EP201: Customers Aren’t Formulas - Navigating the Emotional Journey

Getting punched in the face is practically a rite of passage for startups with seemingly bulletproof business models. Spreadsheets might predict hockey stick growth, but, as Corey says "customers aren't formulas on a page. They're human beings who are often "repulsed by new technology". Adoption requires an emotional journey and trust, not a formula. Yet founders frequently ignore reality, believing spreadsheets will magically generate growth. Chris says this quest for an easy quota can even derail progress as "salespeople focused on quota may take company backwards" by clinging to the past. Hence leaders must prevent "retrograde motion back to what was comfortable before" by being "hard-edged on changing direction." There are no maps for the uncharted path from startup to sustainable enterprise. But experienced guides like Corey and Chris are happy to share their battle scars and perspectives.  Join us for this episode, “Customers Aren't Formulas: Navigating the Emotional Journey.”

 

Full episode transcript below:

Announcer (00:06):

Welcome to another session with the Market Dominance Guys, a program exploring all the high stakes, speed bumps and off-ramps of driving to the top of your market, with our host Chris Beall from ConnectAndSell, and Corey Frank from Branch49.

(00:21):

Getting punched in the face is practically a rite of passage for startups with seemingly bulletproof business models. Spreadsheets might predict hockey stick growth, but as Corey [00:00:30] says, customers aren't formulas on a page. They're human beings. Adoption requires an emotional journey and trust, not a formula. Yet, founders frequently ignore reality, believing spreadsheets will magically generate growth. Chris says this quest for an easy quota can even derail progress, as salespeople focused on quota may take the company backwards by clinging to the past. Hence, leaders must prevent retrograde motion back to what was comfortable by being hard-edged on changing direction. [00:01:00] There are no maps for the uncharted path from startup to sustainable enterprise, but experience guides like Corey and Chris are happy to share their battle scars and perspectives.

(01:10):

Join us for this episode, Customers Aren't Formulas: Navigating the Emotional Journey.

Corey Frank (01:20):

And here we are. Welcome to another episode of the Market Dominance Guys, episode, I believe, 201, with the sage of sales, [00:01:30] the prophet of profit, the Hawking of Hawking, fresh back from his jaunt across the pond, freshly stocked with Porto and Cabernet and other assorted box wines, knowing Chris and the fetching Miss Fanucci. Chris, welcome back. Episode 201, what do you have to say about that, my friend?

Chris Beall (01:51):

Well, it's great to be back on this continent. There's all sorts of things that are wonderful here, even on the East Coast. And I'm hanging out at the Breakers, where I've learned the value of money, [00:02:00] which is no matter how much money you bring, you can't get anything of value.

Corey Frank (02:04):

The Breakers, yes, I understand they're renowned for their breakfast at the Breakers, right? Did you have a coupon, or how did you... I mean, the Breakers, talk a little bit about the breakfast before we get in our topic today.

Chris Beall (02:15):

Pretty much it's all-inclusive if you pay $64 for the buffet. And hey, I had a very nice omelet there. By the way, the service of the Breakers is really second to none. Every single person that I've talked to here is incredibly accommodating, [00:02:30] gracious, pleasant, and willing to do the right things.

Corey Frank (02:33):

Yeah.

Chris Beall (02:34):

Yeah, you stack up on Stacey's Naked chips, so guacamole and some salsa, you have the breakfast, and then you get through the rest of the day alive and bring your own wine, because the only way it's going to work either.

Corey Frank (02:45):

Great. Well, let's talk a little bit about one of the topics that you and I, I think, gosh, it's peppered throughout the Market Dominance Guys on many of our 200 plus episodes with guests or without, and that is everybody [00:03:00] has a business model until they get punched in the face. But I want to talk to you about different business models. You've been talking with a lot of private equity firms, a lot of other investors. A business model from what I was taught, and I think you probably taught me this, Chris, is above all, it should be geared to make a profit. And certainly, you want to study your competition, you want to get the right staff and get the right talent level in there, but your business model should be geared to make a profit.

