Most Startups Should be Deer Hunters

Posted on Sep 16, 2009 | 120 comments


This post is part of my series “Startup Lessons

Elephants, Deer and Rabbits – Some thoughts on start-up segmentation

deerhunter

Nearly all of the mistakes I made at my first company I fixed by the time of my second company.  This is the only mistake I repeated twice and it is a mistake that I see many, many companies make.

I know that this advice won’t apply to every possible startup – but I think it applies to many.

When you start your company the very first question you need to ask yourself is which kind of customers do you want to serve.  Many start-ups (and even growth firms) lack this discipline and they therefore serve customers off all sizes.   This leads to suboptimal results for all.

Make sure you know what the size of customer you want to serve is, what the people in a company of that size do, the problems they have, the features that will resonate and the channels you’ll need to sell into and service that customer.   Because it will vary dramatically by different segments I believe you need to pick an animal size and go for it.

I’ve stated my animal bias in the title – but each can work for different business types.  The segment breakdowns are below:

Elephants:

elephantIt is very tempting for many start-ups to hunt elephants.  These are really massive customers.  It’s landing AT&T or Microsoft as a customer when you’re a start-up.  You’ve got 8 people and are serving a business unit that has 5,000.

It’s tempting on many levels to be an elephant hunter.  If you manage to kill an elephant they have so much meat they’ll feed you for a long time.  But elephants are hard to catch and take whole teams of people to bring down.  They take special tools.  If you’re not successful you may starve.  If you do catch them, it could be even worse.  Avoid elephants in your early stages.  Learn from my mistakes.

Here is the real world story.  I worked for Andersen Consulting for more than 8 years.  Initially as a systems designer and programmer and post MBA as a strategy consultant.  We knew how to land huge corporate customers.  We knew how to “call high” into board rooms and get meetings.   So when I started my first company I naturally went for elephants.

The problem is that they were initially very easy for me to find.  I could easily go into the board rooms of major European companies (I was based in London) and land $500k – $1 million contracts so my order book grew rapidly.  The problem is that to win each of these deals I had to promise high service levels.  We typically committed to building “missing” features and therefore steered off of our MVP (minimum viable product).

We had to promise really steep service SLAs and help desk hours.  We had to do intense training sessions.  And when things didn’t go perfectly these organizations had huge leverage over us.  In short, servicing the elephants consumed us.  It soaked up all of our development resources and didn’t allow us to focus on what we felt our company strategy was.

We started out with such big dreams about changing the world.  On some level we felt we did because being a SaaS company in 1999 was trailblazing.  But in the end we ended up building esoteric features that we knew our clients would never use because they paid us lots of money.   See definition of a whore.

And this is not just a problem at start-ups.  I remember working for Salesforce.com and we were bagging elephants relative to our size.  We were obsessed with landing Merrill Lynch, Dell and Cisco.  I watched the first two of these customers consume significant portions of our internal programming resources.  I personally felt that we would have been better served putting more resource into building out cloud services, for example, to make Salesforce more scalable in terms of our user base. (note: my internal friends at Salesforce tell me that they’ve really fixed this now and internal dev teams are much more focused on bigger, more strategic development).

Elephant hunting does work for some companies.  Some companies / products are designed for large organizations from day 1.  But I believe that if you go down this road you will struggle to simultaneously serve the SMB market.  The needs are too different as are the sales channels and marketing messages.  If you want to hunt elephants optimize your tools for just that.  And know that VC will be hard to come by.

group of bunnies

Rabbits:

Equally deceiving are rabbits.  There are so many of them – they seem like they’re everywhere.  So you chase them.  But as you get closer to them you realize that they’re quick little buggers.  They scatter and get away.  You wonder whether they were really worth the effort after all.

Rabbits for me are the equivalent of having a low-end version of your product that you feel you’ll make up for in volume.  I see it all the time.  Companies post the $5 / month product designed for self-service clients.  Or they have products that cost $40 / month but that require a direct sales person to close them.

