One of the hardest thing to do in sales, especially for early stage SaaS companies, is to disqualify customers. When a startup disqualifies a customer, they turn away a revenue opportunity, a chance to add $1k of MRR or $3k of MRR, and meaningfully grow the top line. But if the customer isn't the right customer, that incremental revenue bears a hidden cost.
In the earliest days of the business, those potential customers waving checks promise an attractive revenue boost. Imagine a startup at $15k in MRR. A customer prospect worth $2k in MRR is a chance of growing monthly revenue by 13% in one shot. In addition, a seed stage or Series A startup typically has a narrow customer pipeline. Because the number of interactions is “rare,” each interaction with prospect seems precious. The business feels an urgency to grow, so the temptation to accept an non-ideal customer increases.
In addition to these doubts non-ideal customer interest creates, there's a personal dynamic at play. It's a challenge as a salesperson to turn down a highly valuable prospect if they are outside the ideal customer profile (ICP). More business means better quota attainment, higher compensation, and not having to defend the question, “why did we turn away that Fortune 500?”
A SaaS startup's advantage is the speed of execution. Focusing on one customer segment, the ideal customer profile, reinforces the startup's strength. Diffusing the customer focus negates it.
But focus isn't easy. Even if you've researched the market ahead of building a product, developed an ideal customer profile (ICP), the challenge arrives when you take the product to market. A unexpected surge of interest from a customer type raises the question, “Should we serve that market segment too?” “Was our initial research correct?” Inbound demand from a Fortune 500 precipitates excitement about winning an exceptional logo. Will that logo lead to inbound interest from others? Managing that doubt is difficult.
Nevertheless, the hidden costs of non-ICP customers are real. Changing a product roadmap to suit the needs of one big customer divides an already small engineering team. Managing a marketing message to several distinct customer bases scatters the brand. Higher customer success costs and churn rates from supporting non-ideal customers. Internally, questions arise about priorities. Having two ICPs creates interference across every department.
Sometimes startups do need to change their ICP after they've launched and developed the product. Demand from an unexpected customer is real. If that's the case, the decision should be deliberate and explicit to focus on that new segment in order to preserve focus on just one segment at the very earliest stages. The hard part is keeping the discipline of focusing on just one ICP, so the business doesn't bear the hidden costs of non-ideal customers.