In Order for Your Business to Grow, You Need to Turn Down Customers
When you form a tech startup, your primary focus should be on building a strong reputation while slowly building your customer base. This approach may seem counterintuitive because the traditional strategy is to hype up your MVP (minimum viable product) and to get as many users as possible in order to show amazing growth to potential investors. The problem is that rarely works in practice. Inevitably, many customers won't be happy and you will face massive churn down the road. If you're trying to build a long-term, successful business, you need to build a strong reputation with satisfied customers. In order to build a strong reputation, you need to be both selective with your initial client base and resist the urge to scale before you've mastered your product delivery.
Be selective with who your initial customer is.
Be discerning about who you want your initial customer to be. If you can tailor the experience for them, you can create exclusivity at the beginning that translates to a reputation for being the best. According to Harvard Business Review, some of the most successful businesses narrowly define who their customer is. Author Robert Simons cites pharma giant Merck, noting that it chooses to identify its "primary customer" not as the patients who use its drugs, but the "research scientists in labs and universities around the world." Investment firms are another great example of this business model because they are super selective about who they do business with, lend credit to, make investments with, etc. Their reputation is built on selection and exclusivity.
I gained a new perspective on this last year while attending an executive program for Latinos at Stanford University. Dr. Hayagreeva Rao, when teaching us about the importance of providing a great user experience to customers you accept or reject, told us "Stanford is big business, yet Stanford turns down 95 percent of its applicants. Any business that turns down 95 percent of potential customers with money to pay would not succeed, and yet Stanford is one of the greatest universities in the world." My take was that Stanford's exclusivity allows it to provide a superior student experience, which leads to a high success rate of its graduates, which turns them into brand ambassadors for the university.
Resist the urge to scale prematurely.
Tech startups often try to get as many users as possible for a new product. However, it's relatively easy for people to try stuff. The hard part is retaining them after they have used your product or service. Acquiring many customers or users at the beginning often creates the illusion that you are growing. You need to spend the time to refine the user experience before you try to attract a lot of customers. Oftentimes, both startup and established companies get excited, build the tech first and then try it on a large customer base. After several flops, customers abandon your product or start to lose faith in your company.
Apple has this insight, which is why it is one of the most valuable companies in the world. Every Apple product launch is years in the making and hyper-focused on user experience. Compare that approach to Samsung's, which sells a wide array of electronic devices, has issues with glitches (remember the Galaxy Note 7?), and only offers a handful of products that are loved by its users.
Like Apple, you need to get the formula right before you grow. Ask yourself, who is going to buy this? Why would they buy it? Why buy now? Apple uses savvy shortcuts -- it sees that people are already doing necessary tasks (e.g. using computers and phones, listening to music). It asks, what is the current experience? How can I make this experience significantly better? Apple doesn't reinvent the wheel, it reimagines the ideal user experience.
Ultimately, you need to resist trying to attract as many potential customers as possible early on because you need to get a smaller pool right in order to corner your market. In order to do that, you need to focus on who those customers are and how your product will provide the best experience for them. Nobody wants to be a guinea pig and a little more money in the short-term to use your client as one is not worth it. If you create a reputation for being the best at what you do, there will always be customers that only want to buy from you and purchase your products.