This is especially problematic in the Web 2.0 / Freemium world where too many company build their business models around trying to build massive scale of free customers and then convert a small share to low monthly payments.  I guess it has worked for some companies? (Basecamp?  Who else?)

My second company, Koral, tried to go down the freemium route.  We found that at the low end there wasn’t enough revenue to make it worth our while.  Then Salesforce.com asked us to implement our solution to all 3,000 employees (before they decided to buy us).  So we were trying to optimize for freemium while building in all of the special requests Salesforce asked for in order to win the deal.  We went after it because it was worth some serious elephant meat.

Sometimes it is acceptable for companies to focus on low-level entry customers – Rabbits.  Obviously if you’re going to build a massively scaled business like Twitter, Facebook or Zynga you’re going for huge volumes and the small transaction value model can work.  I’m told this model has worked well for Zoho in the small business sector.  But unless you’re a very large volume business and focused on transactions rabbits are deceptive.

I came across a company today at TechCrunch50 called Outright that is perfectly suited to rabbits.  I believe it can actually build a big Rabbit Business and it’s strategy seems perfectly suited to reaching this customer base through partners.

But few companies are good at trapping rabbits.

Want to be the SharePoint killer?  Avoid rabbits.  Have a better version of BaseCamp?  Ditto.  Want to build a product that relies on converting local mom-and-pop businesses into online advertisers – see if a regional approach might work better.  Have a product for online backups? Avoid the low end of the market – too elusive and hard to shake enough money out of them.

In short, when you hunt rabbits they’re not as easy to catch as you might think.  When you catch them they don’t have much meat.  So you need a lot of them to feed the village.

Deer:

deerThe analogy is now obvious.  Deer are easy to kill.  When you do bag deer they have plenty of meat on them to have made it worth you while.  Deer are right-sized for a start-up.

Deer are not so big that they can make huge demands on you for your development resources or customer support.  They can barely get you to agree to make changes to your standard terms & conditions.  If you catch lots of them you’re not beholden to one big one that if they cancel their order you’d be devastated.

When you’re a start-up it is far easier to cut your teeth on companies that are easy to serve, not as demanding yet can afford to pay you fair prices for your product.  If their demands are too high you can easily move on to the next customer.  They allow you to stay focused on your defined company strategy without having to compromise.

That’s why I believe most early stage companies should be deer hunters.

Final question I’m often asked – how big financially are Elephants, Deer & Rabbits?  That’s for you to determine for your own business because it depends on your customer base and the value you’re providing them.   Many of my friends who were initially focused on low-entry price point consumers have moved up market to focus on slightly smaller markets with customers willing to pay.  For me, classic definition of deer segmentation.

Apologies to all vegetarians.

  • http://oddfellowstudios.com Shava Nerad

    Hmmm…. So are affiliates/resellers/licensees automatically deer for the most part? As aggregators you might think so.

  • http://lmframework.com/blog/about David Semeria

    As usual, excellent stuff.

    One solution is to give clients tools to customize the product themselves. Bigger clients may have bigger needs, but they also have more resources to implement them.

    What I'm basically saying is that companies should consider viewing their products/services as platforms.

  • Pingback: Most Startups Should be Deer Hunters IM Consultant

  • gavinbaker

    Great post! Your bit about elephants reminds me of “Crossing the Chasm” – thanks for taking the time to share.

  • http://blog.fosketts.net sfoskett

    Even us vegetarians agree with the need to match your game with your hunting abilities! Wise words, especially the one: “most”

    Inventors of rabbit traps and elephant guns can get mighty rich hunting that game!

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  • http://bothsidesofthetable.com msuster

    resellers or licensees are a whole different kettle of fish and a topic for a different post

  • http://bothsidesofthetable.com msuster

    More resources but more demanding. Tools to customize = requirement that may or may not be needed for deer. I'm just saying, once you start it's a slippery slope.

