Tag: B2B

Building a B2B Startup? Here are 5 of the Most Crucial Lessons I’ve Learned

Building a B2B Startup? Here are 5 of the Most Crucial Lessons I’ve Learned

Peter Cauton

Building

I hope my previous post got you more interested in taking a longer look at building a Business-to-Business (B2B) startup.

If you’re interested in plunging into one, here are 5 of the most crucial lessons I’ve garnered in building B2B’s for almost one decade now (Can’t believe it!):

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1) Doing Lean Startup? You cannot use a traditional “MVP”

If you aren’t familiar with Lean Startup Methodology, then please buy Eric’s book as soon as you finish this post. Essentially, the book says that you have to validate your assumptions about the product and the market systematically before you spend money on building.

Specifically, it suggest building a “minimum viable product.” This is basically a bare-bones version of your eventual product (which won’t cost you much) that you can show to potential clients in order for you to get valuable feedback which you can then use to develop the product further. Typically, this “MVP” would consist of just approximations of the actual product that could show potential clients. Here are 10 examples. 

You CANNOT do an “approximation” with a B2B when you’re selling to a corporation. Companies will simply not pay for anything which isn’t ready. They cannot risk it. (Unless the CEO is your brother or its a smaller company and your product is something they desperately need)

(And no, application developers, you won’t be able to fool them with a wireframe demo – they will ask you to click on everything to see whether they work)

So yes, you do need to spend earlier on product development than you would do on a B2C product.

What you could do to balance this out is to spend more time getting data on the PROBLEM you are trying to solve.

Is it really a problem? What are the specifics? How MUCH is this problem costing companies?  What price point would it get bought? Is it a painkiller or a vitamin? 

Talk to boatloads of potential customers to get problem validation. Not only does this serve as a data-gathering exercise, but its a customer development exercise as well – you are priming all these people in buying from you (once you have a working product).

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2) Remember, you are Selling to 2-3 different people

This is what we quickly found out when I started selling in my first startup, STORM.

We sold an HR product, so we built a pitch to the HR Head. After getting approval from the HR Head? Turns out we then had to present a cost-benefit analysis and present it to the CFO. Then another presentation to the CEO (with the whole EXECOM).

You will need to incorporate the paradigms of different people in the organization you are pitching to.

Usually, you have to pitch to the functional head of the department which will end up using your product. Then, there has to be a pitch to the one who will disburse the funding, which (if your product isn’t a finance product) is likely to be another person. Sometimes, the USERS of your product will differ from the functional head, so you will have to get their approval as well.

Put yourself in the shoes of each of these people and customize your pitch appropriately.

Some questions they WILL think about when doing the buying decision:

How will this help my department?

Will I look bad/get fired if this fails? (this is an underrated one – everyone is thinking of this!)

Can I trust these guys to deliver?

Will this help the bottom line? Can I just accept that proof as gospel?

Will this make me do even more work?

Can this further my career?

due

3) Be sure you ALWAYS have enough cash on hand for the next 6 months of overhead

I remember when we built STORM, we wanted to pursue a service arrangement wherein we would bill the client every month (instead of a one-time, big-time approach). We figured this was best for cashflow management and put less pressure on sales.

Never did we anticipate that we would get delays of 60-90 days for payment! While we had safeguards in the contract for late payment (stopping the service, steep penalties, etc), we  quickly found out it would be very dangerous for us to make good on these penalties, after all they would endanger our relationship with  the hand which feeds us.

As a new startup, you would seldom have bargaining power in asking clients to pay on time. As a result, cash flow would usually be worse than you expect.

Plan accordingly.

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4) Get a natural networker in your founding team

A rather LARGE percentage of the clients you will land in B2B will be as a result of networking. It helps a lot if you would have someone in your founding team who can network well with MANAGERS in the industry, or better yet, ALREADY has a network.

Why?

Its extremely difficult to do a B2B sale organically.

