Few things are more dangerous for startups than big deals. These deals are different from those of large corporations. These are the deals on which the whole life / death / success of the company seems to depend. However, founders are kidding themselves when they think that one big deal will make their company a big one. I have personally seen many startups die because of this belief.
The opportunity to get a Big Deal pushes the founder to avoid more important problems. When you convince yourself that signing one big contract is exactly what matters, conversations with smaller clients begin to seem less important. Perceiving these clients as of minor importance on a relative scale, they are often ignored. At the same time, the founders justify the slow development of the product by arguing that it's not worth spending a lot of time on a product without big contracts, because that will change everything right away.
Many investors are exacerbating this problem by giving founders hope for a big round of funding in the future if they enter into a large contract. At the same time, the investors themselves are not responsible for what has been said or the risks for their capital, and at the moment when the founder really concludes a major deal, the investor will simply say “I told you you can. Here's your money. "
One of my favorite examples of how a founder, without relying on the "miracle of big deals", has benefited from many such deals is how Plaid's Zach Perret used developers as a source of revenue generation while working on contracts with large banks at the same time. ... He knew that in the end he needed direct agreements with the banks. He also knew the startup had a slim chance of closing these deals earlier than 18-24 months from now. Many companies I worked with viewed such large contracts as the only thing that mattered, ignoring everything else to get them signed.
Zack took a different approach. To solve the problem, while negotiating with the banks at the same time, he and the team created a product that developers would be willing to pay for in order to access information about bank accounts. He used the growth and revenues of this product to build a company that could raise enough money to play a long game in order to win these big contracts. It worked well.
Many founders chasing big deals don't do what Zach did. They neglect incremental progress and earnings because it seems to them out of proportion to what they think they can get. They overlook that progress is relative. When a company is first launched, any progress is impressive. If this progress is good enough, the company builds momentum that gives it the time and space to close meaningful deals. One of these deals will turn out to be that big deal, but even it can get lost from sight if placed in the context of all the company's progress.
I spent a significant amount of time with one of the companies, and it seemed that all this time she was on the verge of concluding a major contract. It would seem that everything was in its place, but closing the deal was always one step away from the finish line. We have deceived ourselves over and over again, believing that success is on the way.
In the end, after a year of negotiations, the deal was signed. We thought it was a real victory, but then we discovered something completely new. To fulfill the planned, there was a set of requirements that the company could not afford. The deal was concluded, but in reality, it had no chance of implementation.
In analyzing the breakdowns of this and other major deals, I found several obvious reasons why this happened. There is a fundamental mismatch between large companies and small startups that makes the chances of such deals almost nil.
First, large companies have different priorities than startups when conducting such deals. Corporations may be interested in a service offering when it comes to increasing their revenue or improving efficiency. On the other hand, the top of these companies may try to figure out how good your company is in order to buy it out. Startups, on the other hand, in most cases see the deal as the only thing that matters - it creates a mismatch between expectations and goals.
Secondly, large companies have very complex deal-making processes. These processes usually include an ever-growing number of stakeholders from different departments, each with their own specific needs for the service provided. This could mean that as the deal progresses, the startup will need to convince different parties of something and create new products according to their specifications. In the absence of counterbalances, this leads to a third of extra time and money for creating custom features that will not be used anywhere else. A large company can afford to wait, but a startup cannot.
I constantly have to remind myself of this, because I used to be a big hit with it and I'm afraid I will continue. It is easy to fool yourself into believing that big deals are about to take place, because the end seems to justify the means.
The only way I know to consistently close big deals while remaining a small startup is to have significant dishonest advantages. Founders who raise tens and hundreds of millions of dollars through their names and track records are a good example for this. If this isn't about you, then you shouldn't bet on it.
Personally, I am most impressed when founders know their real advantages and use them to grow the company to the stage of development when large contracts become possible. This allows founders to independently manage their own destiny, without relying on external forces that will magically make their startups large. The founders should have as much control as possible over what is happening. When they lose him in pursuit of fantasy, it usually ends badly.
Thanks to Craig Cannon, Dalton Caldwell, Zach Perret, Kaz Nejatyan, and Jeff Ralston for their help in writing this article.
Thanks to Leva Pyzhov for the translation.
If you want to help with translations of useful materials from the YC library, write in a personal, @jethacker cart or mail alexey.stacenko@gmail.com
Follow the YC Startup Library news in Russian in the telegram channel or on Facebook .