Your customers know what they want more than you do. Find one to teach you.
This week’s insight came from personal experience and from a good friend who advanced 
the notion of the “teacher-customer” years ago. I internalized this phrase, recalling the many times I had partnered with customers to design new feature-functionality into my hotel computer system back when such systems were brand new to the industry. It was an ideal partnership for my growing company, as it approached one hundred employees on the way to almost two hundred fifty and selected special customers anxious and willing to spend time telling us of their pain points.
How it works:
Together we would work out solutions in the form of new functions, new controls, new reports, and new safeguards. The customer would be the first to receive the new functionality in a new release.
Providing feedback to your teacher customer.
At the annual user conference, I would often make sure the entire user community present knew of these extraordinary collaborations by naming the teacher-customers in the presence of their contemporaries. Sometimes the audience would cheer one of their own, knowing that everyone benefited from the extra time and effort spent teaching their vendor the needs of the industry not yet addressed by competitors or by our firm to date.
But there is a balance…
[Email readers, continue here…] This is not to bend this insight into a claim that a company should wait to develop new, groundbreaking products and services until a customer asks for them. If that were the ideal mode, many game-changing concepts would never have made it to market, including Fred Smith’s FedEx, first explained to a college professor in a paper returned with a C+ grade and the professorial comment that the idea was “good but impractical”.
Final thoughts:
Even if you are an expert in an industry segment, partnering with one of those rare, willing teacher-customers during the design stage for your proposed product or service is empowering and fruitful for both parties.
All companies whether service or product-oriented must fight to gain and maintain quality of product or fall to the bottom of the competitive heap. We have explored feature-functionality.
Next week we will focus upon product quality and its effects upon the organization.
stated by German Field Marshall von Moltke in the 19th century.
My excitement in having developed so many new and “somewhat tested” features over a sleepless weekend was exceeded only by the enthusiasm of the entire hotel staff for the new and wonderful capabilities left behind after the magic weekend of non-stop programming. These trips were so common and their aftermath so predictable (a late-night emergency repair call waiting for me at home upon return Sunday evening) that the hotel owner created a mantra that stuck with me and caused quite a laugh at my expense for years. He would be sure to remind his staff, shaking my hand goodbye as I left in a hurry to catch that Sunday evening flight: “Wheels up, system down.” And that’s the result of “cowboy coding.” Ouch!
you developed a prototype, alternate pricing schemes, even a PowerPoint mockup to show to potential buyers? I would be very, very nervous without testing the product in the market as early as possible, ready to make changes and enhancements before committing to production and release.
Four- and five-star hotels loved the concept, which included redirecting outgoing calls from the cell phone by the guest to be sent through the hotel’s land line switch, making the hotel a miniature phone company with its attendant profits.
partners in firms that made subsequent investments in companies where I either made early investments or led a group of fellow investors in early rounds of finance. Each of these companies needed more cash than professional angel investors were willing or able to provide, and we turned to the venture community for larger investments.
In one such case, the angels were tapped out at $6 million invested, an amount far above their usual taste, but for a company we thought had a billion-dollar potential. The VCs subsequently invested $18 million, well beyond what angel investors usually can project from their own resources. Without the VC guidance there would have been little opportunity to even dream of a billion-dollar valuation goal. There is no question that the company took smart money and leveraged it for maximum growth, using the money, guidance, contacts and more from these large VC investors.
professional investors negotiate tough terms, from provisions of control over asset acquisition, eventual sale of the company, future investments, forced co-sale when others attempt to sell their shares and more. And yet, in an earlier post, we spoke of the problems that come when taking unstructured investments from friends and family.
Remember the admonition that investment from such close sources carries an additional burden for you – to protect your investors and their investment as if they were your alter egos, offering money as if from your own pocket. Such money should never be taken without clear understanding of the terms, whether a loan with a reasonable interest rate and strict repayment terms, or an investment valuing the company at an amount considered reasonable by a third-party professional, even if as a sanity check as opposed to an appraisal. This money is personal, an investment in you as much or more than in your company. The degree of care you take increases with the reduced distance between you and your investor.
very well-known potential acquirer of the business who offered an attractive price for the still young but successful enterprise.
thing as a lifestyle business with outside investors. To protect against such an event, almost every professional investor includes a clause in the investment documents which allow the investor to “put” the stock back to the company after five years, requiring the company to pay back the investment plus dividends accrued during the term of the investment. This sword hanging over the company is not often used but is a constant reminder that an outside investor is serious about getting out, hopefully in less than five years, at a profit, usually from the sale of the company. Many companies find themselves at the five-year point completely unprepared for a sale and without the cash resources to carry out such a repurchase of investor stock, making the clause moot.
The last money has the first say – in valuation and in sometimes forcing draconian terms that require prior investors to contribute a proportional new investment to retain a semblance of their original rights and avoid dilution or worse yet, involuntary conversion to a lower class of stock. As the years progress with typical VC firms seeing lower returns than expected by their limited partner investors, such terms are more common in secondary rounds of financing, causing a real riff between angel investors and their former close allies, the VCs, with whom they had once coexisted as suppliers of deals at expectedly higher valuations at each stage of investment.
I’ve arrived at a significant number of companies that were looking for additional growth capital after a “friends and family” round and had to “clean up” the cap table more than a few times over the years. Taking this kind of money has several pitfalls you should be aware of. It is most common to greatly overprice such a round of financing, valuing the enterprise well above what it may be worth at the moment for friends or related investors who do not have the sophistication or willingness to challenge the valuation.
VC’s do not even engage in discussion with most of those entrepreneurs seeking capital. By some estimates, 95% of contacts are ignored unless they come as referrals from trusted sources such as known lawyers, accountants, or fellow VC’s. And just for measure, VC’s fund less than 2% of all deals they do investigate. Typical VC investments begin at $2 million and quickly rise to $5 million and above, depending upon the size of the fund and stage of investment. Terms are much more restrictive than from strategic or angel investors, often requiring the entrepreneur to escrow his or her founder stock for a number of years to prevent the founder leaving, and restricting the sale of prior stock without the VC also being allowed to offer a share of its holdings in the same sale.
that I could neither compensate for lags behind the leader nor test my comfort zone at various points that matched the expectation of my instructor and my own increasing capabilities as a driver. Upon conclusion of eight laps of this, after pulling into the alley and climbing through the window on the driver side (there are no doors in these cars), I was handed a sheet with my timings for each of the eight laps. Only then, after when the information might have been useful, could I see how well I did.
You can think of numerous critical measures for your business that must not be ignored, but often are neglected by senior management. It is not bad to manage by walking around, a term that came from another of the many business advice books of the ‘90’s. But that method, although good for employee morale, is imprecise as a tool of measurement and should be relegated to a supporting role for you. Financial information from last month compared to plan and same month last year is certainly relevant, but not part of a dashboard, since there is nothing you can do to fix a problem when numbers are as old as a week, let alone the typical several weeks required to prepare financial statements for review.
upon constant changes and call it a forecast? So, let’s spend a few moments defining this sometimes-confusing set of terms.
Note that I used the term “forecast” for revenues for the next year. The term is also used when projecting revenues for succeeding years.
