Startup founders know they must tell a compelling story to win customers. But what happens when that potential buyer gets the wrong idea from the sales pitch?
How 28 healthcare technology startups bridged the gap between buyers’ expectations and the reality of products is the subject of new research by Rebecca Karp, an assistant professor at Harvard Business School. Her research investigates the courting dance between startups and customers—and her recent findings reveal what worked for about a third of entrepreneurs who were able to bridge that divide and make a sale.
“The challenge for the entrepreneur is: I've gotten you all excited and invested in my innovation,” says Karp. “But then, as you ask me questions about how this thing will actually work in your organization, it becomes apparent that what you expect it to do and what I think it can do are two very different things.”
Applying the correct strategy for smoothing over misunderstandings is important in a crowded marketplace where miscommunication can easily occur, explains Karp. “We're talking about innovations that are novel, and the beauty of novelty is that we paint our own picture of what that thing might do or how that thing might work in our organization,” she says. “And because there's a certain level of uncertainty around novelty, it's not surprising that there are misinterpretations.”
“Confronting the Limits of Symbolic Actions: How Entrepreneurs Narrow the Presentation-Performance Gap” outlines three paths startup founders can take to sway skeptical buyers—and identifies the one and only route to a sale that works well for both sides: recalibrating the buyer’s expectations. Karp cowrote the article, published in Organization Science, with Siobhan O’Mahony, a professor at Boston University.
Strategies for pitching products
The authors examined health startups participating in a digital accelerator incubator called Alpha over 15 months, starting in 2016. Among some 230 startups that applied to Alpha’s half-year program, the incubator chose 28 to matriculate.
Karp and O’Mahony studied the selected companies throughout 2017. They coded ways that the startups managed the initial impressions of buyers—using what they called “symbolic actions.” These strategies included:
Showcasing their networks. Companies will selectively reference previous work with other companies to pique a prospect’s interest. Tom, the founder of a startup that packages pills using the pseudonym “PACK,” says: “I had sent the director at Hospital 1 a few emails in the past … No response. Silence. But then, I sent him a very short case study of how we were working with Big Hospital 10. Big response. Like an hour later—'Oh, would love to meet with you guys.’”
Blending in. This strategy involves copying the mannerisms of the target organization. Employees at FALL, which creates a software application that tries to reduce work-related injury claims and is also a pseudonym, usually dress casually, in jeans and T-shirts. But when they presented their program to a target buyer, Insurer 3, they wore suits, an example of “parroting and blending in,” a strategy some entrepreneurs use to build trust with a buyer.
Using analogies. A startup might make an idea accessible by comparing it to something well known by the target. FALL’s CEO, going by the pseudonym Jack, used analogies to build excitement among his audience at Insurer 3. He compared his company’s predictive analytics app to a well-known movie, saying, “We don’t really do after-the-fact analysis of employee injury in the workplace. We are more like that movie with Tom Cruise, Minority Report. We predict where a crime or, in this case, where an injury is more likely to take place, and we recommend how to fix it.”
Staging demonstrations. Entrepreneurs prepare selective demonstrations in advance to show buyers how to use products. Jack explained how his team uses pre-populated injury claim reports: “We preloaded a set of reports to make sure the demo went off without a hitch. So that when someone asked about blah blah claims analysis, we had it right there.”
When expectations and reality diverge
Entrepreneurs need to go the extra mile to convince buyers who have doubts about products, knowing the customer “has a lot of escape valves” to get out of paying vendors for products that don’t live up to their expectations, Karp says.
Buyers typically start to exercise those escape valves when they perceive that an innovation—however exciting—might not work seamlessly in their organization.
As part of the study, the researchers conducted a post-mortem analysis to find out why buyers ended vendor relationships. If the relationship continued, they probed how entrepreneurs and buyers bridged the communication gap and shared the burden of implementing changes to address the buyer’s concerns.
When FALL pitched its app to Insurer 3, the insurer’s head of innovation expected that FALL would be familiar with the insurance industry. But FALL’s founder, Jack, joked that “he was personally uninsured in every sense of the word” and admitted that he didn’t know how to get the product to work for Insurer 3.
Insurer 3’s representatives also anticipated that FALL’s app would “seamlessly predict injury in the workplace, ‘like Minority Report, right?’” But FALL’s team knew that truly seamless predictions required integrated data systems that weren’t yet in place. When pressed, FALL’s CEO said: “I’m not Tom Cruise.” The company did not ultimately get the deal.
