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Choose a Strategic Customer for Collaboration

By January 8, 2012Article

When you collaborate with a customer in order to design a product, you want a solution tailor-made for the customer. You can also sell it to other customers who need similar solutions. That’s why choosing a customer to collaborate with can be so crucial. Collaborate with the wrong customer and you may wind up with a solution that only that particular customer can use. Collaborate with a strategic customer and you can create a solution that others can use and are willing to buy too

A strategic customer is one that is both representative of your target customer and possesses a reputation as a leader in its field. For example, if your company sells medical billing software, you could customize and sell your product to any hospital in the country, or you could focus on a hospital with a reputation for using cutting-edge technology or that specializes in certain types of research.

Your product’s close association with a well-known and reputable customer validates your product in the marketplace in the same way that celebrity endorsements validate soft drinks or running shoes in the eyes of the public. Gain a strategic customer as a collaborator and you define the right product to solve a pressing need to generate revenue from day one, and you leverage the reputation of the strategic customer to help sell your product to similar customers.

Ironically, one of Google’s initial customers was Yahoo! Yahoo! contracted with Google to provide the underlying search technology for their Web portal. Initially Yahoo! had the reputation of being the most popular search engine on the Internet. By working with Yahoo!, Google gained a strategic customer that provided revenue and gave Google credibility as a search engine.

Perhaps the final, and most important, purpose of a strategic customer is to help your company to get acquired. Once you collaborate with a strategic customer, you develop a relationship with that customer who has helped to shape the design of your product. A fast way for a larger corporation to gain your strategic customer as their own customer is to buy out your company. By buying out your company, a larger corporation essentially buys the assets and customer base that your company has created.

The more important your strategic customers are to others and the closer these strategic customers are linked to your own company (through their involvement in designing your product), the more attractive your company becomes as an acquisition target.

Any corporation that buys out your company will inherit your customers. Sometimes during an acquisition, customers may leave a company that’s being acquired if their business relationship changes. However, if you’ve collaborated with your customers and linked them closely to your startup, customers will be far less likely to switch to a rival product. This helps to guarantee that the majority of your customer base will remain intact for the acquiring company.

Jon B. Fisher served as Bharosa, Inc.’s CEO until its successful acquisition by Oracle Corporation in July 2007. Jon became Oracle’s Vice President Product Management assisting with the release of Oracle Adaptive Access Manager 10g. Jon now serves as an adjunct faculty member at the University of San Francisco’s school of business. Jon’s unconventional 15-year software career, described in detail in Strategic Entrepreneurism. The book, which centers on the idea of designing a company specifically to be acquired by a larger one (rather than to become the next big IPO), offers a guide for ambitious entrepreneurs to help them complete their own successful acquisitions.

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