  • http://bothsidesofthetable.com msuster

    We built our whole first company around the idea of Crossing the Chasm. But as of 2009 I now believe some of the ideas from the book are outdated. A topic for a different post!

  • gavinbaker

    “Crossing the Chasm” was an eye opener for me as well. Additionally I just read @zappos post on poker tables. Combined with yours the title post could be, “10 point buck at the poker table.”

  • http://lmframework.com/blog/about David Semeria

    Sure, I agree 100%. I'm just saying that the effort needed to create the customization tools enhances the entire platform, and doesn't drag the product towards the specific needs of any single large client.

    Take a bit more development pain up-front, to save yourself some of the future grief you described in the post.

  • http://oddfellowstudios.com Shava Nerad

    Hmmm…. So are affiliates/resellers/licensees automatically deer for the most part? As aggregators you might think so.

  • http://gregb.me Greg Brown

    You must not be an actual hunter ;)

    Fantastic article, the analogies are really helpful. Unless actually hunting, of course.

  • brianli

    Makes great sense, awesome post! Even where I work now (you know where), there's too much emphasis on elephants. We're losing sight on up and coming firms…

    To add to your animal analogy, how about, a segment for sheeps. They are passive, who follow you around and can attract other sheeps to build a flock. An ideal customer is also one who can attract/refer customers for you at relatively no cost.

  • http://lmframework.com/blog/about David Semeria

    As usual, excellent stuff.

    One solution is to give clients tools to customize the product themselves. Bigger clients may have bigger needs, but they also have more resources to implement them.

    What I'm basically saying is that companies should consider viewing their products/services as platforms.

  • http://bit.ly/19kduZ Greg4

    I have a more positive view of the rabbit market, especially as online customer acquisition has gotten more effective and small businesses appear to have become more comfortable using remote, startup vendors. Successful rabbit hunters that come to mind include SurveyMonkey, Balsamiq, and FreshBooks. Whether those types of companies are quite large enough and growing fast enough to be attractive venture capital plays is a slightly different question. What are your thoughts on that? They seem to fall into the dreaded “single or double” category.

    Also, here's an interesting thought. Google AdWords is relevant to all these segments, but one could argue that it's more of a killer app for rabbits than bigger companies.

  • http://www.vumedi.com Roman Giverts

    Interesting way of describing these customers, haven't thought about it that way.

    One category that is also relevant is “baby elephants.” This would be doing a smaller deal with a very large company. For example, in my company (which has 3 employees), Johnson & Johnson is a customer. But it's very different than the elephant you describe. Our deal is with a division of J&J, and in that company, our product is currently only focused on 1 single product line. The advantage are:
    1) It's a small enough deal for us to handle the work while developing new customers
    2) We're not being pushed around so we can learn as we go.
    3) We can still reference J&J as a customer.
    4) most interestingly – 3 other J&J companies have already heard of us through internal discussions, which is a pretty cool way to generate leads.

    So, if we can expand to more divisions, we grow and the baby elephant grows.

    Just another model for customer development that I think works, in addition to deer hunting.

  • http://www.vumedi.com Roman Giverts

    I thought of Crossing the Chasm too. It was a great book when I was in college, but as you actually get out there you realize… if only it was that simple. I think most industries have a technology adoption life cycle, but it's not always bell curved and it's not always grouped into visionaries, pragmatists, etc. One of the challenges is figuring out the actual technology adoption life cycle in a particular industry you are selling to.

  • gavinbaker

    Great post! Your bit about elephants reminds me of “Crossing the Chasm” – thanks for taking the time to share.

  • http://blog.fosketts.net sfoskett

    Even us vegetarians agree with the need to match your game with your hunting abilities! Wise words, especially the one: “most”

    Inventors of rabbit traps and elephant guns can get mighty rich hunting that game!