You know, something like sending an email addressed to the “HR Head,” only you need to send it around 10 times to irritate the HR Head enough that he will ask one of his subordinates to talk to you. Then you will be at the mercy of a person who is 2-3 levels below the actual decision maker. Now you have to follow up with this person around 10 times again so he can tell his boss “these guys are ok to talk to.” Then you will go back to trying to get a meeting with the boss. If you do manage to one day get the HR Head to endorse you, you will now have to do the whole shebang with another department – finance.

This looks like I’m kidding/exaggerating, right?

Easiest way to not get yourself in this pickle? Get endorsed by someone with some authority in the office.

The difference is night and day. A great endorsement can get you right to the decision-maker in your first visit.

Get a networker in your founding team. It’s worth the equity.

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5) References are gold. Invest in them.

Pitching to a potential client?

The following is the question companies are MOST EAGER to ask you:

Who are your other clients?

Followed by:

Can we call them?

TRANSLATION: We don’t trust you! You have to prove to me I can trust you!

So – be sure you strategically gather and document references.

First and foremost thing to do here? Always keep your promises. If you do what you promise to do, then your current clients would not hesitate in giving a good recommendation.

Document these and spread them as widely as you can through different mediums. Some quick tips:

A) ASK for references. No one would volunteer them. You have to ask for them. Ask ALL your clients for references. If they delay because they say they don’t have time, then volunteer to MAKE one for them that they can then just validate and accept as theirs.

B) Be creative. You can, for example, give a discount if your client agrees to do a reference video (“these guys are so good!”) to be posted on your website.

c) Create a referral to incentivize your current clients to refer other clients. This can even be an incentive for your current service – for example, for every client they refer (and you land), you could give a 5 percent discount to their current monthly service fee.

5b. Bend over backward for your first client

The very first client is EXTREMELY crucial for a B2B firm. This is for obvious reasons – they will serve as your very first reference. In a very real sense, your survival will most probably hinge on how you perform with your first client.

They are naturally very tricky to land – to work with you means they are subjecting themselves to being the guinea pig.

So do bend over backwards for this first client. Mitigate the perceived risk for them. Give a massive discount (I actually recommend giving it for free, in exchange for detailed reference material).

But aside from pricing, give them your ALL –  your ball-busting, never-have-you-worked-this hard, absolute 1000%. Give your first reference something great to talk about.

Six Powerful Reasons Why Your Next Startup Must Be a B2B

Six Powerful Reasons Why Your Next Startup Must Be a B2B

Peter Cauton

To B2B or not to B2B? Ah. This is the question.

For me the answer is clear. With all things being equal, if you are a Philippine-based startup, you should try building a B2B first.

Let me get my obvious bias out of the way first – I am primarily a B2B guy. Most of startups I’ve been involved with – STORM, Strata, Stream Engine – have been B2B’s. (the notable exception is JGL)

Waitaminit! What do mean by B2B again?

You can generally classify as startup as being a B2B (Business to Business), as opposed to a B2C (Business to Consumer). A B2B company sells to other companies (also called enterprise business), while a B2C sells its wares directly to consumers.

I think there is an underlying reason for my own preference as well – I just find it a bit easier to build a B2B.

Here are six huge reasons why.

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1) More than Two Can Tango

For direct consumer businesses, you mostly either have to be NUMBER ONE or NUMBER TWO to be  successful in a certain market segment.

Think about it.

Why has it been so difficult for a third telco to get established? Why has it been forever Mcdo versus Jollibee? Apple vs. Samsung? Coke or Pepsi? Jobstreet vs. Jobsdb? Nike and Adidas? There are countless examples.

In fact, for a HUGE number of  B2C industries, there’s only space for one or two players.

But in B2B?

You can secure a certain segment of the market as long as you can service them well.

This time, think about how many ad agencies there are, or headhunting firms, or IT development firms.

There are a lot, right? And yes, they’re able to co-exist.

B2B might not be sexier (for some at least), but its a hell of a lot safer.

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2) Experts Everywhere

I was DEEP in HR Management for ten whole years. I finished an advanced degree in basically HR Management. I know it well.

What’s the great thing about about knowing things well that from an entrepreneur’s lens?

