, but tend to be underserved by the market. When it comes to IT, opportunity is everywhere.

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