The TV sitcom, “The Jefferson’s”, aired from 1975 through 1985. It was highly successful and considered edgy for its time. It was the story of George Jefferson who started a dry-cleaning business and became quite successful. With his new prosperity, he and his family moved from their home in Queens, New York, living next to Archie Bunker, to a luxury high-rise apartment in Manhattan, the “East Side”. As the show’s hit title song says: “We finally got a piece of the pie.” Although the analogy is not perfect, many startups feel that it is time to “move on up” after they have been initially successful with smaller customers. They then set their sights higher, thinking that “more of the same” will yield significantly more of the same. They want a “bigger piece of the pie” from larger, more established customers with much bigger revenue opportunities. Perhaps they are right but, perhaps they are wrong. “More of the same” may be exactly the wrong approach or it may not be effective.
Right or wrong, being able to plan to “move on up” is a situation that many new companies never experience. Initial and sustained success - even with small - unassuming customers, is a feat that most startups do not experience. It is tough to get any traction at all. However, the decision on how to move on up needs careful consideration. Some sports analogies may help to frame this issue.
In college sports, the NCAA has established three different divisions that are based on the school’s size, the amount and level of athletic scholarships, and support they provide to the various teams. Division 1, the highest, consists of 350 colleges and universities, followed by Division 2 and 3 with 300 and 444 schools respectively. Every now and then, a lower division team upsets a higher division team. However, in general, the lower division teams rarely have sustained success when they “move on up”. The same situation exists in boxing where there are eighteen different weight classes. In this case, the amount of training may be the same in each weight class but the physical attributes of the boxers between each weight class can be vastly different. A heavyweight boxer would probably have a hard time closing the distance with a speedy featherweight. However, if a heavyweight boxer landed one solid punch, it would probably result in an immediate “lights out” or worse situation for the featherweight. In this case, the sage advice of “fight in your own weight class” is quite accurate and applicable.
A small company, “ready” to move on up should heed the same advice. Once they consciously decide to move up, it would be wise for them to not jump too many weight classes. Instead, they should move up cautiously, understanding what new attributes are required to win and, in most cases, make changes to their previously successful business methods. There is a saying that I have used for years, now made famous by author Marshall Goldsmith is, “What Got You Here Won’t Get You There”. It is especially applicable when a company begins to plan to approach new, larger customers. Perhaps no changes will be required at all but, more than likely, some different approaches or considerations may have to be pursued. Those changes may be small, incremental changes or they may require fundamentally large, step changes that require completely new methods and procedures. As a worse case, the attributes and approaches that have made a company successful in the past may be viewed negatively by the new target customers.
One method to test the applicability of the current approach to what may be required is to develop a “rail diagram”. The article 5.070305, “Beware of the Blender”, in this collection describes the use of a rail diagram when listing competitor traits. The same process can be used to compare the traits of customers that a company serves today versus the traits on the newly targeted customers. Think of the current customer traits as one rail or extreme and then think of the opposite extreme. After the two rails have been established, predict where the new customers would line up in the continuum between the two rails (extremes). For example, if today’s customers make fast, almost on-the-spot buying decisions, the opposite extreme would be customers that plan expenditures many years out such as entities that apply for Federal Grants. Obviously, the position of new customers on this continuum will significantly impact business forecasting. The advantage of this approach is that you can set your goals and strategies based upon the new customer requirements (if there are any). Keep in mind the standard statement made by investment companies: “Past performance may not be indicative of future results”.
Below is a list of some of the things to think about. To help differentiate your company from the newly targeted, large companies, the labels of David and Goliath will be used respectively. These labels were used extensively in the articles in this collection in Volume 2, Chapter 4, “Business Partner Investors”, and in Volume 5, Chapter 5, “Business Partner Arrangements”. The labels are used to refer to the size, strength, and experience of the Biblical characters, not the outcome of their duel. In this case, “David” is small and scrappy company without a large amount of experience or resources. While “Goliath” represents a large, mature company with abundant resources and experience.
Goliath’s motives may be different than past, smaller companies
In large organizations, many individuals are risk-adverse and focus their efforts on not losing instead of winning. Your company may represent too high a risk compared to alternatives that are available from other, more proven alternatives. There is an old saying that IT Directors are never fired for hiring IBM which is a good example of a challenge you might face. Current, smaller past customers may be willing to take a chance on you.
Goliath personnel may want to “protect” their incumbent suppliers
Similar to the risk/reward issue described above, some personnel within a Goliath may have long-standing, trusted relationships with current suppliers. Even though you may have a better solution, they may resist it for fear of jeopardizing their current supplier relationship.
Cost of implementation or conversion may be too great
Your offering may be superior to the Goliath’s current product or service, but the cost to make the change may be too great for them to benefit from the incremental improvement. A good example of this situation is the current flat screen television market. Many (most) consumers have made the switch to flat screen televisions in the past several years. New models offer many improvements. However, most of those improvements are subtle for the average user and, so, users are not likely to change out the “perfectly good” existing television for a new one.
