Success as an early-stage founder requires going through the process of finding early customer prospects and deciding who will be the few that you'll deeply engage with initially.
We’ve learned over many years that picking the right set of early design partners can make all the difference in the trajectory of a company, and ultimately determine its success or failure. As a Seed Stage founder, it’s mission critical to iterate with customers in order to land on the “right product” and the only proven way to do so is to combine your initial insights with practical early customer feedback. Completing 1.0 of the product happens through the act of selling it. There is skill in the process of selecting the right initial customers. The goal of this guide is to share best practices for finding and picking the optimal design partners as a seed-stage founder.
• What a founder needs from design partners
• How to pick the right design partners
• How to identify the right person at the design partner organization to engage with
• Product pricing for design partners
• A practical example of how Traceable identified and closed its first five design partners
Founders sometimes make the mistake of thinking design partners will tell them exactly what to build in order to be successful. In reality, customers know what they want right up until they see something better.
A more helpful way to think about design partners is as trusted product testers who will assist you in filling in the missing gaps in your offering. As a founder, It's crucial to be insightful (but not arrogant) about the product you're building. You don’t need to have the product 100% figured out initially, but there should be conviction around the product specifics you believe address a well-defined customer pain.
Founders need to expect that every customer situation has its idiosyncrasies that are only discovered through trying to ultimately get them to part with their money. One sales leader whom Jyoti Bansal and I worked closely with used to say: “It’s easy to get customers excited; it’s hard to get their money.”
In our experience the best founders start with ~80% of what the right product is and complete it by working closely with the right design partners who help clarify where the additional functionality and polish needs to be.
With this formula in mind, it’s critical to find and select the right design partners who can provide that final 20%, which allows you to sell the same product repeatedly in the future. To make sure you’re targeting the right design partners, there are several criteria to consider, including attributes that are “Nice to haves” and “Things to avoid.” As a Pre-Seed or Seed Stage founder, what should you be maniacally focused on when finding design partners? And what do you want to avoid?
Our learnings come from what I’ve learned as an investor, Jyoti’s perspective founding AppDynamics, Harness, and now Traceable, and one of our sales leaders' experience at MongoDB and helping several of our portfolio companies close their first deals through our Unusual Ventures Founder Services engagements.
We’ve distilled the lessons we learned in the first session of our Unusual Academy, which focuses on finding product-market fit (PMF) and closing your first five customers. When we break down how to approach finding the optimal design partners, we start by asking founders to imagine a normal distribution curve, defined by how forward-thinking and risk-willing a company is in embracing new technologies.
Looking at the curve above, as you target your ideal design partners, you don’t want someone in the middle of the pack and you don’t want prospects at the tail end (the laggards). Why?
1. Will provide feedback within the same urgent timeline that you have.
As a startup, you likely have enough money to last months (not years) and your ONE advantage as a resource-constrained (starved!) organization is your ability to move FAST. You can only benefit from that advantage if you have a feedback cycle that is also FAST.
The ideal design partner for a Seed Stage founder is a business that's willing to take chances with new technologies and solutions because they need an edge to compete and win. They themselves need to move fast in order to succeed. I’ve seen many Fortune 1000 companies tell founders they “are desperate” to solve a particular problem, but when pushed regarding when they must have it solved, they speak in “quarters and years” vs. “weeks and days.” Every day counts for a startup, and as a founder, you need design partners who are calibrated along the same timeframe as it relates to the definition of urgency.
2. Are known broadly to be forward thinkers and on the front line of embracing new technologies.
Why is this important?
As a Seed Stage founder of a venture-backed company, you aspire to build a solution that is needed by a large addressable market — eventually. Your revenue (the ultimate measure of all businesses) will ultimately be a function of how many people find value in what you are building and what they will pay you for it. Go back to thinking about a normal distribution curve — the design partners you aspire to have represent where the mass market will be 18–36 months from now. These are customers two to three standard deviations ahead of the mass market when it comes to their appetite for embracing new solutions. As a founder, you want to work closely with those early adopters and forward thinkers to perfect your product so it will be polished and ready when the majority shows up, realizing they are in pain and looking at the forward-thinking organizations (that they typically copy) for the answer.
