SaaS Founders Need to Interview Their Sales Prospects For Fit

A very common reason eCommerce software companies and service providers fail is that founders don't understand the concept of a beachhead market, ignore their stated target market in their marketing and sales processes, and don't vet their prospects markets properly.

I have made this mistake so many times I've lost count. When I was CEO of my last software company (Merchantry), we probably had like an 80% hit rate for retailers that would go out of business in 3-5 years. If it wasn't 80%, it sure as hell always FELT that way when the next customer went out of business.

Do you know what effect that kind of churn can have on a startup?

The key is this: any customer you sign, you are investing your company's time and resources with a brand, and they in return are giving you cash flow. This discussion is about developing your "investment criteria" for new customers.

The goal of this criteria should be to produce a scorecard: A, B, C and "everyone else". A and B should be your VERY TOP ICP customers, generating the most margins, and where you have the most pricing flexibility. C should be solid accounts with solid businesses that are very repeatable but more small-midsized. "Everyone else" is a crap shoot. Half of them might churn to a new competitor, half might go out of business, who knows.

Track the churn rate for each customer type, not just within your monthly cohorts.

First, understand your prospect's ICP. Does it make sense?

Second, ask about the company's cost structure and margin. Particularly in retail if there is not enough gross / net margin to run their business, you know the brand may not be long for this earth. It could be your prospect hasn't figured that out yet.

Third, ask what other software is in their stack, particularly if they are in the Enterprise space. "Too cheap" or questionable software choices in other areas of their stack should be a red flag.

Fourth, ask who is making their technology decisions. Even if the founder is not technical, or doesn't have a CTO, many hire advisors or consultants to help them vet software vendors. This is a HUGELY positive sign for you, not a red flag. It means the company is thoughtful.

Develop your own questions, I suggest between 5 and 7 being a good number. Some should add points to your score, and some should subtract. Think of it like an NFL draft scout rating a prospect.

Ensure these questions are shared throughout the company, from implementation and support through to sales and marketing. Every employee should not just understand a description of your ideal customer(s), but what questions to ask to determine if someone is an ideal customer, and how those questions affect your ratings.

Then hold discussions internally so that your employees feel ownership of these questions.