Startup Lessons: Don’t Be Afraid to Lose

Giff Constable startups

stumbleI recently discovered Mark Suster’s blog Both Sides of the Table, and have really enjoyed his posts on entrepreneurship.  He has a good post called “Embrace Losing” that talks about closing sales and learning from mistakes.  I’d like to piggyback on the post with two of my own anecdotes that can be summed up with the simple thought: don’t be afraid to lose.

Believe in your product (or rethink your business)
In the mid-nineties, I was at a small venture-backed startup selling systems management software for SAP installations.  My territory had one really really big fish: Chevron.  When I moved over from launching the product on the marketing side to direct sales, I was stunned to realize that management was afraid of selling to Chevron.

Why?  Chevron was a key market influencer.  In enterprise software, you often see a small number of customer companies who rise to the top as market leaders.  Everyone else watches these organizations for lessons and to point the way. These are the companies most often quoted in the media, and most commonly on conference panels. In the western half of North America, Chevron was that big dog for SAP installations.

The prevailing thought was that if Chevron refused to buy after beta testing the product, then word would get out, and our reputation would be sunk. After all, we were up against SAP’s own solution as well as major players like Platinum, BMC, and CA.

My attitude was (and is) simple: if you’re going to play, go all the way.  Building a company is hard enough, but if you don’t believe in your product enough to risk losing, then you have a serious problem.  You won’t always win the gold medal every time you try, but you will never achieve greatness by going for anything less.  If you seriously do not believe you can win, then you need to rethink your business, your product, and your target markets.

The ending of this story was a happy one.  Few wins in my career have been more satisfying.

Don’t Negotiate Away Your Future
There’s another ugly side to the fear of losing, and that is being willing to win at all costs.  Salespeople with this attitude are both useful and dangerous because they end up negotiating for the other side, not your company.  That obsessive sales drive to win can make amazing things happen, but without the right checks and balances, you can find yourself in a situation where a deal gets closed and after the champagne loses its bubbles, dreadful reality hits.  The “win” turns out to be a feather in the cap of the sales person (and sometimes a big commission), but the organization is left holding a huge bill.

Common ways this manifests itself in negative ways:

  • allowing a single customer to take over your product development roadmap in such a way that kills your relevance to the broader market (at Broadview, I occasionally had the challenging task of trying to sell startups who had one amazing blue chip customer and yet no future at all because they were completely under the thumb of that client… valuations in those situations were less than desirable)
  • poorly defined acceptance criteria and/or payment terms that put the company’s resources and its balance sheet completely at the mercy of a client
  • an unprofitable deal that consumes too many resources and offers too many promises for not enough in return — often a result of a rushed or undermined scoping process
  • giving up intellectual property without adequate constraints on the other side

I’m not saying you do not want to go the extra mile to land a key customer.  I’m not saying that a loss leader does not have its place and time.  Sometimes going for gold means investing resources or cash in a sale, or taking on future problems.  However, you want to make these decisions carefully because they define your future.  You need to remember that the signing of a contract is not an end, but a beginning.

You want your sales people to have that drive to win win win, but you have to structure your company in such a way that there are checks and balances preserving the bigger picture and ensuring smart contract terms.  When you are negotiating, you have to have the confidence to stand up for yourself.  If you are too afraid to lose, then balance goes out the window and it can take your future with it.