The Two Pitfalls in Catalyzing a Customer Inflection Point

👇  The Big “A Ha” 👇

Startups are very hard. We established in the first newsletter in this series that the startups that win possess an asymmetric amount of leverage over their market(s). 

I am a firm believer that startups cannot muster their way to change the market by hand-to-hand combat alone. Startups require an incredible amount of hustle, but they also require street smarts. Namely, it includes finding pockets of leverage that exist independently outside the startup. The startup that harnesses those forces for its asymmetric advantage increases its likelihood of winning in the market. 

✅ Specifically, I have observed FIVE types of inflection points in startups: 

1. Market inflection point

2. Customer inflection point

3. Consensus inflection point

4. Product inflection point

5. Technology inflection point ✅

I want to be very clear - I have observed that startups that win activate at least ONE of these five inflection points. An inflection point is the line of demarcation for a startup that wins its market and a startup that does not. 

The 2nd one is that we will cover the customer inflection point. Customer inflection points are one of the most common inflection points occurring that I see with startups that are winning. 

Let’s dive in. 

What is a Customer Inflection Point?

✅ A customer inflection point happens when a startup gains a customer which is one of the most influential actors in that respective market. 

With this single customer conversion, the startup greases the wheels for scores of many more customer conversions because of the influence that that market actor possesses. 

This happens because the mentality of the market shifts from potential customers being skeptical about the startup’s product to “If it’s good enough for _[insert influential market actor]___, it’s good enough for me.” ✅

It kicks off a new wave of inertia for that startup’s customer acquisition and go-to-market motion. 

Sales execution gets easier. 

There is a change in inertia of the startup’s progress. 

Sold yet? Let’s discuss how to create customer inflection points. 

How to Create a Customer Inflection Point

1. Startup Founders need to observe the embedded power dynamics in their respective market. 

Markets are not created equal. Consequently, market actors are not created equal. 

Let me give you three examples

Most people in society would attribute a higher likelihood of success to the Harvard graduate, the Goldman Sachs banker, and the startup that got funded by Sequoia Capital. This is an easy example. 

But here is often where founders often fall short. In my experience, this is why startups tend to not execute against customer inflection points, or execute against them well. 

There are two main pitfalls that I observe: 

1. Startups either don’t observe or ignore the embedded power dynamics completely.  

1. If startups do identify the influential market actors, they typically only focus on those actors Tier 1 status, completely ignoring the most influential customers in the Tier 2 and Tier 3 categories. 

Pitfall 1: Not Observing or Ignoring the Embedded Power Dynamics in the Market

Some startup founders come from the industry they are in and have a keen understanding of the embedded power dynamics. This is an advantage for certain and must be used strategically. 

One of portfolio company healthcare CEOs told me that there are a few names in the hospital space that are the most influential - Stanford, Boston Children’s, and several others. These would be the Tier 1’s - the Harvard, the Goldman Sachs, and Sequoia Capital of their respective industry. 

But in some markets, the founders don’t come from the industry and so they are not aware of the embedded power dynamics. 

✅ The mistake that these outsider-founders make is that they see the market as one even plateau. But every market is really a 3D map with a select few market actors having more stature than others in the respective market. 

Customer inflection points are about identifying embedded power dynamics in the market and leveraging that arbitrage. ✅

This happened to one of the Tundra Angel portfolio companies. The founding team experimented with their product in a market that they were completely unfamiliar with. Early on, the founders got connected to a particular potential customer, who, unbeknownst to the founders, was a highly influential market actor in that industry. This customer adopted the startup’s product and then proceeded to text many of their peer industry contacts about it, and pulled some strings to get the founding team in front of an industry association conference as keynote speakers. Three weeks later, the founders found themselves in front of 50+ owners of companies of potential customers in their exact segment. That eventually led to a chain reaction of other opportunities such as embedding their product into existing industry software platforms and doing one-to-many webinars with many other business owners in the industry. In a series of months, this company went from zero customers and complete anonymity to massive awareness and rapid adoption in this segment. 

✅ It all started because of a customer inflection point. A single customer conversion. Namely, one customer who possessed the market influence and leveraged it to turn the sails of the market to benefit the entire industry. In doing so, it tipped the market heavily in favor of the startup. 

From the outside looking in, all customers look the same. 