Unexpected competition for dollars
Although you may think of your competitors as companies that offer similar goods and services to yours, personnel in a Goliath may view you as a competitor for the use of budgeted dollars that have been earmarked for another purpose. Remember that every dollar in every large company budget was supported by someone. If dollars are redirected to you, then someone or something else “loses”. When selling to smaller companies without rigorous and formal budgeting processes, this factor may not be as significant.
Sales cycle may be significantly longer
With more rigorous and formal processes, the sales cycle to a Goliath may be significantly longer and more complex. Multiple key decision makers, each with their own points-of-view, may be involved. In most cases, their priorities may be different. Aligning all of the KDMs may be difficult. As a simple “binary” example, assume that three key decision-makers need to agree in order to move forward. If the decision is a simple “yes or no”, with three decision makers involved, there are eight combination of “yes and no” that can occur (no|no|yes, or no|yes|yes, or yes|yes|no, etc.) Only one of those eight combinations provide the winning combination of yes|yes|yes. Decreasing the odds even further, the decision can be “yes, but not now”. Current smaller customers may have a much faster and simpler buying decision process.
Payment terms may be draconian
Some large companies may demand very long payment terms by their finance organization that operational personnel, who may be your customer, cannot control. They may be totally insensitive to your cash flow requirements. Some large companies have required payment terms as long as six months!
No single buyer
Many large organizations require a consensus be reached by multiple organizations before a purchase is authorized. Essentially, there is no single Key Decision Maker. Even if there is a single KDM, they will still require consensus of others. As an example, a KDM may want to authorize the purchase, but a lower level operations person may balk at agreeing to the required implementation. A simple notion to keep in mind is that there are very few people empowered to say “Yes” while there are many people empowered to say “No”. And “NO” can be delivered in multiple ways such as “not now”, “we do not have the required resources”, or “we have to re-train too many people”. Further complicating the situation is that you may not even know who the potential inhibitors are or cannot access them before they deliver their “No” response. Will the KDM spend their political capital to try to persuade them to move to “Yes”?
You may be held to a higher standard
Goliaths may hold you to a much more demanding standards than they use for their larger, well-established suppliers. For example, they may require you to meet well-defined quality standards and even have a plan to apply for the Malcolm Baldrige National Quality Award or have implemented minority hiring programs. They may also require the availability of replacement parts and commitments to support their code versions for several years longer than you are accustomed to with smaller customers. They may also require you to comply with their vendor management systems, automated invoicing, payment, inventory systems, and other unique systems that require specialized interfaces that are applicable to only the Goliath.
Similar to the higher standard issues discussed above, your company may be subject to government “flow-through” requirements that you, as a supplier or subcontractor, must comply with. You may be required to prove that you meet all of the contractual obligations that the Goliath has made to their customers. You may not even be aware of them until you have committed to be a supplier to Goliath. In addition to EEOC requirements, rights to intellectual property and even the use on certain non-US component parts may be restricted.
Implementation and Support Issues
You may be required to integrate into legacy, perhaps very old and poorly documented systems before acceptance. These efforts may require unique customization and continual on-going support as other connected systems make unilateral changes. You may also be required to provide 24/7 real-time support for their wide-spread international operations in multiple spoken and written languages. You may be required to comply with their warranty and return policies as well and be subject to export restrictions.
Goliaths with large and wide-spread operations may require simultaneous support across the country or globe as they make flash cuts or major announcements simultaneously.
Seemingly unnatural competitor actions
Larger, deep pocket competitors may decide to dramatically lower their price or make concessions simply to deny you from establishing a beachhead in one of “their” accounts. With their large resources and, perhaps, other products, they may be sufficiently motivated to continue to offer a free or loss-leader against your offering. As an example, Microsoft decided to give away their Internet Explorer web browser when Netscape made inroads with their Navigator product. Similarly, Google offers their equivalent of Microsoft’s Office suite for free.
Your strength may be viewed as a weakness
Features and attributes that made you attractive to smaller clients may be viewed negatively by a Goliath. For example, you may make regular product updates to add features or repair bugs. A Goliath may have a rigorous process that requires significant testing and verification before any changes are made. In fact, they may restrict updates to once per year and require multiple version support.
The above list of thirteen different potential issues certainly can be discouraging. In fact, there are probably many more that may be applicable to you and your potential Goliath customers. It would be easy to draw the conclusion that pursuing Goliaths is not worth the risk. However, each situation will be different, and it may be possible to overcome all of these issues and be highly successful. The key takeaway from this article should be that “movin up” will, most likely, require efforts in different areas that have led to your success in the past. Smaller companies solve the riddle all the time and grow into Goliaths themselves.