In his last article, “The Making of Zenoti, A Successful Vertical SaaS Solution”, our CEO, Sudheer Koneru, talked about focusing on the needs of a narrow marketplace to build a meaningful SaaS solution for any industry.
Here, he builds on that idea with a related one.
Choose Your Customers, Don’t Let Them Choose You
I occasionally meet prospective startups who truly understand their customers’ problems and their 1.0 product reflects this with an adequate, sometimes elegant solution. But, having a viable solution doesn’t necessarily translate to a viable company. For true viability, the company must acquire customers and revenue, and do so fast. Customers are the oxygen a company needs for survival.
With a product in hand, new companies are more than likely enthusiastic and energized enough to chase every opportunity they can imagine and respond to anyone willing to listen. The reality is, every company can acquire a few initial customers and get that initial revenue traction. However, the key to long term success is acquiring the right customers, being able to replicate successes. With a deliberate customer acquisition plan, you can cut the time it takes to get to $2 million by half or more. That difference can mean the difference between survival versus running out of funds before you prove the viability of your business.
Understand your market
So, how does one “choose their customers”, and not the other way around.
I’ll take Zenoti as an example to share our experience. At first glance, the spa and salon industry seems generic enough that a single product could serve the entire beauty and wellness service industry. The reality is the industry has several niche businesses, which demand unique requirements from their software solution:
- Spas operate quite differently from salons. Spas tend to have longer services, fewer customers at a time and aim to create a peaceful ambiance. Salons on the other hand are busy, move fast and typically aim to create an energetic vibe. Clearly, this all results in very different customer engagement models and operations.
- Spas can be categorized as day spas, which are stand-alone spas, or resort and hotel spas which are part of a hotel. These businesses have different priorities and operate quite differently in how they acquire and retain customers.
- Salons range from the high-end, which can be booked weeks in advance to barbershops and value driven salons that rely largely on walk-ins where customers expect to be seated within 15 minutes of walking in.
- Single service salons have become popular, for example, a business that performs only waxing services or a lash salon that does only lash extensions. These businesses are focused on regular, repeat business.
- Some spas offer a single service, like a massage, and rely on a membership model to achieve regular, repeatable business.
The pitfalls of letting your customers choose you
When you target a broad industry with marketing campaigns, you’re likely to acquire a few good customers; most likely these customers will represent different types of business models. When this happens, you’re in for a host of challenges. For example:
- The marketing and sales teams have to put in a lot of effort to create unique positioning, communications, and assets for each prospect in order to effectively pitch and sell. For a company starting out, you may not have the bandwidth to do this well.
- The product team has to scurry to address product gaps and unique scenarios that are critical for each unique client.
- The implementation team responsible for getting customers setup requires training around each business’ nomenclature, the nuances of the business models, and has to deal with product gaps in order to keep client satisfaction high.
Building a startup is hard any way you look at it, so why shouldn’t you be opportunistic and take it all on? The reason quite simply is that your success doesn’t depend on a handful of clients, but rather the ability to consistently bring in increasing revenue month over month. That’s the key to survival and market dominance.
The benefits of going narrow
At Zenoti, we chose to start out by pursuing a single niche vertical; our target was ‘day spas with multiple outlets’. After we on-boarded 6 enterprise businesses that fit this criterion, we were able to reap the benefits of starting off in a narrow market segment:
- The sales team became very good at building credibility with prospects by connecting to their business problems and being able to speak to the ready solutions.
- Service and support employees became experts and could guide clients through the decision making process.
- Training all employees was manageable and effective, as we focused on a single business model.
- Brand awareness grew and prospects took notice. Every sale became easier as we built name recognition.
- Our product evolved into the best of the breed.
- Investors appreciate your position, or potential position, as the definitive choice in a market segment. You must be doing something right and people take notice.
- We were able to compete with other vendors with higher pricing and without discounting.
The benefits of starting narrow impacts employees, who are less stressed and work with confidence. Customers benefit from a product that feels tailor-made. You have 6 delighted advocates for your business rather than 6 begrudging customers.
The brand awareness, established sales processes, and a product that meets a niche market’s needs, help you more quickly get to $2 million cash flow – that much needed oxygen for the survival of your business. Expanding into other market segments becomes easier with a solid foundation. In the case of Zenoti, after we established ourselves with day spas, we benefited from the credibility we built even as we approached new markets like the hotel and resort spa chains. It’s a bold statement to say that “6 out of top 10-day spa chains use Zenoti” – they take notice.
We found that going even more narrow is better – that businesses that are founder-led at the top tend to have quicker decision-making ability. The founder can be quick to make decisions and convince people internally. Finding such unique attributes narrows your market focus and in turn will cut your sales cycle – a big help in the early days of survival.
It doesn’t matter what business you’re in
I’ve seen again and again many early stage companies lacking this rigor and focus. This applies no matter your offering. Whether you have a horizontal offering, like an HR solution or marketing tool that could work for many different verticals, you’ll still need to identify an industry that has a pain point, identify scenarios that you solve beautifully, and begin and end your sales discussions with those scenarios specific to that segment – even though your system can do more.
While this may seem counter-intuitive, most companies with big aspirations started with a single focus. The book Crossing The Chasm by Geoffrey Moore expands beautifully on this concept. Starting with the narrowest focus possible enables you to get your business out of the gate with a bang. Founders always have aspirations to build a leading software in their category; interestingly, the fastest way is to start off narrow.
This worked for Zenoti
When we built Zenoti we went through this exercise all the time and continue to do so. I am blessed to have a strong team that challenges me if our focus is creeping too large. It’s a challenge, as it’s hard to not pursue a market segment that seems receptive to us.
As part of our focusing on a narrow market, we also focused on pursuing businesses close to our headquarters. Today, we’re used by most of the large brands in our market located in the Pacific Northwest. It gives employees pride and serves as a showcase and reminder that we can replicate this success in other regions as well.