(03:28):

But let's start from [00:03:30] the basics here on this. The traditional SaaS business models that are out there, they're template driven oftentimes by a lot of VCs, a lot of investors. There's a certain gate you have to go through on your friends and family, and then your seed round before you get your A round, and you have to have certain level of churn and a certain amount of continuity in the business and a price point and a cap below six months. So what do you talk about [00:04:00] when you're advising other CEOs and other investors who are thinking about investing in SaaS companies, about the business model writ large?

Chris Beall (04:09):

Well, one of the things that I keep getting reminded of is there is truths underneath all of these potential models, and they're unchanging truths. So one of them, for instance, if you're doing a SaaS business, is SaaS is likely to be technology, believe it or not. And as such, it is likely to be [00:04:30] seen or felt as abhorrent by regular people who might consider the possibility of buying it. And the reason it's abhorrent is people don't like new stuff, they don't understand. It makes them kind of sick to their stomach. And the fact that you built it, you love it, it doesn't make it any less abhorrent to them. They're repulsed by it, I believe would be the correct term. And that's a universal.

(04:54):

That doesn't go away because in your spreadsheet you happen to have a row that says [00:05:00] add headcount, or spend money on marketing, bringing people to the website or whatever, and therefore, the revenue will grow magically as a result. The actual underlying process that needs to take place is, at some point, somebody who fundamentally doesn't want to buy anything like your stuff because it makes them sick to their stomach to think about it, has to decide to do so because it solves a broken mission-critical business process for them. And [00:05:30] preferably, at some point later, others buy for the same reason, and also because, "Hey, Mary bought it, and she's like me." So every time that Mary buys something, she's kind of the lead dog, "I'm willing to buy," maybe, or at least think about it.

(05:46):

So we've talked about that, how markets are essentially these sort of self-organizing sets of businesses you could sell to, where each sale you make successfully and service in a way that causes [00:06:00] value to flow, which is another thing, reduces your cost and risk of the next sale. And when you get to the edge of that market, it no longer reduces the cost and risk. It's no longer inter referencing.

(06:11):

So that deep truth about people, people hate new technology, it makes them sick to their stomach, is very important. And it's very rare that in a business model that's on a spreadsheet that somebody has populated full of month over month growth [00:06:30] numbers or whatever, and all this much of it is aspirational, by the way, if we don't hit the rule of 40, our growth rate plus our EBITDA adds up to 40 while we're doomed, therefore, let's make sure it always adds up to 40. And then let's back into that by saying, "Well, we need the resources to do it." And then let's back into that by saying, "We need the venture capital to get those resources."

(06:54):

What if there's an air gap under there, or a super slippery [00:07:00] little slope in there somewhere that says, "Yeah, but regular people aren't going to want to buy that at this point." So business models can fool us, popular ones, especially when they have money behind us, them, into thinking the money will deny the truth of how people actually buy. And the truth of how people actually buy, the emotional journey that they go on to go from, "What?" to, "Yeah, I'll do that." That emotional journey [00:07:30] is based on stuff that has nothing to do with your business model, and you can't force it to happen. You don't have the luxury.

(07:38):

People always tell me, "Oh, yeah, my... That crossing the chasm stuff, I don't need that crap. We're already across the chasm. Unlike everybody else, we were born across the chasm, because our stuff is so great, so compelling. We do PLG." "Oh, what's PLG?" "Well, we give it away, and then that [00:08:00] way we learn a lot about it. And then..." Okay, so if you ask a simple question, have any PLG companies with relatively compelling products that somebody looked at, ever failed? Answer: Oh, yeah, lots of them. Lots of them. Well, if it's a powerful model that sort of can't fail on a spreadsheet, why does it fail in reality? Why do SaaS models tend to fail in reality? Rob McClarty has mentioned this. He says, "No, the streets are paved with the bones of SaaS companies [00:08:30] that looked perfect on the spreadsheet."

Corey Frank (08:32):

Yeah.

Chris Beall (08:33):

Why? And I believe the why is, is because the realities of human beings making a decision to trust somebody more than they trust themselves are simply ignored in those models. They're ignored in time, in magnitude, in dependencies. What do you have to get before you can get there? They're just ignored. And they're ignored, because the money is impatient.

