What is a lighthouse customer?

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Lighthouse customers are well-known and respected brands whose logos can provide credibility and visibility for an early-stage business. As a former founder who has spent significant time on go-to-market (GTM) strategies, I am a big proponent of the momentum a lighthouse customer can create for an early-stage company. 

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While the growth from a lighthouse customer can be fantastic, I have often seen these early deals go wrong, ultimately delaying true product-market fit, and even worse, splintering team culture.

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‍If a poorly structured lighthouse deal significantly delays your path to PMF — don’t walk away, run! 

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The benefits of a lighthouse customer can be numerous 

• It's exciting to win a consequential deal early and it will motivate your team to deliver.
• You can build market leadership by generating press and creating a referenceable case study that helps increase close rates.
• There is something flashy to discuss with potential new employees and investors.

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Reasons why lighthouse deals go wrong

• Failing to make the hard choices and saying yes to everything! 
• Agreeing to custom features under tight deadlines and falsely convincing yourself that custom development work will pay off for other customers.
• Signing up for commitments and pricing without proper scoping.

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All of this can lead to losing control of your product roadmap to satisfy one important customer while delaying your core features that unlock a scalable and repeatable product offering. This can create tremendous downstream internal angst, and in the worst cases, reputational damage in the market. But, if you and your team step back early on and truly understand the potential positives and negatives of bringing on a lighthouse customer, you will be far more likely to structure the deal for success. 

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Align with your team on your core metrics and roadmap

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Not surprisingly, as a CEO, you need to get your team aligned around your growth goals and core milestones, particularly in an uncertain market that is more attentive to core metrics than it has been in a long time. You have to be laser-focused on your goals and associated timelines. Your job is to push, make tough trade-offs, watch the clock on funding, and rally the team to do their best work as fast as possible. 

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At the same time, you need to be collaborative and empower your team to give you raw feedback that you may not like. That means listening to your management team and accepting feedback that you should walk away from a lighthouse deal. This can be painful and even demoralizing at times, but in some cases, it can be the right thing to do for the long-term health of the business.

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Running an early-stage company is all about assessing the situation in real time and making challenging tradeoffs to keep the business growing as fast as possible. Sometimes this means stretching to win a key early deal, and sometimes while hard for most founders to do, this means saying no to a customer. Notably, this is not something that only startups struggle with — I was recently speaking with an executive of a high-performing public company and he stated that they still have these types of “customer versus product roadmap” debates every quarter. The more disciplined you are early the better the business will be over the long term. 

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How to set up lighthouse accounts the right way 

How do you make sure a lighthouse account works well in conjunction with your core roadmap? 

How do you manage to push the envelope and take risks while staying focused?

How can you devise a way of saying no to a consequential customer without losing their business?

While this balance can be extremely hard to achieve for a young company, a well-structured lighthouse account has the following attributes:

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• Expectations are clear from the onset of the deal. Articulate what your product can and can’t do early so there is no confusion around current versus future capabilities.
• Align with all internal stakeholders. While your sales, product, and engineering teams may each feel like they have to compromise, everyone has to be informed and commit as a team. 
• Take time to scope. Be empowered to say you need adequate time to scope feature requests more carefully before making firm commitments to the customer. 
• New feature requirements must have a high bar. Inevitably some custom work will arise but generally only take on new feature requests that are beneficial to your overall product and can be sold repeatedly to other customers. 
• Listen! As a CEO/founder, when your product team pushes back on timelines and feature creep you need to listen— you simply can’t add more to the product pipeline and stay on track. Things will slip! 
• Foster a company culture of openness and experimentation. Your team should feel empowered to offer objections and provide feedback on the feasibility of lighthouse deals. This will allow your team to be part of the decision-making process. 
• Stand up for your team. Aggressive customers can abuse startups by asking for more than they are paying for, pushing the team to hit unrealistic dates, threatening to cancel if you don’t add a custom feature, refusing to be a reference and/or do any press, etc. There is such a thing as a bad customer. Be careful. 

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Knowledge is power. As you consider your lighthouse strategy, nothing is completely clear-cut and you will have to make decisions efficiently without perfect information. But, if you are honest and aware of the pros and cons of a deal, and if you foster a company culture where you and your team can discuss things openly, you will be on the right path to finding the balance between building market momentum and pushing your team too far and wide.

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‍Lars Albright is a successful repeat founder of enterprise software companies. He sold his last two companies to Apple and MasterCard respectively. His last startup, SessionM, was a pioneer in customer engagement and loyalty for leading Fortune 500 brands. As a partner at Unusual Ventures, Lars leads investments across fintech and vertical SaaS. To hear more about his third startup, SessionM, check out the Startup Field Guide podcast on Apple and Spotify.

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