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For startups, the customer is more important than the product

About a decade ago, Eric Ries began to popularize the idea of a minimum viable product (MVP) in his Lean Startup blog. The idea was to create a stick figure version of a product or service and use that to find out whether customers wanted it, and if they did, how they’d like that product to change before they’d actually pay money for it. The real value was in the customer feedback, listening to and understanding what customers—and potential customers—wanted.

Yet as often happens with ideas that are widely evangelized, the original point has gotten lost. Many startup founders got the idea that they could just launch a product with all its issues and sell, sell, sell. Then they’d have money to make the product better down the road—the inverse of working on it early to make it worth selling. Meanwhile, one team member is inevitably stuck fielding calls from customers who don’t feel like they got what they paid for. That team member tries to get everyone to slow down and fix the product, but are often seen as an obstructionist who doesn’t understand the startup world. So now the company has an internal problem as well as an external one.

Of course, being told to slow down and improve the product is not going to be popular. After all, new customers mean an influx of cash. It’s tempting to focus on keeping the cash flow coming. Also, startup founders are usually very attached to their ideas; a new product or service is often referred to as the founder’s “baby.” They certainly don’t want to hear that the baby is ugly and smells funny, even from customers. There is also the pressure to grow fast—many companies mistakenly believe that speed equals success, and the only worthy goal to prove growth is to rack up the customer count.

But this was never the way it was supposed to work. Customers aren’t just numbers on a page; they’re proof that the business is worth building.

A customer in the hand is worth two in the bush

The ancient proverb is apt here because data consistently supports the idea that retaining one happy customer is of much greater value than chasing half a dozen prospects. Research shows that winning over a new customer costs up to seven times more than keeping an existing one. Also, increasing customer retention rates by just five percent can increase profits by anywhere from 25 to 95 percent.

Customers aren't just numbers on a page; they're proof that the business is worth building.

That’s because existing customers can become brand ambassadors and free marketers. They give good reviews, provide references, and increase the company’s Net Promoter Score, all of which tends to reduce customer churn, boost growth, and increase revenue.

Customers who don’t like a company do the exact opposite. They complain on social media and amplify failures and let downs. Anyone who has even glanced at those reviews may volunteer, “I heard that company sucks” in conversation. The end result is lost sales. The challenge that startups face today is tough. Their competition isn’t necessarily another scrappy startup; it’s Amazon who sets the bar for customer experience. It’s made taking care of existing customers at least as important, if not more, than getting new ones.

[Related read: Don't ignore customer data; use it to create a better experience]

Break it down: here’s why one startup won

The company Wesabe was founded to help customers get a handle on their finances using an app that would replace a cumbersome spreadsheet. Wesabe helped customers track their spending so they could stick to their budgets. The problem was that other companies, like Mint, had the same idea. In 2010, Marc Hedlund, founder of Wesabe, explained in his blog why Mint became huge and was bought by Intuit—and why Wesabe crashed. Wesabe was created nearly a year before Mint, so had first-mover advantage. Yes, its name was tougher to remember than Mint, he admits. But in a world of companies with names like Google and eBay, that didn’t seem to be a big problem. And no, Wesabe did not help people get their finances on track so much as help them track their finances—but the same was true of Mint.

The winning difference, he wrote, was Mint’s intuitive design that required less effort from customers. It made them happier than Wesabe’s more work-intensive interface. And so Mint thrived while Wesabe failed.

[Related read: Want to grow your startup? Talk to your customers]

In a study of 20 reasons why startups fail, 17 percent admitted that the core product was bad. Another 19 percent blamed fierce competition, 18 percent named pricing issues, 14 percent blamed poor customer care, and 13 percent blamed internal team conflict. But, it could be argued, better customer care could have helped turn the corner on all of these. For example, customer feedback could have improved the core product or suggested a direction to pivot. Building strong customer relationships might have been an edge over the competition. Talking to customers could lead to a better pricing strategy. And if making customers happy was the primary factor in decision-making, that may have clarified strategy and culture from the inside out.

If making customers happy was the primary factor in decision-making, that may have clarified strategy and culture from the inside out.

4 tips for putting customers first

Startups have to move fast and look forward, but your success depends on your customers’ staying power. Here’s four ways to help keep your existing customers a priority.

1. Don’t treat customers like investors. Investors are good with delayed gratification, customers not so much. Investors see a company’s potential for a profitable exit down the road. Customers don’t care that a company is going to be the next Amazon; they want to know what it can do for them today. With customers, it’s about building a relationship that begins with delivering on promises and solving their problems—at a price point they can live with. That’s a very different relationship than the one a startup has with investors.

[Related read: 6 relationships you don't want to mess up in Startupland]

2. Don’t view existing customers as old news. Your early customers are valuable, and this is all about not thinking of them like a transaction—they’ve paid and now you’re onto the next one. If you fulfill your end of the bargain, existing customers become your marketing team, market research firm, product validation, and social media apparatus. They can be the most effective way of building a brand and customer base, but only if they’re happy.

3. Treat customer feedback with the respect it deserves. The whole point of the MVP is to get feedback so a startup can create something that people will want to buy. Customers can help shape a product that will succeed, but only if you listen. (You know, that thing the one wet blanket employee is always harping on.) Not all feedback is created equal, and it may be that you don’t yet have the resources to add new functionality to the product today, but by expressing genuine interest in finding a way to meet the customer’s need in the interim, you stand a much better chance at keeping your customers loyal.

Customers can help shape a product that will succeed, but only if you listen.

4. Hire for empathy. A small company may not be able to compete with a big, well-entrenched one on price or even service, but they can compete at the relationship level. If your team is all about growing the company, it will treat customers as it sees them—a means to an end. Customers will sense this. Instead, if you hire people who are customer-centric, who really care whether customers are happy and feel supported, they’ll work to actually solve customer problems and that will grow the business.

Every startup faces a mountain of risks when they launch and failure is common, and can even be a badge of honor—but a founder who fails because they value cash over customers is likely to keep failing until they understand where to invest.

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