But they are not - every market is not a plateau but rather a 3D map. A select few number of actors possess a disproportionate amount of influence in the market. The startup must find those highly influential market actors and make them believe. ✅

Pitfall 2: Only Focusing on the Tier 1 Influential Market Actors and Not Focusing on the Influential Actors of Tier 2 and Tier 3

Going back to the healthcare example, the Tier 1 names in the hospital system space are Stanford, Boston Children’s, and several others. 

Realistically, what startup isn’t trying to capture the Tier 1 names in the market? Furthermore, because the Tier 1 group is the most influential, they are also the most rigorous. They will not adopt something new without careful consideration and examination. 

Put another way, the freshman cannot go out with the homecoming king or queen the first time one asks. You have to build up to it. 

✅ A major missed and underutilized opportunity is to identify WHO the influential market actors are in the sub-markets or the Tier 2 or Tier 3 levels of customers and get them to adopt. Done well, this aggregated influence and experience can eventually tip the Tier 1 customers. Once that happens, the startup becomes disproportionately hard to beat. ✅

Another one of the Tundra Angel portfolio companies did just this. The founding team came from the market and so were already keenly aware of the embedded power dynamics and who holds the influence relative to others. The founders spent the first many months after launching picking up what might be considered Tier 2 and Tier 3 market actors. Those conversions didn’t have the flash and glow, but was nonetheless significant and helped build the story.

Then one day, I got a call from the startup’s CEO. 

The CEO said, “All right, this is confidential, but I wanted to share that we just got a contract from __[insert 900 pound gorilla in the market]__.” It was a name that we had talked about a year prior. Now, was in the fold of the startup’s customer list. 

Whoa. That was cool. I’ll remember that one. 

The CEO and I spent the next 15 minutes talking about the significance of this moment and its implications. Anyone looking at the market from the outside, myself included, weren’t as familiar with the Tier 2 and Tier 3 names, but would stop in their tracks when they heard that the company just brought this globally known Tier 1 name in as a customer. 

A customer inflection point had just happened. 

In addition to leveraging this moment to score more customers, the company also wisely used this talkable moment to put together another fundraise and went from zero to fully committed in record time through existing investors. 

How to Identify the Influential Market Actors

Now that we discussed the path to create a customer inflection point, what if you do not know who the influential market actors in your market are? 

I also have found that startups really have no tools to discern how to measure influence in a given market. Thus, their customer acquisition is hand-to-hand combat, not using street smarts. 

I’d recommend asking this question to the actors in your market: 👇

“Who is another ___[role of the person you are speaking to]____ in your market or network that I should be following or paying attention to?” 

Notice that it this does not come across in a salesy way. It’s asking a directional question that is education-oriented. 

However, when they respond, you don’t know if the answer they are providing represents a Tier 1 name, Tier 2, or Tier 3. So, I’d recommend following up with this question,

“Is this person or group of people the Harvard of your market, the reputable state public university, or the small little known private school of your market?” (Depending on the answer, distinguish, “Who is the Harvard? Who is the state school?” etc.) 

Framing the follow up as an analogy allows the person to answer within the relative context, which is exactly what you want. 

Having 5-10 sidebar questions as part of normal conversation will give you a good sense of who the influential actors are in your market. 

✅ A customer inflection point happens when a startup gains a customer which is one of the most influential actors in that respective market. 

To do this: 

• Observe and honor the embedded power dynamics in the market

• Identify the Tier 1 influential market actors, AS WELL AS the Tier 2 and Tier 3 ones too.

• If you don’t know who the influential actors are, pose the line of questioning above. 

Customer inflection points are one of the inflection points that is within the grasp of any startup because all markets have this one same characteristic - markets are not a plateau but rather a 3D map with a select few market actors having more stature than others in the respective market.

✅ A customer inflection point happens when a startup gains a customer which is one of the most influential actors in that respective market. 

To do this: 

• Observe and honor the embedded power dynamics in the market

• Identify the Tier 1 influential market actors, AS WELL AS the Tier 2 and Tier 3 ones too.

• If you don’t know who the influential actors are, pose the line of questioning above. 

Customer inflection points are one of the inflection points that is within the grasp of any startup because all markets have this one same characteristic - markets are not a plateau but rather a 3D map with a select few market actors having more stature than others in the respective market.