  • http://twitter.com/bakespace Babette-BakeSpaceCEO

    As a vegetarian… (I know kind of funny since I should be an equal opportunity eater given my space).. I will try to put my feelings for hunting animals aside.

    Interesting piece. I guess my main question is.. what are we talking about here… building a business that you're going to run for years to come or positioning it for an acquisition/exit?

    While they may seem the same, I think there is a case for going after some elephants even if it almost kills you to do so. Why? Because have you ever been around a group of VCs and listed off your sales clients and they had that glazed look of “so what?” LOL Seriously, while bagging elephants might not be a sustainable model for most small companies, you need a few to show you're ready to play with the big boys – don't you think? Plus, elephants attract elephants. No one wants to be the last at the party. If you have too much business and need to scale, that's not a bad thing…. that's called “you're fundable.”

    Actually, the sheep analogy that @brianli posted below is interesting. Sheeps are ones with built in fan bases and high PR value and they technically can feed and clothe you. :) But they pretty hard to catch. Not sure how smart they are..

  • http://bothsidesofthetable.com msuster

    resellers or licensees are a whole different kettle of fish and a topic for a different post

  • http://bothsidesofthetable.com msuster

    More resources but more demanding. Tools to customize = requirement that may or may not be needed for deer. I'm just saying, once you start it's a slippery slope.

  • http://bothsidesofthetable.com msuster

    We built our whole first company around the idea of Crossing the Chasm. But as of 2009 I now believe some of the ideas from the book are outdated. A topic for a different post!

  • gavinbaker

    “Crossing the Chasm” was an eye opener for me as well. Additionally I just read @zappos post on poker tables. Combined with yours the title post could be, “10 point buck at the poker table.”

    http://blogs.zappos.com/blogs/ceo-and-coo-blog/

  • http://bothsidesofthetable.com msuster

    I also don't believe any more in the approach of going deep in one vertical and when you've captured that vertical moving to the next tangent market. That was the mistake I made in my first company.

  • http://bothsidesofthetable.com msuster

    ;-) I guess I've shown my true colors. I've only ever shot a gun twice and nowhere near an animal

  • http://lmframework.com/blog/about David Semeria

    Sure, I agree 100%. I'm just saying that the effort needed to create the customization tools enhances the entire platform, and doesn't drag the product towards the specific needs of any single large client.

    Take a bit more development pain up-front, to save yourself some of the future grief you described in the post.

  • http://bothsidesofthetable.com msuster

    Hey, Brian! Yes, you know where I learned to Elephant Hunt. re: sheep – I'm okay with them. If someone is willing to sign up, pay money and not suck up my resources I'll take them all day long.

    That said, the power of referenceability is enormously important in growing a business. But that's a different post.

  • http://bothsidesofthetable.com msuster

    re: SurveyMonkey, FreshBooks, etc … I don't know their revenue size. But I will say that if you can build up a large enough scale you can hunt rabbits. But I still prefer to build a large scale and focus on the deer. I'm not saying rabbit hunting can't work, just that too many people try it and fail. If you're a rabbit hunter make sure you know it and you better have a product that massive amounts of people can use and have a strategy for acquiring customers at a very low cost.

    re: AdWords – initially it was for rabbits IMO. In the end once you've scaled you can serve multiple segments – I'm really just talking about during the start-up phase.

  • http://www.vumedi.com Roman Giverts

    What do you do instead? go after everything?

  • http://bothsidesofthetable.com msuster

    I get it. Yes, divisions of companies can be seen as deer. But … many divisions of large companies still behave like elephants because they can. So you just have to be careful.

  • http://bothsidesofthetable.com msuster

    I'm talking about businesses that scale, not quick flips. The requirements for elephants drive companies to do things that they often shouldn't do. Yes, you can have one or two elephants as validation for your idea. But be careful not to orient the entire company around serving them as I did. I find many companies end up doing this.

