Growth Science International, LLC

A MICRO-EXPERIMENT

Framework in Question: Startups should focus on pursuing “marquee” customers.

Framework Background: In Blueprint to a Billion (John Wiley & Sons Inc., 2006), author David Thomson studied 7,454 companies that went public between 1980 and 2006, finding that only 387 in the sample had grown to $1 billion in revenue.  Searching for patterns amongst billion-dollar companies Thomson asserts the following “7 Essentials” for becoming a billion-dollar business:

1. Create and Sustain a Breakthrough Value Proposition
2. Exploit a High-Growth Market Segment
3. Use Marquee Customers to Shape the Revenue Powerhouse
4. Leverage Big Brother Alliances for Breaking into New Markets
5. Become the Masters of Exponential Returns
6. Create a Management Team Based on Inside-Outside Leaders
7. Recruit “Essentials Experts” to the Board of Directors[i]

Thomson goes further to recommend these “essentials” for all businesses seeking $1 billion in revenue (startups, mid-sized companies and large companies alike).

This analysis will focus on #3 (‘using marquee customers to shape the revenue powerhouse’).  Thomson asserts that a secret to success is securing “deep relationships with a limited number of valued [Marquee] customers.”  Marquee customers are defined as “people or companies with such sparkling reputations that they give the company they do business with instant credibility and status.”  They include “thought leaders in the industry” with examples such as Wal-Mart, Boeing, Motorola, Hewlett-Packard, Solomon Brothers and Ebay’s “Powersellers”[ii]

It’s better to have good customers than bad customers, no argument there.  It’s also better to have some customers rather than no customers at all.  Yet are marquee customers predictive of greater startup success?  In other words, is it wise for startups to focus on securing a limited number of marquee customers?  Does it increase or decrease their likelihood of survival?

Our Analysis: To begin evaluating this question, quantitative and qualitative data was drawn from a sample of 50 startups.  All were early-stage technology ventures founded between 1998-2008.  Each was examined for the presence of an early “marquee customer” using best efforts to adhere to the criteria provided by Blueprint to a Billion.  We then looked for a statistically significant correlation between startups with early marquee customers and their relative survival (or failure).

Conclusion 1:  Highly Subjective. This analysis hit a roadblock when we attempted to determine what a “marquee” customer was.  While ample description was given in Blueprint to a Billion, the book lays out an extremely broad, porous, all-encompassing set of parameters spanning consumer and commercial clients of any size.  Extremely difficult to quantify and measure.  Does any customer count as marquee?  What does “not” constitute a marquee customer?  This issue was never clearly resolved.

In the interest of moving the analysis forward, marquee customers were limited to large multinational corporations.  Startups in our sample with purely consumer customers (vs business) were removed and replaced with others targeting business-to-business sales to create a more consistent data set.

Conclusion 2:  Negative Correlation.  While our sample was relatively limited and further research is warranted, this micro-experiment revealed a negative correlation between startups with early marquee customers and their ultimate survival.  In other words, if anything, early marquee customers tended to make startups less likely to survive.

While this brief analysis will not attempt to assert an iron-clad theory of causality, a qualitative review of the failed startups with early marquee customers revealed 3 observations:

1. At first, marquee customers were seen as providing benefits to startups including initial sales, early cash infusions (ex. NRE), co-marketing, business or technology validation, testimonials, boosts in startup morale and enticements for other customers or investors.
2. A majority (greater than 50%) of the relationships between startups and their marquee customers did not ultimately come to fruition.  Some marquee customers abandoned their initial commitments, either formally or informally.  Other marquee customers kept commitments but did not realize sales in line with expectations.  In almost every case the marquee customers pursued parallel agreements with alternative suppliers to a greater degree than initially anticipated.
3. In almost every case pursuing marquee customers eventually increased competitive rivalry between the startups and their larger competitors.  One startup manager commented “dumping all our time and energy into [marquee customer] was a horrible decision.  We spent a lot of ourselves and all it really did was wake up the competition and tell them they needed to do what we were doing too.  It told the big guys they needed to crush us.”  While marquee relationships were generally regarded as positive in the beginning, at later stages they were often seen as difficult, demanding, fickle, disappointing and unreliable.

Conclusion: Marquee customers may, or may not, be essential for making already large publicly traded companies into “billion-dollar businesses.”  However where startups are concerned, our experiment found that “marquee” customers were poorly defined and a potentially deceptive ambition.  They were often a short-term excitement, but a long-term liability.  A siren’s call; perhaps even a blueprint for failure.