How startups win deals by resetting expectations

Strategies for pitching products

The authors examined health startups participating in a digital accelerator incubator called Alpha over 15 months, starting in 2016. Among some 230 startups that applied to Alpha’s half-year program, the incubator chose 28 to matriculate.

Karp and O’Mahony studied the selected companies throughout 2017. They coded ways that the startups managed the initial impressions of buyers—using what they called “symbolic actions.”

These strategies included:

Showcasing their networks. Companies will selectively reference previous work with other companies to pique a prospect’s interest. Tom, the founder of a startup that packages pills using the pseudonym “PACK,” says: “I had sent the director at Hospital 1 a few emails in the past … No response. Silence. But then, I sent him a very short case study of how we were working with Big Hospital 10. Big response. Like an hour later—'Oh, would love to meet with you guys.’”

Blending in. This strategy involves copying the mannerisms of the target organization. Employees at FALL, which creates a software application that tries to reduce work-related injury claims and is also a pseudonym, usually dress casually, in jeans and T-shirts. But when they presented their program to a target buyer, Insurer 3, they wore suits, an example of “parroting and blending in,” a strategy some entrepreneurs use to build trust with a buyer.

Using analogies. A startup might make an idea accessible by comparing it to something well known by the target. FALL’s CEO, going by the pseudonym Jack, used analogies to build excitement among his audience at Insurer 3. He compared his company’s predictive analytics app to a well-known movie, saying, “We don’t really do after-the-fact analysis of employee injury in the workplace. We are more like that movie with Tom Cruise, Minority Report. We predict where a crime or, in this case, where an injury is more likely to take place, and we recommend how to fix it.”

Staging demonstrations. Entrepreneurs prepare selective demonstrations in advance to show buyers how to use products. Jack explained how his team uses pre-populated injury claim reports: “We preloaded a set of reports to make sure the demo went off without a hitch. So that when someone asked about blah blah claims analysis, we had it right there.”

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When expectations and reality diverge

Entrepreneurs need to go the extra mile to convince buyers who have doubts about products, knowing the customer “has a lot of escape valves” to get out of paying vendors for products that don’t live up to their expectations, Karp says.

Buyers typically start to exercise those escape valves when they perceive that an innovation—however exciting—might not work seamlessly in their organization.

As part of the study, the researchers conducted a post-mortem analysis to find out why buyers ended vendor relationships. If the relationship continued, they probed how entrepreneurs and buyers bridged the communication gap and shared the burden of implementing changes to address the buyer’s concerns.

When FALL pitched its app to Insurer 3, the insurer’s head of innovation expected that FALL would be familiar with the insurance industry. But FALL’s founder, Jack, joked that “he was personally uninsured in every sense of the word” and admitted that he didn’t know how to get the product to work for Insurer 3.

Insurer 3’s representatives also anticipated that FALL’s app would “seamlessly predict injury in the workplace, ‘like Minority Report, right?’” But FALL’s team knew that truly seamless predictions required integrated data systems that weren’t yet in place. When pressed, FALL’s CEO said: “I’m not Tom Cruise.” The company did not ultimately get the deal.

How startups managed the gap with customers

How entrepreneurs and buyers recovered from disappointing discoveries predicted whether the partnership would, in fact, move out of the courtship stage. Startups chose one of three approaches:

Resisting change and digging in. Eight of the 28 startups failed to change their sales tactics at all in response to questions about their products, minimizing buyers’ concerns and continuing to trumpet their original pitches. This widened the gap between the two parties, and all of the partnerships fell apart.

Paying for changes. Ten of the firms studied acquiesced to their buyers’ requests, and at their own expense, they made iterative changes to customize their innovations to accommodate buyers’ needs. “Especially when working with established organizations, you may need to do actually quite a bit of customization to your innovation to make that innovation integrate inside a large organization,” explains Karp.

Honestly addressing a buyer’s expectations. Only a third group of 10 startups worked on recalibrating buyers’ expectations, which allowed them to succeed in demonstrating how they could integrate their products with the buyers’ organizations. They adapted their products, but with the buyers’ help instead of on their own, creating mutual investment in the changes. These entrepreneurs were the only ones who successfully shifted some of the cost of that integration work onto the larger organization. Doing so created the buy-in and investment from both organizations that was necessary to form a mutually agreeable partnership.

How entrepreneurs can build better relationships

The research results reveal some lessons for startup founders about how to build lasting relationships with customers, Karp says:

Find a way to make the product work for the organization. “There is no such thing as a turn-key solution,” she says. Making sure the startup develops a plan to integrate a new piece of technology or other product into a larger organization is key.

Anticipate potential problems in a new relationship. Excited entrepreneurs often make the mistake of assuming that their work is done once a deal is closed, Karp says. Instead, startup founders need to thoroughly plan for how they’ll respond to any potential snags that could get in the way of sealing a deal.

Think big(ger). Founders encountering roadblocks might be tempted to tinker around the edges of the product without truly addressing the problem. “Don’t just fix the blue lettering,” Karp says, referring to minor changes that fail to answer a potential buyer’s larger questions about a product’s functions. Sometimes resolving concerns requires going back to the buyer and patiently listening to what the organization needs.