Are You Asking The Right Questions?

It is our experience that, with the many pressures and stresses of beginning a startup, often those involved don’t feel they have the time to ask themselves many questions about the market they are targeting.  Questions such as the following are often not asked: How do our target customers actually go about buying products?  How do they go about buying new products?  How long does it take them to buy a new product?

All of us at Incupoint are well aware of just how many pressing issues are there for startup managers to spend their time on during the first critical years.  Yet there is no issue more important to a fledgling business-to-business startup then the question of the time it takes for their first customer to buy their product.  Why?  Because the answer to this question in most cases is never what one would expect.

Let us clarify a bit here.  Most of the clients we have engaged with did ask their prospective customers: “How long does it take to get a purchase order?” or “How long does it take to go through the supplier qualification process?”  The problem is that the answer to neither of these questions is particularly informative.  The former is worded too broadly to be useful and for the latter, in our experience, a theoretical answer is always given: “It should take 12 months from the moment you submit the initial vendor qualification package”.  Given such an answer, most people would then use 12 months in their planning and, in most cases, they would be disappointed.

We suggest a different approach.  Ask your prospective client, better yet, several clients, about the last new vendor whose product they took on board.  Of course, this product has to be of similar complexity and have a similar impact on your client’s business.  Then, call this vendor and ask them how much time actually lapsed from the moment they gave that customer the first presentation to the moment they finally got paid.  We are willing to bet the answer will not be what you expect.

Here is a recent conversation we had with one of the top 50 companies in the world by revenue, about a competitor to one of our clients.  It is worth mentioning that this competitor is a well-known company with over a hundred years of business track record and annual revenue of over $ 100 m.  The product we were inquiring about had been on the market for a few years already.  When we asked this company how long it had taken them to qualify their product with the company, the answer came back as: “They are still not qualified”.  Yes, our client’s competitor – a fair-sized business with a long track record in the industry – had not yet managed to qualify their product with the company after working on the project for a few years.

If you are one of the managers of a new startup targeting the corporate market with a new technology, the most important piece of information to go into your business plan is the length of time it took another vendor, similar to you, to go from first presentation to first paycheck.  Unfortunately, more often than not, the answer will make you reconsider the timeline of your business plan.