Customization leads to failure

What is the leading cause of product failure with startups? 

Well, I don't have the quantitative research to prove it, but I would guess that somewhere near the top is over-customization to suit the needs of 'important' customers.

You probably know the drill:

1. Create vision and product plan
2. Try to sell product
3. Meet great prospect "Brand X"
   
4. Try to close the deal and learn that they would pay you a gazzillion dollars if only you would...
5. Agree to "Brand X's" requirements and incorporate them into product
6. Repeat

Now, I am the last one to say that you should not listen to customers. Nor should any company - particularly a startup - walk away from good money lightly. However, this kind of cycle can cause tremendous long term damage to the company both in terms of culture and product.

Cultural issues

I've seen several companies go down this path of following the desires of their lead customers. While I'll admit that sometimes this has been the key to finding a 'true path' and corporate success, it seems that more often it leads everyone astray.

Problem 1: You don't sell what you have. When you start customizing for many customers, you breed a culture in the sales organization that they can find any loosely fitting prospect and the company will do what is needed to close the deal. This is not healthy.

Marketing (including PM/PMM) should be working with sales to figure out how to identify and lure good-fitting prospects that align with the business strategy and product strengths. The sales team should be educated in how to effectively screen prospects for fit right up front along with inspecting the prospect's budget.

Problem 2: Lack of focus on the business' strategy. All of the cycles used for negotiating and delivering the customizations takes away from time on the core strategy. It can even make the strategy irrelevant.

It is important for the leaders of the company to constantly evaluate the requests for customization. Sometimes it might be the right answer because of the customer or because of the great new direction it takes you but it should never go against the strategy.

Product issues

Problem 1: The product plan goes off the rails. Unless you are awash with resources and can carve off core and customization teams, all the custom requests will inevitably push plans off track. This can be better managed in a short-cycle development process like Scrum but it doesn't change the long-term impact.

Problem 2: You don't do what you need to do. This is really the biggest problem. If you believe that success depends on implementing robust versions of a certain set of functionality, you have to make sure you get there in time. Diverting resources to short term gain only makes sense if that is what is needed to survive.

Problem 3: Your product becomes a muddle. Too many customizations that get incorporated into the product are likely to muddle up the core model of the product. The underlying architecture gets messy. They user experience gets cluttered by special functions, etc.

Problem 4: You never had a strategy to divert. Well, I think you can guess what the problem is here.