The lure of the logo: What is the best startup strategy ?
Back in 2009, when I just raised my first round of venture capital for Coupa Software, sales got a big logo on the hook—a huge company whose cash in our coffers and logo on our website could have given our fledgling enterprise a big boost. They were looking for a multilingual, multi-currency global deployment that was right in our sweet spot—and a lot of other work that was not so much so.
While visions of huge commission checks danced in the heads of our sales team, an internal debate took place among company management.
One side said that we could get paid handsomely and leverage this logo to bring in other big logos in the same industry.
The other side conceded that this was probably true, but there would be a lot of custom development required to support the customer’s many unique business processes.
They were willing to pay over $100K a month to do co-development, but we weren’t sure the code would have value beyond this customer. It would take about 25% of the resources of our 50-person company to service the account. Plus, they were essentially asking for time and materials pricing, paid at milestone intervals.
We were interested in becoming a global company, but a platform company, not a services shop. We knew that sometimes a company will buy your platform and pay for some additional customizations. That's fine, but the amount of custom development this company wanted, along with the pricing structure made it clear that effectively they wanted a to make us an extension of their IT department.
This is a common dilemma for a startup. When should you say yes to the lure of the big logo, and when should you say no? Finding the answer is an art, not a science.
Silicon Valley is littered with stunted startups that have succumbed to the lure of the logo. The demands of a marquee customer led them down a path to becoming a custom shop for a couple of big companies instead of building a scalable business. They didn’t do it intentionally, but in the glare of the logo and the money, they lost sight of their vision and that’s where they ended up.
There are also times in a company's trajectory that it might make sense to take a risk and let a big customer take you a bit off track, if it helps you begin working through some of the scaling issues that you might face down the road.
The key is to be able to take a step back and not just let the lure of a lot of money and a big logo take you completely off track. This is something I’ve been keenly aware of at Coupa. To me, staging this and getting this right is really the holy grail for a startup. Mess this this up, and that's it. You’re dead. It’s a very difficult set of decisions.
You have to take into account the maturity level of your own platform and your company's ability to support that type of business.
What percentage of your company’s resources will be spent on supporting that customer alone? I could dream up a formula, but ultimately it’s risk vs. reward. Something that takes only 1% of your resources at a later stage of your company might be an obvious go. But, there could be opportunities that take 50% of your resources but have the potential to open up an enormous market opportunity. There’s no hard and fast rule on how to manage this dilemma.
Product market fit is the biggest consideration. Many companies seem to think that if they build it, customers will come. That doesn't usually happen unless they get really lucky. Then there are those that build exactly what someone will pay for and then they become a custom development shop.
The whole trick is finding that place in between where you build something that satisfies enough people that they pay you and you get logos, but at the same time making sure that about 80% of what you build others in the market will also want.
How I've thought about it is that you should allow yourself the leeway to go a bit off the path but not so far as to get lost in the forest. If you're trying to get through the forest to the other side, with the other side being a scaled company, you can take some detours as long as you keep coming back to your path. You’ve got to pursue your vision, and also test a bunch of other ideas along the way. The big logo customer can offer an opportunity to do that testing.
I’ve said no to the lure of the logo when I felt it would take the company too far off our chosen path, or soak up too many resources in proportion to what we could do for others, or lead us into too narrow a market. Saying no to a big logo takes the wind out of everyone’s sails for a bit, so you have to communicate the reasoning behind the decision.
In the case of the company we connected with in 2009, we ultimately said yes. We came to the conclusion that we would be able to re-use a large enough portion of what we built, particularly if we convinced the customer of our more prescriptive way to build it. We narrowed the scope to take less of our resources such that we were able to force-fit the services scenario into our model, and had the opportunity to develop valuable features, test our scaling efforts, and get well paid in the process.
When faced with the lure of the logo, you have to assess your business and your resources, weigh the risks and find those commonalities and use cases that can make yes the right answer. But most of all, you have get the dollars signs out of your eyes and be aware that a small company has to land a big logo very carefully, and there may be times when it is better to say no and walk away.
This article previously appeared on Forbes.com.