Corey Frank (09:00):

[00:09:00] Well, that's what we're going to get to is that a little bit of, I guess, internally Gresham's law, you would say, is that, Chris, scenario, if I had a SaaS company that you and I started and we had $5 million in capital to use however we want, not with the benefit of the last 25 years of experience or so, but just as maybe a first or second runaround, or had the benefit of funding it ourselves, [00:09:30] which one is more preferable from the aspect of crossing the chasm, learning a little bit about how your market runs and how it works versus potentially bastardizing it with too much of a good thing? So where would you stand on a scenario like that?

Chris Beall (09:50):

Well, in the general case, money is poisonous, in the general case for businesses. So why is it poisonous? It's poisonous, because it causes us to believe [00:10:00] that what is in front of us is something other than what's actually in front of us. So if I have enough money that I can buy that $64 breakfast buffet and think that it's nothing, then I have enough money to do a number of other stupid things with my money. But the breakfast isn't actually more nutritious, because if I bought it for seven bucks instead of 64 bucks, does it actually do more for my body? That was the purpose of breakfast, by the way, for me. I don't go to breakfast to see and be seen, [00:10:30] I have to admit. First of all, nobody wants to see me. And secondly, why would I want to be seen? I'd rather be privately having my breakfast somewhere. But they were serving it out in the open.

(10:40):

So why is money poisonous in business is really interesting. I was just on somebody's podcast today talking to them about this. If you have new technology, and all SaaS is technology, therefore at some point, it's new technology. This is kind of like just math. People sometimes beat up on me, "Why do you say that's just math?" Because it's just math. [00:11:00] So it's just math that if you have something later, you must have something earlier. And at some point, you had the one that's earliest, and so it's new. Okay. So here's the problem with new technology, you actually don't even know what it should be. You just have your fervent imagination, your fantasy or whatever.

(11:19):

But there are these folks out there that we call tech enthusiasts who love to play with and beat up new technology. It's how they make their way in the world, because they work at companies where [00:11:30] other people in the company would like to know, "Well, what's new, and what's working?" And that's what they do. They don't have a title that says new technology checker outer, but they exist, and they're called tech enthusiasts. If you skip the step of selling to tech enthusiasts, then your technology will never actually have been beaten up enough at a very, very low cost. Because they'll pay you a little, not much. But they will beat it up. And you can't buy that. You can't buy it. Your QA team will do nothing to that product compared to [00:12:00] what the tech enthusiasts will do. And they'll do it in all good humor. They're actually trying to make it work. But they're going to tell you about every little thing that's wrong, and you can choose to fix those things or not. You should probably choose to fix them.

Corey Frank (12:14):

Yeah.

Chris Beall (12:15):

So that little annealing process, that little process of going from an idea embodied in code to code that actually implements at least part of the idea, that needs to be done. So if you have too [00:12:30] much money floating around, you've got that 5 million in the bank, you're likely to either skip that step or do something even worse, which is to go back to your funder and say, "I have product market fit."

Corey Frank (12:44):

Yeah. Yeah. Yeah.

Chris Beall (12:45):

"How do I know it? Look, the dogs are eating the dog food." Well, those are not the dogs. They are not the dogs. The dogs are on the other side of the chasm. What's eating your dog food? [00:13:00] Are these very enthusiastic sort of, I don't know what they are, maybe rodents of some kind. And they love dog food, but they're still not dogs. And you can tell, by the way, because they won't pay you very much for it.

Corey Frank (13:13):

It's what we talked about with the legendary Dr. Goldratt, where there's a tail, but it doesn't necessarily mean there's a dog behind that tail.

Chris Beall (13:25):

Exactly. Exactly.

Corey Frank (13:26):

And I think the example that we talked about was [00:13:30] Botox, right? Where, hey, Botox seems like, hey, people want to look younger, they want to feel younger. They love the image it portrays. But unfortunately, people also hate needles. So if it was a pill form or a cream form, that would catch on much more widely. It already is pretty wide, but it's not exactly this dog behind the tail. And tails can be seductive, because there are these semi businesses, these nichey businesses, [00:14:00] these almost businesses. But it certainly doesn't create a market dominant type of business. Correct?