I know a LOT of problems companies face when it comes to HR.

I can probably rattle off 20 different HR-related problems which companies are struggling with.

And of course, problems are where startups are born. That’s literally 20 startup ideas (which I mistakenly tried to pursue at the same a few years back – but that’s another story)

Guess what? Dive in Linkedin and there will be scores of people like me in a variety of different fields (sales, supply chain, finance, customer service, etc…) in a variety of different verticals (medicine, real estate, education, etc…). Heck, if you’re from corporate, over 30, and you’re reading this, chances are YOU are a subject matter expert who is knowledgable about big problems in specific areas.

Some of the best ideas for startups will come from these people. And there are a ton of them.

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3) Funding Is Obtainable

While it may seem that funding headlines are always dominated by B2C’s (quite natural, because on the average, the addressable market for B2C’s would seem larger than B2B’s – and this return potential excites VC’s), you WILL get funding for a great B2B idea if you raise money for it.

Just last year, Kalibrr raised a ton of money. So did Payroll Hero. B2B firms.

I’ve had first-hand experience in raising fundraising last year as well, with both STORM and STRATA getting Series A funding.

You can also check out the portfolio pages of Kickstart and Ideaspace and see more B2B’s.

You got a sound B2B idea? There are a LOT of people who can help out with startup capital.

phil eco

4) Companies Are Flush

Over the course of the last 12 months, we’ve been hearing headlines like:

“The Philippines will be a top 50 economy by 2050!”

or

“Execs bullish on Philippine economy!”

Who’s feeling this sudden abundance?

Go have coffee with your friends who dabble in the stock market. They’re probably smiling. Most likely they have spanking new shoes.

Boatloads of companies are killing it in the stock market.

Businesses are flush. Companies who are flush tend to invest more – and tend to be just a tad more interested in improving things. Or even trying out new stuff, like you know, startups.

What does the first “B” in “B2B” stand for again?

Go where the money is.

Adding this one quickly: I remember when we first started Mobile Academy, we wanted it to be aB2C  – a place where anyone can learn about how to create a mobile app. We did “lean” methodology, developed some quick mobile courses and threw them out into the market, seeing who would bite.

We quickly realized  who the market was. Direct consumers waffled at our prices, with a good number saying they’d much rather learn on their own than pay up.

After a few weeks, some tech firms heard about our courses. Boom. Booked a whole class full, just like that. Then another.

I think experience can sum up this whole post.

bronto

5) Dinosaurs Create Opportunity

You know one thing I’ve seen in my years servicing and selling to corporations?

A number of them do things very, very, very inefficiently.

Some of them hire full-time encoders.

Some of them (actually, a LOT of them) use mammoth, outdated “legacy” systems.

Internet Explorer 5 (!) anyone?

Some of them don’t take advantage of mobile technology, even if there’s a big, obvious advantage in doing so.

A lot of them don’t understand tech and social media.

Opportunities abound.

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(nope, couldn’t find any appropriate picture, so I ended up with the most obvious one – I love 80’s music anyway!)

6) Hard Habit To Break

So how does a B2C company lose a customer? He or she just stops purchasing if and when she feels like it.

If you’re a B2B, it’s MUCH more difficult for a client to drop you. For starters, deals are usually governed by contracts. These typically span 1-2 years.

They also KNOW you, so they’re going to have to tell you to your face that they’re not renewing your service. That’s MUCH more difficult

One other thing? They’re not using their own money to make the purchase!

So you know, unless you completely BOMB and make them look bad, you are MUCH MORE LIKELY to keep a business client.  Companies are creatures of habit. Once they get to get used to being serviced by your firm, you become a hard habit to break.

(Of course, what we missing in this discussion is a very key ingredient – what you are passionate for. But again, all things being equal – if you had one solid B2C idea and one solid B2B idea with roughly the same economic potential? For me, it’s a no-brainer.)

(While this post explains WHY you have consider building a B2B, you can find some crucial suggestions on HOW to build B2B’s in this post.)

