How to think about your first B2B customers

Your first B2B customers dramatically affect the direction your early-stage company will take as it finds its feet. Choosing your first customers wisely means looking at the right criteria — and those may not be what you’d immediately expect.

With plenty of great advice available for founders of new ventures, choosing your initial customers is a topic I’ve found to be consistently challenging. Specifically, the dynamics of B2B customers — often characterized by long sales cycles, complex purchasing decisions, and aversion to early adoption — are not particularly welcoming for companies bringing new products to market.

Reflecting on the founders with whom we’ve worked on their initial customer acquisition strategies, one of the main reasons we find this topic to be difficult is that conventional wisdom around “what it takes to disrupt a market” and “what VCs are looking for” may have relevance at the Series A stage, but it emphatically does not apply at the earliest stage in the company’s life, what we call the concept stage.

The classic advice about customer acquisition at the growth stage leads to a handful of criteria that are mistakenly prioritized at this early stage, including:

  1. Rapid growth in the number of customers — “The quicker I can demonstrate the hockey-stick growth in customers, the better.”
  2. Customers who are offering the most near-term revenue — “If I can maximize the revenue from these customers, I’ll get to cash flow break even by next quarter.”
  3. The largest, most well-known customers — “Working with the biggest name in this space will show there’s a real need for my product.”

Rather than dissect why each of these approaches are problematic, I’ll summarize with the following: Finding the right initial customers at the concept stage is all about validating the key hypotheses underpinning your business model and maintaining your freedom to iterate.

Hockey-stick growth is the holy grail for a startup — but the metrics that help you with rapid growth aren’t the same that apply to your first customers.

Focus on highly-targeted validation

How should young companies think about their initial B2B customers, then? These suggestions have worked well for us:

1 — Focus on a small number of highly engaged customers

For most companies, the optimal number of early customers is between two and five. By keeping your initial customer set targeted, you will be able to focus on taking feedback critically (i.e., refining your product and business model) and keeping the logistics of customer management from monopolizing your time. Even better, try to engage customers who are geographically close to company HQ to keep travel time low and customer face time high.

Equally important: A small customer set minimizes the damage that a deal-breaker issue with the product or business model will have on the broader set of possible customers. With a high-touch customer relationship, these initial issues can be navigated with care, preserving the customer’s goodwill and lifetime value.

2 — Prioritize customers who are both risk-tolerant and representative of your larger customer base

More likely than not, your startup exists to shake up an industry that has found its way into a low-risk status quo. To introduce risk, you must surround yourself with like-minded parties, and your initial customer set is no exception. A risk-tolerant first customer will be both more willing to try something new and more forgiving if things go sideways.

Finding a risk-tolerant customer will typically pull you closer to the “S” side of SMB and may also include larger enterprise customers with sufficient resources for an “internal innovation” program to pilot new technologies and products.

The guardrail in the question of target profile is to make sure the customers, however small or large, are representative of your larger customer set when it comes to the value proposition, product strategy, and business model of your company. Finding a company of the right risk tolerance should not come at the expense of their ability to validate the business. Similarly, resist the temptation to build custom “exception” features into the product that cannot be leveraged for future customers.

3 — Ensure that your customers’ interactions validate specific elements of your business plan

All strong concept stage operating plans are focused on demonstrating a small set of key hypotheses through a series of well-defined goals (more on building your operating plan here). Start with these 6–12 month end goals in mind and think about which customers are best suited to prove (or disprove!) your product or business model.

Often, these goals are less focused on the amount of gross revenue captured and more targeted at demonstrating a shift in customer behavior (e.g., the ability to integrate a product into their existing workflow or move budgeted dollars from an incumbent to your product).

Put down the hockey stick

In order to get to exponential growth, you first have to ignore it. Your first customers will help you rapidly iterate and develop your product, but they don’t have to be profitable. Your growth customers will give you your “up and to the right” hockey-stick curve, but they aren’t your test subjects. Being clear about the purpose of each customer stage is crucial as you build a product and a business for scale.


Principal
Matt draws from his experience both investing in and operating early-stage tech startups to empower founders in tech-enabled businesses. A mechanical engineer by training, Matt was previously VP of Investments for five years, working to develop, operate, and finance startups across a number of sectors. You can find Matt on Linkedin.

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