Chris Beall (14:07):

Exactly. And the fact is, tech enthusiasts as the tail end question, they're anti referenceable. They're anti referenceable. If a tech enthusiast is using your product and loves it, that reduces the chance that's somebody who's a regular kind of business person is going to say, "I want to use that too." Because they're going to look [00:14:30] over there and go, "Yeah, yeah, yeah. Mary's like that. She'll try anything. She loves new stuff. She tinkers with it. She has a great time with it. That's not me." So if she's using it, it's not ready for primetime.

Corey Frank (14:46):

But if I have all this capital, is it the formula, get money, hire salespeople, yield revenue?

Chris Beall (14:55):

Yeah, that's what's on the spreadsheets, right?

Corey Frank (14:58):

Yeah.

Chris Beall (14:58):

I mean, how many spreadsheets have I seen [00:15:00] in my career that work like this? And I laugh. I make fun of them a little bit. I try not to be cruel. And then I choose to be cruel to see whether I can actually get them to jump off that horse and walk around a little bit. And they work like this, "Well, here's our business. You see, we have a bunch of words that describe the market. And then what we do is we add resources that generate revenue," they're called salespeople. "And we also spend money on [00:15:30] marketing that generates demand. The salespeople service. And well, now we're done. Now we're done. Now, we go execute. How do we execute? We hire salespeople." It's like, okay, so I know for sure what's going to happen when we hire salespeople.

Corey Frank (15:47):

Yeah.

Chris Beall (15:48):

The salespeople are going to do a little of what works. So what will they do? Well, if your product is not yet gone past the tech enthusiast phase, they will [00:16:00] sell to tech enthusiasts. No matter what you say your ideal customer profile is, they will sell to whomever allows them to succeed. And in sales, succeeding means, "I close deals, and the deals are for money." So now, the salespeople will both cost you money, which is a problem.

Corey Frank (16:18):

Yeah.

Chris Beall (16:19):

And then they'll take you in the opposite direction from where you need to go, which is a bigger problem. And then you'll get addicted to it, because you'll start looking at the sales results [00:16:30] and going, "Wow, this is great," which is a bigger problem. And then you'll start celebrating these things and calling them wins. "It's a win. What happened is a win." Well, we're trying to have Billy here grow up to be big and strong. And look, he's over there eating Jello. At least he's eating more Jello. We have a win." I'm not saying Jello is bad.

Corey Frank (16:54):

A phantom product market fit.

Chris Beall (16:57):

Exactly. Phantom fantasy product market... [00:17:00] Then we get to the hard part. And this is what we were going through today on this podcast. The hard part is, not this one, but this other one I was on. Now you've got to decide what do you do next? So your technology has been beaten up a little bit and you've made some fixes, but nobody has ever really held your feet to the fire. Nobody has ever said, "This has got to work, or somebody dies here."

(17:23):

And that's the role of this kind of customer who's next, who is misnamed, I think we've talked about this before, as the visionary. [00:17:30] Everything Jeffrey Moore ever said was correct, except I think he chose the wrong name for the visionary, because it's their vision of beating the living daylights out of two or three or four of their competitors or escaping a noose that they feel closing around their neck. So they exist out there, and there's one of them who really wants your technology to go and get competitive advantage. And if I had a $1.52 for every time [00:18:00] somebody said, "This is great. This customer of ours, prospect, they see themselves getting competitive advantage. Isn't that wonderful?"

Announcer (18:10):

We'll be back in a moment after a quick break. ConnectAndSell. Welcome to the end of dialing as you know it. ConnectAndSell's patented technology loads your best sales folks up with eight to 10 times more live [00:18:30] qualified conversations every day. And when we say qualified, we're talking about really qualified, like knowing what kind of cheese they like on their Impossible Whopper kind of qualified. Learn more at connectandsell.com.

(18:44):

And we're back with Corey and Chris.

Chris Beall (18:51):

If you're at that stage, go get one of them. Go get one of them, charge them a huge amount of money. Make sure they get us, and do something [00:19:00] with them. But don't do two.

Corey Frank (19:02):

Don't do two.

Chris Beall (19:03):

Don't do two.

