How Do You Get Big Customers To Buy From Your Tiny Startup?
There are some meetings you never forget, and this meeting with a very well known VC fund was one of them.
We were just starting to raise our Series B funding, and, the fund we were meeting with had the CEO of a former portfolio company sit in on the meeting. The meeting was going well until we got to our go to market strategy.
I confidently said that we were focusing on the Tier 2 and Tier 3 customers that made up over 80% of the market. That’s when the former CEO erupted.
He said, “If I was on your board, I’d force you to get your ass in front of Apple and Samsung.”
I was surprised, but not shocked, at his response. The company he ran, after 15 years of barely surviving, hit the mother-load winning a big deal with Samsung. The investment was clearly not going to happen.
The problem was we didn’t have 15 years to hope for a moonshot. Instead, we would build our business piece by piece, one customer at a time.
Then a funny thing happened: The big OEMs started coming to us.
As I said, we were focused on the smaller customers because they played to our strengths. So it was a somewhat of a surprise when we started seeing Apple, Samsung, Microsoft, and other big OEMs show up as customers.
These big OEMs were coming to us because we products that we were so unique and different that they couldn’t get the performance we were offering anywhere else. That’s a thing of beauty when you’re a startup.
You need to be ready for the knife fight.
In an ideal world, it’s great when you can have a strategy that doesn’t depend upon the big OEMs. You don’t have to win the deal.
Let’s face it, big OEMs drive hard bargains. You can easily get pushed into a deal that is low margin or no margin.
There were some of the big OEM engagements we had that turned into knife fights. Usually, we didn’t have a meaningful competitive advantage in these situations, and it got really bloody.
Let me give you an example of one of these we had with Nest. Again, just like with the others, Nest came to us, except they were interested in a product where we didn’t have a significant advantage.
Because it was Nest, we offered to give them some technical assistance. In the Analog IC world, we would usually have more technical knowledge about how to build the analog portion of the hardware than our customers.
So we assigned Martin, our most senior applications engineer, to work with his counterpart at Nest. We ended up doing the front end design for Nest.
We were in. Or so we thought.
We got the initial order for the first pre production build. Then mysteriously we didn’t receive the follow on order from their subcontractor when we thought we would.
Our sales guy followed up with the buyer at Nest. We were told we were designed out.
One of our board members had a relationship with Nest’s CEO, so we used that relationship to see if we could get back in. It worked.
Nest used us in their third pre-production build. We thought we were definitely going to be in the production build.
But it was not to be. Nest designed us out in favor of a larger competitor.
The moral of the story is you can win business from large OEMs, but be prepared to fight to keep it.
Oh, and having a significant competitive advantage helps too.
For more, read: How Can You Differentiate Yourself Even In A Commodity Market