Not All Customers Are Created Equal

The type of language we use is important, and especially so when a founder and investor are discussing a business. Lately, I’ve come across the word “customer” quite often in conversation. It’s a sign of the times today that even early-stage seed level companies are courting and retaining customers (which is the topic for another upcoming post). For now, I want to focus on the word “customer.”

When I hear most founders say it lately, it is intended as monolithic — for instance, “We have seven customers right now.” But, what I hear is something different. My ears and brain interpret the word “customer” differently and therefore, I usually stop and interrupt. I want to know more. All customers are not equal. Here’s how I segment them today — and, please, if you have a better way, please let me know and I’ll update the post.

[Alpha Customers] These are customers of any size (often not paying) who are doing the startup company a favor by testing the software or service. Founders need these customers to refine the product, collect data, etc. Over time, they may, of course, convert to real customers.

[Beta Customers] These are customers who might be paying but are limited to set a set size by the startup and, in good situations, coming off a waiting list as the founders figure out how to scale and meet more demand.

[Reference Customers] I’ve observed some founders using their networks to target bigger, brand named companies as customers and giving away their product or service for free, on the implicit agreement that the larger company would act as a future reference for the startup. For instance, a startup may have a connection to WorkDay, give them their beta mobile app across the company for free, and in return, WorkDay’s CIO (or someone) will act as a reference for future customer leads.

[Real Customers, SMB] How one classifies “small” and “medium” here is up for debate, but maybe it’s all under 1,000 employees. Who knows. The point is, they need to be distinguished from large, enterprise-scale customers.

[Real Customers, Enterprise-Scale] The toughest to get and the most sought after. Logos and scale matters, not only for business purposes, but as a signal toward how the founding team can access and sell into larger companies.