  • http://bothsidesofthetable.com msuster

    I believe in creating products that meet functional requirements of a part of a business but that can scale across industries. So your product might orient itself around sales professionals, marketing professionals, the treasury department, recruiting, HR or whatever. But something that you can market to multiple industries.

    OR … you can build a deep vertical app in a large industry but with no intention of going across multiple verticals. Examples: Healthcare, Financial Services.

  • http://twitter.com/bakespace Babette-BakeSpaceCEO

    True.. good point. Thanks for your reply.

  • http://www.vumedi.com Roman Giverts

    I agree that products should scale. And I understand that if a product is created to only solve the problems of a single vertical, it will be difficult to scale outside that vertical?

    But assuming you have a product that can scale, shouldn't start ups with limited resources focus on a single vertical from a sales and marketing standpoint? Don't you think people make decisions based on references, i.e who else is doing it?

  • http://thynews.com/wrightlabs John Wright

    Great article Mark! Informative and entertaining.

  • http://www.twitter.com/biggiesu Mike Su

    Good stuff Mark! Couldn't agree more. For the years I worked at Symantec, I saw first hand what it takes to hunt elephants. And I completely agree, it's hard, or darn near impossible, for a startup to chase after those elephants. Customers would regularly ask for two year roadmaps and ask you to commit to those features. The type of thing that would make Steve Blank or Eric Ries throw up their breakfast :) The sales cycles are measured in months if not years. RFPs that are broken into, I kid you not, multiple volumes (on a separate note, I'm convinced if someday we are able to completely digitize the RFP process, we'd save what's left of the Amazon). Once you land the customer, then it's backwards compatibility, supporting Windows 3.1 etc. etc.

    Companies like Symantec, IBM, etc can afford to chase after these big deals. Heck, the customer is pre-disposed to pick one of these big brands. CIOs could lose their jobs if they picked a startup whose product failed or went out of business. But who could blame them for going with Cisco or IBM? Unless you have completely defensible IP that solves an urgent problem that no-one else can solve, goodluck. And even if you have all those things, your best bet is to white label as part of a bundle with a bigger partner who hunts elephants rather than selling direct. But even then, you're still dealing with all the backwards compatibility issues and support demands.

    Sadly, most of these problems have nothing to do with product or features, but the political realities of selling to enterprises, which is why most entrepreneurs get tempted to hunt elephant – they know the elephant needs it, they know they're better than everyone else, so why wouldn't they be able to bag the big fat juicy elephant?

  • http://gregb.me Greg Brown

    You must not be an actual hunter ;)

    Fantastic article, the analogies are really helpful. Unless actually hunting, of course.

  • brianli

    Makes great sense, awesome post! Even where I work now (you know where), there's too much emphasis on elephants. We're losing sight on up and coming firms…

    To add to your animal analogy, how about, a segment for sheeps. They are passive, who follow you around and can attract other sheeps to build a flock. An ideal customer is also one who can attract/refer customers for you at relatively no cost.

  • http://www.brekiri.com/blog/ Greg4

    I have a more positive view of the rabbit market, especially as online customer acquisition has gotten more effective and small businesses appear to have become more comfortable using remote, startup vendors. Successful rabbit hunters that come to mind include SurveyMonkey, Balsamiq, and FreshBooks. Whether those types of companies are quite large enough and growing fast enough to be attractive venture capital plays is a slightly different question. What are your thoughts on that? They seem to fall into the dreaded “single or double” category.

    Also, here's an interesting thought. Google AdWords is relevant to all these segments, but one could argue that it's more of a killer app for rabbits than bigger companies.

  • Roman Giverts

    Interesting way of describing these customers, haven't thought about it that way.

