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Secret #7: Sell A Lot (of a little)

As seen on LinkedIn

lots of pumpkins

(This is the seventh in the 12-part series, “12 Secrets To Attracting Investors To Your Startup“)

Secret #7. Sell A Lot (of a little)

Would you rather build a business that sells million-dollar widgets to five customers or a business that sells $5 widgets to millions of customers?

I’d personally take Door #2. The reasons are varied, and a few might surprise you.

1. Concentration Risk

Businesses with a handful of big customer contracts are tough because it can be hard to sleep well at night when any one deal makes up a material percentage of your business’ health. On the sales side, you have to sink your limited time into lots of proposals (or if you’re lucky, golf) that won’t result in new revenue. On the delivery side, one unhappy camper can mean the difference between an end-of-year party and pink slips. Losing 15 percent of your annual revenue because a buyer randomly {retired/resigned/disliked your shirt} is no way to live.

From an investor standpoint, all of the usual tropes naturally apply here as well: Diversification (vs. Eggs-in-One-Basket) and Smooth (vs. Lumpy) Revenue are just two of the many reasons to prefer a business with a greater number of customers.

2. Theatrics

Because we believe that extra effort put into business relationships is a big difference between success and failure, we’re inclined to spend too much of our time managing impressions, rather than delivering measurable business value. When you’re selling to thousands, rather than dozens, “facetime” becomes an impossibility. And that’s a good thing.

I actually had a former client at a Fortune 500 company admit to me that his boss expected “a pound a flesh” (read: visible pain and suffering) from my team in exchange for the high price tag he was paying my firm. The problem wasn’t that my team didn’t want to work hard. To the contrary: We employed type A’s with a chronic achievement addiction whose default setting was “run-through-wall.” The problem, from a business value perspective, was that they were being asked to divert their energies away from value creation and toward “theatrics.”

True story: A guy on my team, let’s call him “Gabe,” actually wrote a computer program in 1999 that would pause some of his noncritical outgoing emails from sending until 9:17 p.m. so that clients and managers might marvel at how late he was consistently working. The irony being that his actual client-facing code, the stuff he was being paid to deliver, was a buggy mess. Gabe was relieved of duty a few months later.

I’ve heard jokes that the business IQ of a company is inversely proportional to the formality of their dress code. This is of course a harsh overgeneralization, but the truth is plain: Every moment spent on facetime, politicking and “the appearance of martyrdom” is wasted time and energy.

3. Your Attention Please (…Pretty Please?)

“In an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it” (Simon 1971, pp. 40–41)

TL;DR: People have ever-shorter attention spans. This isn’t the usual bromide about “kids these days.” Customers of all ages are historically impatient because we’ve got amazing, snack-sized, digital distractions in our pockets waiting to snatch away our attention should any given experience underwhelm.

A great example: SkyMall Magazine. The infamous purveyor of gems like “Henri, the Frenchman wine-rack,” saw its first quarterly sales decline in its 25-year history this year. The culprit? In-Flight Wi-Fi. Whereas SkyMall used to compete with the airline’s own magazine and safety card for your attention, now they’re competing with, well, the Internet.

For this reason, the future belongs to businesses that can fit (and price) themselves into the ever-shrinking slivers of available time in their customers’ oversaturated day. Tomorrow’s customers simply don’t have 140 free minutes to meet with you in person. Few will even want to make 140 seconds free for a phone call. Better figure out how to engage them in 140 characters.

In a world where I can get what used to be an entire day’s worth of chores done on my phone in 15 minutes, any business I engage with better be brief, be bright, and be gone.

4. More Data = More Clarity and Control

In his book Moneyball, Michael Lewis teaches us that individual baseball game outcomes, even playoff series outcomes, are virtually random. To know anything meaningful about a team’s quality with any statistical certainty at all, you need to see their performance over lots of games. Say, a full 162-game season.

Anyone who’s ever done work in statistics or data science will tell you that your confidence in your ability to understand, let alone predict, a complex system depends highly on the number of data points feeding your model. Just as you need lots of pixels to create a clear HD image, you need lots of data points to create a clear analytical model.

One of the virtues of a high-transaction business is that it’s inherently “HD.” A business with lots of customer transactions, however small the price-per-transaction, offers you a wealth of data that can be analyzed to clarify your tactics and strategy.

Savvy entrepreneurs think of their business decisions as data-driven science experiments. In an “HD” business, any individual business decision might succeed or fail, but something is always learned from the resulting data. The very best businesses have multiple experiments running all the time, and they’re continuously learning, and steering, with those live results.

Bottom Line: We prefer to invest in companies designed to earn a little revenue from a lot of customers. We favor these high-volume businesses because they minimize concentration risk, theatrics and the demand for scarce customer attention. They also spin off large enough data sets to allow for insight-driven decision-making.

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