Corey Frank (19:04):

Yeah. This aspect of this insidious decline, I guess, that happens in this performance, when I assume that my dogs, the type of dogs I want are eating the type of dog food I'm producing. And all of a sudden, I don't get any new dogs. These are the same dogs who are eating the same dog food. The population of the dogs around the bowl are not increasing. [00:19:30] There's generally, and you've taught me this, Chris, sometimes there's this lateral adjustment that happens where, "Well, it must be the sales manager then," or, "It must be the systems I'm using," or, "It must be the comp plans." How do I know that it's not necessarily a lateral problem? It could be. And instead, more of a vertical challenge here that is going to be the bugaboo to vet out whether I have the right business model.

Chris Beall (20:00):

[00:20:00] Well, this is where being a senior person is super helpful. So one of the things that you get from seniority, senior people, talking to senior people, is you get what I call a shot at the truth. So if you go to one of your customers that you think is a dog that's across the chasm, referenceable and all that, don't go to the person who actually made the decision to buy. Go to their boss, go to their boss's boss, and talk to them about the business problem that [00:20:30] your product is addressing for them. Just talk to them about it. Ask them like, "How's it doing? What's it doing for you?"

(20:39):

So if they talk about competitive advantage, well, they're a visionary. If you charge them regular prices, you know you undercharged. That's all there is to it. Plus, you didn't put enough in the deal. If you talk to them, and they say, "Well, this is great. Mary's learned so much using your product. We really have gotten a good view of how generative AI [00:21:00] could work in our business." You know it's a tech enthusiast, so that's not a dog at all. That's like some kind of a whatever, something else.

(21:08):

If they talk about they have this business problem, things changed, times changed, and your product helps them take friction out of the mission and get back to where they were doing what they were doing before, maybe even better. That is they had a broken mission-critical business process. Then you've got yourself a dog. [00:21:30] Now, you've got to find out, "Well, along which dimensions are they a dog? What is it about them that would cause somebody else to buy because they bought?" Well, you just ask them that question like, "Well, of these six or seven companies that we've been talking to, which one would you have gotten the most comfort from? I know you bought us, I get it. But had we sold to which one of these first, would it have allowed you to say, 'Oh, this is safe. This is safer.'"

(22:00):

[00:22:00] Well, they're in the market. Because they're very rare. It's very rare there's symmetries in business. Almost everything in business is asymmetric. It doesn't matter what you say, it's all asymmetric. Water runs downhill. It doesn't run across flat surfaces, and it sure doesn't run uphill. So here, you have this early adopter. This is a true early adopter of your technology. This isn't a tech enthusiast. This is somebody in market. Their relationship to the other players around is, if another one had gone first, who's [00:22:30] enough like them, they would've happily gone second. They went first, because, inconveniently, they couldn't figure out how to go second.

(22:38):

So just ask them. Ask them, "Who among this..." And you have to give them a list. "If we had sold to them first, it would've made it easier for you to buy?" And they'll tell you. And now you know, "Okay, that's somebody else in the market. We'll go sell to them." So the folks you've sold to will tell you who the rest of your market is from their perspective, [00:23:00] by reversing the order of the question and saying, "Who, if they had bought first, would've lowered my cost and my risk of selling to you?" And they'll tell you.

Corey Frank (23:10):

I think, and you and I have been around a lot of founders, a lot of CEOs, a lot of boards, because the business model is one dimensional. It's not an animate object. You have the people who are maybe a little bit more tree hugging in their approach to a [00:23:30] business model. They prevaricate when confronted maybe with some market data or some anecdotes from their sales team. Balance that as a CEO knowing to abandon ship, knowing when to bail water, knowing when to tack to a new course. So above the spreadsheet, when it's you alone [00:24:00] and you're in your office at 7:00 PM on a Friday, you got a board meeting next week, your people are waiting to hear from you in the all hands-on a Monday morning. What traits do you find most helpful in those solitude moments?

Chris Beall (24:17):

Whoa. Whoa. That's a good one. I think the main thing that you need to bring to the party at that point is just clarity. Just [00:24:30] clarity. It's like, if it's clear you don't know what you're doing, be clear that you don't know what you're doing.