Wednesday, May 21, 2008

How "Free" can be Profitable, part 2

At the end of our first 90 days, my company had no customers. There was no need to shop at Hallmark for client-appropriate Christmas cards. However, we continued to line up a lot of appointments, prepare proposals and arrange follow-up appointments. We were getting good reactions from most prospects—except for the reaction that mattered most: the actual signing of an agreement.

One of our angel investors served on a civic board with someone who was married to the executive director of a non-profit agency. Our investor thought the agency might have a use for our software, which was designed to help organizations request bids for products and services. After one quick meeting, the non-profit became our pilot customer. The agency wouldn’t pay us a dime the first year, but they agreed to use our untested software to help with millions of dollars in bids.

In exchange for free access to our software, the pilot customer became our super reference. They would be on call to say good things about us, and also meet in person with prospects when we asked them. We asked them often.

Putting the product to the test
Thanks in part to our pilot's customer's reference, we won our first paying customer within weeks. But our pilot customer helped in other ways. The pilot experience confirmed our software worked the way it had been designed, but it also showed us how to improve it. Our pilot customer put it through its paces in real-world situations, which no amount of experimentation could replace.

The quickest route to discovering ways to improve a product or service is to allow a customer to use and abuse it. Even years after developing your product or starting your service, your customers may want to use it in ways you never imagined. We saw how our software meshed with a company’s business practices, and how we could enhance the software to help improve those practices. Those enhancements made it more appealing to other prospects.

Working with an actual customer offers value that no amount of listening to prospects can equal. You can better anticipate the needs of subsequent customers. If a prospect brings up concerns, you'll be more prepared to address them immediately, rather than to say, “We’ll get back to you.”

More valuable than instant revenue
It would be great if your pilot customer—your first customer—actually paid you something for your goods or services. But that is not her main purpose, so let’s assume she doesn’t pay a cent. The main purpose of the pilot customer is to talk about you—to provide both references and referrals. You want her to feel so good about you and what you have done to make her life easier that she will complement you and your product at every opportunity, even without being asked. When she tells others, “Look at what a great company this is,” she also means, “Look at how smart I was to give them a chance.”

Our pilot customer has since paid thousands of dollars annually to use our software. Better yet, they asked to develop a second product, which quickly became the focal point of our company.

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