SCENARIO: You're selling for a startup. You're adequately funded for the next three months, but you need to show your investors that you've got a viable business model. You have three opportunities in the hopper, but due to resource constraints you can only pursue one of them at a time. Here are the opportunities:
- OPPORTUNITY #1: A market reference account. This is big company that everyone has heard about. Winning this account will lend your firm credibility it needs to make other sales.
- OPPORTUNITY #2: A market entry account. This is a small company that will give your firm the opportunity to learn the ropes in a new market that's essential to your long-term growth.
- OPPORTUNITY #3: A market stealth account. This is a medium-sized company that has an ongoing need for your current product, but has stipulated they will not become a reference account.
The correct answer is: #3: A market stealth account.
The first two choices are what are known as "strategic" accounts. As such, they add credibility and create the potential for long term growth. Those are both normally good things to have, but strategic accounts have a major disadvantage that, in this particular case, overwhelms their advantages that they might bring.
They problem is that the other two types of account are likely to become major money-pits. And, as a startup on a short leash, you don't have the deep pockets required to develop and secure a strategic account. According Sam Reese, CEO of the giant sales training firm Miller Heiman, the rule of thumb with strategic accounts is that you must be willing (and able) to lose money to keep the account happy.
And there's the rub. To make the strategic account relationship work, you may need to supply all sorts for extra services and support -- long before the account becomes profitable. And that could be fatal for your firm With that in mind, let's look at the downside:
A market reference account. Sure it would be great credibility booster to plaster their name on all your marketing materials. Even so, large companies are famous for running smaller suppliers out of business, usually by accident. In many cases, employees in large firms sometimes put out speculative RFPs simply to enhance their own careers. And large companies always force smaller vendors to jump through plenty of hoops. The big risk here is that you'll burn through your capital before they make a decision. And you dare not tell them that, or they'll figure you're not financially stable enough to consider a serious vendor.
A market entry account. There's nothing wrong with planning for the long-term future. However, at this point, right now, with that level of funding, you don't have a long-term future. It's way too soon for you to be thinking about the NEXT market you're going to conquer, because you haven't secured a safe place in your original target market. What's worse, developing a new market will undoubtedly require plenty of hand-holding and special work, both of which are going to eat up extra capital...which you don't really have at this point.
By contrast, a market stealth account gives you exactly what you need right now, which is cash flow. They need your product, they're willing to pay, and because they're medium-sized, they're probably going to move swiftly enough that you'll start seeing some revenue before your investment capital runs out. And, BTW, you may not be able to use them as a public reference account, but I guarantee that your private investors will be happy when you tell them you've got a cash cow.
Please don't think that I'm against strategic accounts. They're great. However, they're not very useful when you're fighting for survival and don't have the money to support them adequately.