Too often, we’ve seen founders succumb to the siren song of working with design partners who are in the majority (or worse, the laggards) because of the attraction of the dollars they can secure today. In our experience, this almost always leads to a “win the battle, lose the war” outcome. Small companies can get overwhelmed by “whales” as they request feature after feature to make the product successful. Meanwhile, the market keeps moving and founders end up with a chunk of revenue but a product that is only a good fit for laggards as the rest of the market has started to embrace the next new thing.
Conversely, founders who work closely with a handful of carefully chosen design partners that other companies view as “leading lights” end up gaining a significant advantage as they perfect the functionality that the majority will ultimately adopt — all while hitting their early, modest revenue goals for the business. The polished user experience and “halo” that comes from working with known forward thinkers in the industry, combined with a battle-tested selling process is what enables a business to achieve product-market fit and move on to the hyper-growth phase.
So what do those forward-thinking companies who serve as the optimal design partners look like and how do you find them?
In our work at Unusual and through our past experiences, we’ve discovered that most forward-thinking companies who aggressively embrace new technologies and provide feedback on the timeline a Seed Stage company needs tend to have some similar attributes:
They tend to fall in what we define as the challenger stage with annual revenue somewhere between $20M and $250M and experiencing annual growth rates of >50%.
They also tend to be businesses in industries with high-gross margins, which naturally have more flexibility to experiment with newer technologies because they have more budget for R&D.
At the risk of oversimplification, we segmented the market for all companies into three broad categories: Champions, challengers, and startups.
• Champions (companies north of $250M ARR) tend to be current leaders in their respective industries.
Champions sit at the top of their market and are doing everything they can to maintain that position. The general mindset in such companies (whether they realize it or not) is often “don’t screw it up.” Protecting their position atop the leaderboard is their primary objective. As a result, they are reluctant to take unnecessary risks, which often means taking chances with cutting-edge solutions.
Inertia keeps them from embracing a rapid change mindset and employees are often rewarded for keeping the ship running on time, not for taking risks. Pushing an idea that tries something aggressive only to have it fail is usually the clearest path to being asked to move on.
• Challengers are companies that tend to have revenue in the $20M–$250M range and are growing > 50% per year.
Challengers are typically a successful new entrant in an existing market or a leader in a new market and winning demands they move quickly. The organization tends to have a growth mindset and an authentic desire to try new products because they need to be bold in order to beat the champions. They need every edge they can muster and are willing to move quickly and take risks to find it. Compared to the risk champions face when adopting new technologies, there’s real upside in how quickly challengers can move and the speed of their innovation. Employees who work for challenger companies are rewarded for taking risks and have the opportunity to be “heroes” when they bring in a new solution that has an outsized impact.
• Startups are defined here (in this context) as entities below $20M in revenue.
These are typically companies that are one to four years old and are doing everything they can to grow, rise above the noise, and stay alive. Priorities can change on a daily or weekly basis as they do their best to find the through line to consistent growth. Startup employees tend to be scrappy and hustle. They will embrace new ideas, but are often interrupted as priorities can change in a heartbeat. Sound familiar?
We’ve found startups to be less optimal design partners than challengers. While they have extreme urgency and can certainly move quickly, they lack the stability and consistency that a challenger company has. In addition, they often have small budgets and a high propensity to “DIY.” They are often consumed with their own challenges and feedback so you can easily get lost in the shuffle.
The second key attribute to focus on when seeking the right design partners is the industry they are in and the natural gross margins that occur. Our experience has led us to focus founders on working with companies in high–gross margin industries. The reason being that they have more budget for experimenting with new technologies as a result of having higher contribution margins from the products they sell. High–gross margin companies are typically in the technology, media, and finance industries. Examples of typically (but not always) low–gross margin sectors are manufacturing, government, and education.
It’s an oversimplification but consider: A 25% gross margin business vs. an 80% or 90% gross margin business (like Google, Adobe, or SaaS companies in general) does not have nearly the same relative contribution margin dollars (money left over after subtracting what it cost to build and deliver your solution). The relative cost of investing time and money into something that doesn’t work is higher for low-margin businesses and it frequently translates into taking a more cautious approach. Time is not your friend as a founder of a Seed Stage company — you need to align your resources with design partners who are risk-seeking and will move at the pace you need them to with regard to feedback and decision-making.
