Startup School – The paradox of large customers

< 1 min read

Is there any correlation between targeting large customers, executing large orders, and new venture failure? I believe so. New ventures, with rare exception, lack the depth to handle large assignments and contracts. Without sufficient depth, new ventures make bad short-term calls on pricing, delivery terms, hiring, concessions, and service-level agreements that put them on track for eventual failure.

It’s about evolution. Success is built on a collection of small wins, not big hits. Small wins allow you to build credibility, refine your product, test and fix your processes in safe mode. A large customer base with smaller orders provides validation for your business case and the base from which you can grow higher.

Although the numbers look good on paper, big projects challenge and stretch every dimension in a startup—resources, processes, stamina, depth, execution, and capacity. When you are done, stretch marks and bloating are not the only side effects.

Big deals also imply doing business with a large organization, and large organizations like certainty and permanence and dislike mistakes. They may favour earth-shattering technologies but they also prefer mature companies or at least mature management. The burden of proof in these instances lies with the upstart who introduced the startup or the upstart running, managing, and selling for the startup. When this credibility does not exist, the venture ends up negotiating from a position of weakness.