For the Young Entrepreneur: Do not Fear the Lingo, Get down with it! (Even more fun with wise friends!)

(Matt Lapid will be regularly posting original articles with me here on JGL, with the perspective of being brand-new entrepreneur. Heres his second article. As usual, please tell us what you think with the content we are pumping out for you. Gracias! – Peter)
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“So is it a B2B or B2C…Kasi pwedeng B2C…Pwede rin B2B, but you need to define your niche market and validate…BOOTSTRAP…Looks like you have an MVP!”

This is the lingo that resonates after being with JGL for one week. Initially, I felt like “huh?” all the time.

“What’s a B2B? I never took calculus.”

In spite of my ignorance, I understood that even if I were to attain a tiny bit of knowledge of simple business terms it would give me a deeper understanding of the negotiations being made around me. So I made sure that if I didn’t know a word, I’d jot it down and look it up. That simple act of discovery made all the difference.

As a result, when Peter articulates that tech enterprises can be looked at in terms of both B2B and B2C, I can at least understand that he is saying that their business relationships can be based on a Business to Business or a Business to Consumer interaction. It’s a small feat, but understanding the lingo that’s being used nurtures free-flowing discussion, in which the speaker doesn’t feel confined. In my relatively minimal exposure to entrepreneurship, I’ve observed that the free-flowing, out-of-box thinking is where the best ideas are conceived and the best work is produced. If we do not allow our minds to run free, we will not create our best work.

In addition, if we seek to work efficiently, we must equip ourselves with the right tools to do so. At times, as young and passionate people, we want to do and do out of anxiety, but if we’re doing things on our own without the proper knowledge and guidance, success will be near impossible to attain. There are so many of us who have the passion and allow it to drive us, but that passion will eventually burn out, if we run without an understanding of business.

On a brighter note, there are many seasoned entrepreneurs that would love to teach you. I’m not sure exactly why this is because entrepreneurs are some of the busiest people around, but from what I have inferred it’s a type of pay it forward approach, and perhaps even a little narcissism that goes into play.

Let me explain my hypothesis.

Seasoned entrepreneurs see themselves in us. That entrepreneurial itch that you have is the same type of itch that compels entrepreneurs to move. That passion and tenacity that you possess is the same force that drives entrepreneurs day in and day out. Seasoned entreps can spot that entrepreneurial energy and determination. They see themselves in us young folk, and want to help by sharing their knowledge and experience because it is actually gratifying for them to see us succeed, as so many others have done for them.

For us young and aspiring entrepreneurs let us not fear what we do not know. Let us not act like we have all the answers. Let us be real and learn from one another.

I leave you with this list of common terms I hear on a regular basis, which are simply defined. Taking in consideration that these are the bare bones of rich definitions, let’s spark some discussion and provide some insights! Perhaps, we could even add to the list to gain more knowledge! Anything goes, as we long as we learn together! Do hit the comments!

List of Terms Defined:

1) B2B– Business to Business

2) B2C– Business to Commercial

3) MVP– Minimal Viable Product

4) YTD– Year-to-Date

5) Bootstrap– act of starting your business with the resources you have without any outside funding at all

6) Traction– indicator that tell us if the business has generated revenue

7) Cash Cow-moneymaker but possibly stagnant

8) SRP– Suggested Retail Price

If you are taking the leap from corporate, SERIOUSLY CONSIDER building a B2B

Peter Cauton

I was in a startup pitch event some months ago attended by a good number of people, a lot of which had corporate day jobs. I was listening intently to the ideas being pitched, and I jotted each of them on my tablet to get some sort of idea as to what exactly people wanted to get into. Almost EVERY idea pitched was a B2C (business to consumer: a business which offers products directly to consumers). A good number of them were social networking sites. A good number of them were location-based apps. A good number of them were online marketplaces. In fact, a couple of people thought of exactly the same idea.

This is all well and good, of course – it’s very good to think big. Why not create the next cool social network? Why not create the next killer location-based app? By all means, let’s dream big.

