There are some things you never forget when you’re a startup CEO, and watching my co-founder and VP Sales, “Ken,” run around the office yelling, “Hey, Hey!” after we got our first order is one of them.
We had just soft launched our first product, the TS1001. We didn’t do any marketing. Nothing at all. All we did was put our first product on very crappy, Go Daddy, website.
And within 24 hours, someone magically bought our first product.
The reason we did a soft launch was we wanted to test our systems before the big launch, where would announce 16 products at once, a couple months later. So sales were slow.
Every few days, another customer would stumble upon our website, and they would buy the TS1001. The average order sizes were pretty low, less than $50, if my memory was correct. Our goal, for those of you keeping score at home, was $10,000 per year per customer.
Getting your first customer is much different than getting your tenth customer.
By the time we had our big launch a couple months later, we were ready to go. All our systems were tested.
We knew we could accept orders. We knew we could support customer sample requests. We knew we could test products. And we knew our distribution partners could accept orders too.
The launch for our next set of products was the formal launch of our company. Even though we had raised $12.1 million the previous year, we hadn’t publicized the funding at all. We didn’t even file with the SEC.
For all practical purposes, our company was a bear in hibernation. Now, we were ready to wake up, after 16 months, for the world to see us.
The previous week I did interviews with the major trade publications in our industry. In addition, we had completed the revamped version of our website. Plus, our distribution partner, Future Electronics, the third largest in our industry, was fully stocked with our products.
When we announced our new set of products, or should I say the trade press released their stories, our web traffic went crazy. Customers started ordering samples of our products, and we received some production orders too.
Orders increased, but they still remained slow. We would need other strategies to get to 1,000 customers.
The team and I had years of experience in the industry, so we thought (optimum word here is thought) we knew exactly how to attack this problem.
There are literally hundreds of thousands of customers for an Analog Semiconductor company like ours to sell to. They range from the obvious customers (Apple, Samsung, and Cisco) to the not so obvious industrial customers making anything from water purification systems to HVAC systems.
The challenge is how do you, as a startup, get to all these customers?
The strategy we thought would work when we started our company would be in three parts:
A. Hire sales rep firms that work on commission only.
Sales rep firms are companies that will represent you and several other companies to a group of customers. The idea is that they have existing customer relationships that you can leverage.
You also significantly reduce your costs because reps only get paid when they sell your products.
B. Sign up a major electronics distributor.
Customers of companies like ours (unless they are really large like Apple) like to buy their products from large electronics distributors like Arrow and Avnet. In fact, the typical Analog company does about 80% of its revenue through distribution.
The problem for us was that Arrow and Avnet, the number one and two electronics distributors in the world, don’t typically sign up new startups to their line card. That’s why we went to the number three distributor in the market, Future Electronics.
Future, for various reasons that I can’t go into, was highly motivated to sign us. In fact, they wanted to invest in us. We were fine with that as were our investors, but their terms (total control of the company) were just not acceptable.
C. Advertise, advertise, advertise. This helped us get to 100 customers.
One of the key things I learned from my time at Maxim Integrated Products was the power of advertising. Maxim drove the bulk of its revenue through a heavy dose of print advertising.
Obviously the world had changed, so we weren’t going to do print advertising. Instead, we started a Google Adwords campaign and we started advertising in various online trade publications.
Key lesson: The power of traditional bag carrying salespeople is diminishing in every business.
Only one of our three initial strategies worked. The advertising paid off big time, but the reps and the distributors literally drove no new business.
It wasn’t a surprise that the distributors did nothing (distributors in our industry are notoriously bad at driving business), but the reps? That was something new.
And the failure of the reps shows the true power the internet has over the selling proposition.
Pre internet, sales reps in any industry had huge value to customers, but not now. When I was on the customer side of things as an engineer, I relied on sales reps to tell me what was new.
Your sales rep would give you new product information and new databooks with all their lines products. This was how you made decisions back in the day.
However, the internet has reduced the value reps have with customers. Customers can go on line, do their research, and then call the shots from there. Sales reps had very little value to engineers anymore.
Indeed, the big deals we ended up doing (including with Apple and Samsung) were all driven through our advertising (pull rather than push). The customers would learn about us through our advertising, ask for samples through our website, and then we would follow up directly with the customers.
There was one exception to this rule. I’ll call the exception, the internet savvy distributor. This was how we got from 100 customers to 1,000 customers.
From the first customer visit I did after we announced our first product, just about every customer asked me the same thing, “Are you on DigiKey’s line card?”
DigiKey is the world’s fourth largest electronics distributor. They have a totally different model than the other distributors.
DigiKey has no sales force. Instead, just like we did, they rely on a heavy dose of advertising and marketing to sell their products.
DigiKey, unlike other distributors, is happy to take small quantity orders of 5 to 10 units for “kitting” (building the initial prototype orders). And they always had parts on the shelf, so an engineer could design a system and get the parts the next day.
Then DigiKey, in true disruptive fashion, started fulfilling larger and larger orders. DigiKey’s strategy fit perfectly with what we were trying to do.
The only problem was we couldn’t get DigiKey to put us on their line card. It took over one year, but we finally convinced them in a meeting in Las Vegas.
Then our sales took off after DigiKey took us on:
DigiKey becoming our distribution partner was the knee in the hockey stick for us. Everything got easier once DigiKey became our partner.
Maybe that’s the real lesson. You’ll know you can grow exponentially once you’ve reduced the friction in the sales channel.
You really don’t know what will work when you’re just getting started.
Our initial thought process was sound, yet two of the three ideas we had to gain traction failed. You have to be flexible when you’re starting out.
Try something. Measure the results. Then make whatever adjustments you need to make.
And, whatever you do, don’t just stick your head in the sand, doggedly assuming that eventually things will work.