    One category that is also relevant is “baby elephants.” This would be doing a smaller deal with a very large company. For example, in my company (which has 3 employees), Johnson & Johnson is a customer. But it's very different than the elephant you describe. Our deal is with a division of J&J, and in that company, our product is currently only focused on 1 single product line. The advantage are:
    1) It's a small enough deal for us to handle the work while developing new customers
    2) We're not being pushed around so we can learn as we go.
    3) We can still reference J&J as a customer.
    4) most interestingly – 3 other J&J companies have already heard of us through internal discussions, which is a pretty cool way to generate leads.

    So, if we can expand to more divisions, we grow and the baby elephant grows.

    Just another model for customer development that I think works, in addition to deer hunting.

  • http://seekingventurecapital.com jasonspalace

    so from the post and comments that follow, small businesses would be deer right? it's 2009 and to me this market still seems undernourished with great internet products, my development efforts are validated for the week with another great post! =)

  • Roman Giverts

    I thought of Crossing the Chasm too. It was a great book when I was in college, but as you actually get out there you realize… if only it was that simple. I think most industries have a technology adoption life cycle, but it's not always bell curved and it's not always grouped into visionaries, pragmatists, etc. One of the challenges is figuring out the actual technology adoption life cycle in a particular industry you are selling to.

  • http://www.jeremyhanks.com jeremyhanks

    AMEN! I've been living this with my company Doba for the past 7 years. We've been hunting rabbits like wild, being distracted by a couple of elephants, all the while hoping and praying and trying like hell to figure out how to bag a couple of deer and scale it. Super thoughts!

  • adityavempaty

    This post was great! Really enjoyed the bit about teh rabbits, as this is a path i have thought about going when creating my startup and looking for demo clients. The hardest path about giving a free demo in return for input seems to be that even thought its free, moment you ask for feedback the rabbit clients still run away.
    The deer ones which have stable growth and are eager to watch others grow (as I have learned from Blank to call them early-vangaists) are ones which want to help you but these are few and far inbetween.

    Now comes the elephants, these guys wont even touch you even if tis for free and a demo for feedback and take too long to get around the red tape to even get their attention. I have realized its best for these guys to come after you rather than you to them. Hence in terms of your post, for an early stage startup like mine: I would want many deer and few rabbits drinking from my waterhole (product) so that i can attract the elephants :)

    Question, what if one does not have the “right conections” from high up to get a call, is it worthwhile to start higher a sales team at that point or one sales guy with a huge Rolodex?

  • http://twitter.com/bakespace Babette-BakeSpaceCEO

    As a vegetarian… (I know kind of funny since I should be an equal opportunity eater given my space).. I will try to put my feelings for hunting animals aside.

    Interesting piece. I guess my main question is.. what are we talking about here… building a business that you're going to run for years to come or positioning it for an acquisition/exit?

    While they may seem the same, I think there is a case for going after some elephants even if it almost kills you to do so. Why? Because have you ever been around a group of VCs and listed off your sales clients and they had that glazed look of “so what?” LOL Seriously, while bagging elephants might not be a sustainable model for most small companies, you need a few to show you're ready to play with the big boys – don't you think? Plus, elephants attract elephants. No one wants to be the last at the party. If you have too much business and need to scale, that's not a bad thing…. that's called “you're fundable.”

    Actually, the sheep analogy that @brianli posted below is interesting. Sheeps are ones with built in fan bases and high PR value and they technically can feed and clothe you. :) But they pretty hard to catch. Not sure how smart they are..

  • http://bit.ly/19kduZ Greg4

    Yup, makes sense. I've been giving it some thought since I'm debating whether my initial segment should be rabbits or deer (or a combination). I still kind of buy into the idea of a clearly-defined beachhead segment, even if it's not necessarily industry-focused. Looking forward to your eventual Chasm post.

  • http://bothsidesofthetable.com msuster

    I also don't believe any more in the approach of going deep in one vertical and when you've captured that vertical moving to the next tangent market. That was the mistake I made in my first company.

  • http://bothsidesofthetable.com msuster

    ;-) I guess I've shown my true colors. I've only ever shot a gun twice and nowhere near an animal