On the other hand, I was thinking the idea distribution was SO skewed towards these “sexy” apps: location-based, social, etc… There were hardly any B2B (business to business: a business which offers products to other businesses) ideas thrown on the table. This was surprising for me. My first thought was wondering about how many people around the world they were competing with. Moreover, there’s that danger of having a giant like Facebook or Google making a feature out of your idea – you’d be out of business in a hurry.

People, why not B2B?!

Here are some powerful reasons to consider it:

1) Online Purchasing Isn’t A Standard (yet)

While internet penetration is uncommonly high here in our country, online purchases are far from the norm. Not yet, anyway. And since our country is a third world country, it may take a while to get there. Since online purchases are commonly the lifeblood of web startups, it becomes a challenge to create a sustainable business model for those who insist on them. You could target a first world country nowadays, of course, since the world is flat – but then you’d have to worry about a ton of competition and a disadvantage of knowing the market a bit less.

2) Take Advantage of Your Corporate Domain Expertise

The ironic thing is that most of the people in that room with me were corporate lifers. Do they hate their corporate jobs that much that HARDLY any B2B idea were generated?

If you spent 5 years in Finance, or 7 years in Supply Chain Management, or 10 years in Human Resources, one thing is for sure: you know more about your corporate domain than most people. You know gaps / problem areas, or at the very least know people who would know about these gaps in detail. These gaps are tremendous opportunities. The fact that they are still gaps means you can come in and take that strategic early mover advantage. (instead of being, like the 167th mover in one of those “sexier” areas)

Also, while a great number of people do not like their corporate JOBS, I’m betting it’s not because of the domain. For example, I was in corporate HR for a good decade before taking the leap. It WASN’T HR that I loathed about corporate – it was the politics, the narrow responsibility sets, the butt-kissing, rigidity, etc… But HR as a domain and body of knowledge? I continue to love it.

I bet you feel the same way about your domain – marketing, sales, finance, etc…. There might be a reason you gravitated towards the domain. It might just be love of the game.

3) Take Advantage of Your Corporate Network

In corporations, one thing you have the opportunity to do a lot is to network. There is a TON of ways to do so: of course you start with your co-workers, but then you also have your suppliers, or the would-be suppliers who send you proposals, those people you met in trade shows or public training courses, business partners, and clients. Why not build something where your existing network can still be useful, instead of creating a new one from scratch?

4) Corporations Have Money

Of course, during economic downturns, it might prove to be a bit difficult to get them to open their wallets. But you know what? If you solve a significant problem for them, you’d be amazed at how easy it is to do so sometimes. Oh, and yes, and corporations have credit cards.

I have discovered that locally owned companies tend to open their wallets faster than their multinational counterparts, probably because they don’t need to consult their regional counterparts for significant purchases. These might be good to target first.

5) B2B Firms Work

Amazon, Facebook, Mang Inasal, Zynga – these are all shining B2C examples. If you’ve got a killer idea like that, then by all means, take the plunge. But do take a look at some of the biggest successes in the startup world: Salesforce, 37 Signals, Linkedin (used mostly by business professionals), Success Factors (recently bought by SAP for $3 Billion), Taleo (recently bought by Oracle for nearly $2 Billion as a counter to SAP’s purchase),  I could go on and on. These firms work. These firms scale.

6) Yes, You Can Go Multinational

Creating a B2B firm does not mean you’ll get stuck in just the local market. On the contrary. First, a lot of the companies you can target here are MNC’s. This means have regional affiliates they meet and talk to very regularly. This is one of the EASIEST ways to get to go international – just ride with your MNC clients. Do a good job with the local affiliate and they just might recommend you to their neighboring counterparts.

Another idea is viewing the local clients as a way to perfect your products for the international market. It will obviously be easier (and cheaper) to sell stuff here. You can start with that. Then as your portfolio grows, it becomes a virtuous cycle – you make your products and services better to account for the increased clients, and as a result your portfolio will grow even more – allowing you to position yourself nicely for international growth.

If you are a corporate lifer thinking of making a jump, then a jump to becoming a corporate entrepreneur does make a ton of sense, especially here in our country.