We sell credit card processing services exclusively to online merchants (ecommerce, SaaS, mail/telephone order, b2b) who are increasingly accustomed to buying products and services online without salesperson engagement. In our world, creating a frictionless and efficient buying experience like that has been very challenging because of the underlying industry and pricing complexity.
When we first started, we felt it was necessary to personally interact with every new prospect because:
- we don't service some industries and billing methods and there are a lot of gray areas
- we provide custom pricing based upon industry and volumes, so it's nearly impossible to create one-size-fits-all packages of our services, and
- we found value in personally educating merchants about industry nuances and pitfalls.
Personal interaction with customers is expensive, but we knew that the level of deception and complexity in the industry made it difficult for merchants to find the best provider. For example, we see merchants getting shut down all the time without warning, sometimes at the worst possible time, because they chose the wrong provider. Or, they're lured in to work with someone because of some amazing rates, but it's really a sham. Or they store all their customer's credit card data with a provider only to find out that their data is being held hostage and they can't get it back. Being aware of these problems, we wanted to show our customers how we were different.
Lesson #1: If selling your service depends on someone first feeling pain, target those who are experiencing chronic pain.
After a year in business, we found that merchants processing larger volumes truly appreciated the personal interaction with us. They were thrilled with us. Most of these merchants were coming from other payments providers that lacked in customer service and support. In contrast, we answered our phones, responded quickly to questions, and proactively reached out to help our customers improve their business. We also provided easy-to-understand pricing without any asterisks, provided data portability and didn't have contracts so they could leave at any time and for any reason. We were doing things right and were rewarded with exceptional growth.
Lesson #2: Offering medicine to address an unfamiliar or not yet experienced pain should be the last priority for a start-up.
For merchants processing smaller volumes, especially those new to the industry, the opposite was true. A merchant with this profile might require two 30 minute discussions and 5-10 emails to determine if we could work together. Most of that time was spent teaching them about the industry and the business risks associated with choosing the wrong provider for their account. That was understandable because they hadn't yet experienced many of the pains typical in the industry, but problematic for us as a start-up because a lot of our value was based on the merchant first experiencing pain from working with other providers. Also, these merchants were roughly 5x the work, produced very little revenue, and couldn't fully appreciate the level of service we provided the way that more experienced merchants did.
Lesson #3: 80/20 is alive and well. Focus on the 20% that will generate 80% of the revenue.
We knew that some of these merchants would grow and end up being a good fit, but sorting out who those merchants were was a challenging proposition. As a bootstrapping start-up, we had limited resources. We were trying to provide every prospective customer, regardless of size or opportunity, with the same high quality experience. When demand for our services increased, however, we had to make the tough choice to focus on customers who felt real pain with their current payments processing solution.
Taking this approach helped us maintain profitability during those first years, which gave us the money we needed to grow. Now, we have the staff and resources to handle any merchant who wants to work with us, but we wouldn't have gotten here if we didn't have laser focus on a specific customer during our first years of business.
In our next post, we'll talk more specifically about how we targeted a certain customer profile using pricing and self-selection techniques.