When we conduct sales outreach with our Unusual founders to achieve the objective of getting the first five to 10 design partners committed, we ruthlessly qualify against these attributes. Your goal as a startup is to find early partners who will work with your non-GA product and give you timely and high-quality feedback about the product experience.
Is your product easy to use? Does it solve the pain as intended? What’s lacking that would enable them to justify buying the product today? How easy is it to install the product with their current tech stack? How would they justify the purchase price to their boss? Founders should aspire to receive this feedback weekly via a Slack channel, email, tickets, or short feedback calls. After all, the only real advantage that a startup has is fast, relentless iteration based on quality feedback.
To recap, one of the most critical decisions early-stage founders make when thinking about the optimal design partners is aligning with the right stage of business within industries that have high-gross margins. We recommend founders seek out “Challengers”, as over time we’ve learned these design partners are willing to take risks, give great feedback, have a culture that rewards individuals for trying new technologies, and represent where the market is going. They’ve encountered problems earlier than most and are willing to work with startups to solve them as it provides an advantage they need to succeed.
Now that you’ve acknowledged that it's essential to receive frequent, consistent feedback from the optimal early design partners, we want to turn our focus to identifying the ideal person within the organization to recruit to be your point of contact and, ultimately, your champion.
In our approach, we strongly recommend working with first-line users of your solution and their managers who LIVE the pain you’re attempting to solve. The problem is part of their everyday life and solving it would satisfy something that lives at the top of their hierarchy of needs. There’s no substitute for the primary research that comes from engaging with the actual people who would use your product directly.
For the sake of clarity, we are not suggesting that you should ignore executives in your design partner discovery process. VPs and C-Level executives can also provide product feedback and an opportunity to test your messaging, but they have a different hierarchy of priorities and needs. In addition, it’s unlikely they fully appreciate the pain your product would solve as it is not something they would use regularly.
VP and C-level conversations in the design partner phase are useful for receiving feedback on how companies might justify purchasing your product. This includes the business case they will make internally to purchase it, validation for your price, how your contract is structured, and any security requirements. Getting the "primary research" from the users of your product helps establish PMF, while working with the executives they report to will allow you to begin to understand PMSF (product-market sales fit).
Founders frequently inquire about the idea of working with “friendlies” or companies secured through warm introductions as design partners. For the sake of clarity let me first say this: As a founder you should get feedback wherever you can get it, but relying solely on “friendlies” as design partners presents a huge risk for two reasons:
At Unusual, we believe a founder would be making a huge mistake if every design partner came through a warm introduction. At the earliest stage, it is vital to build that muscle of iterating on your ICP, positioning, and outreach and taking your target personas through the entire sales process.
Founders often ask us how to price their product for design partners and how to think about what to charge for the initial deployments. The short answer is often somewhere between a steep discount in year one and nothing. If you’ve chosen the right design partners, their feedback is extremely valuable. To be extreme for a moment, you’d consider paying them for the time, energy, and feedback they're providing. However, most design partners are comfortable paying something if they find value in your solution.
Design partners are often comfortable with paid “proof of concept” dynamics. At Unusual, we advise our founders to set pricing, but to give design partners large initial discounts. For example, when your business is more mature, you might aspire to charge your customers $100k per year for your product, but offer a design partner the opportunity to pay $20k in year one. If they push back, the response we suggest is asking “What price would work for you?” Remember, the goal is to get them engaged and receive their commitment to sharing quality feedback and spending time with you. We frequently see pricing conversations in year 2 that yield very different dynamics.
Another tip we recommend: once you’ve settled on pricing for year one, don’t actually start charging the customer until the product is GA. If it takes three months of working together to get the product to an acceptable level, no problem — you’ve learned a ton and built goodwill with an early customer who will be a valuable reference in the future. You might also grant a 30-day opt-out period after the GA version is in production if they aren’t seeing value.
Founders must remember that design partners are taking a risk by working with you. Reward them for that. When in doubt, do unto others…
With the steep discount and option to walk, all they’re risking is their time. You want to minimize the risk they’re taking and the friction to engage. If you deliver the value you're promised to them, you’ll have the opportunity to right-size the contract in six to 12 months and a better sense of core metrics like average AVC, upsell, LTV, net-dollar retention rate, and CAC.
A practical example: Traceable