The Best Technology Business to Start in 2018 is B2B


This content on the best technology business to start is part of the Lean B2B course 🔓.


All of my jobs have been in B2C. I worked in retail, I worked in loyalty, and I’ve sold to musicians. Yet, every single technology business I started has been in B2B.

  1. I started a consulting company selling user experience and usability services to businesses.
  2. I built Flagback adding a layer on top of the web for quality assurance teams and agencies.
  3. The employer brand monitoring platform I was building at HireVoice was B2B.
  4. My current (new) startup is also B2B.

Why the best technology business to start is B2B

I ❤️ B2B, and there’s a lot of reasons why it matters. Here are the top eight reasons why the best business to start in 2018 is B2B:

1. You get to leverage what you know

The company you’re working for might be Business-to-Consumer (B2C), but you’re working in a business. You get to see the problems, you build domain expertise, and you learn the industry. If you work in retail, you understand retail. If you work in finances, you start to understand finances, but you also build solution expertise; you learn how to build a product for that market or for someone with your job title in another company.

2. The opportunities are almost infinite

If you truly understand the Job to be Done, you can find opportunities. People in companies are constantly looking for an edge over competitors – internal or external. There’s always a desire to improve retention, have better employee engagement or increase the performance of the marketing funnels; there’s always going to be a need to make things better. If you truly own-in on a niche and understand the need, you can build something really exciting for businesses.

3. B2B markets can support multiple winners

Think about it, how many email marketing platforms do you know? I can probably name ten off the top of my head. In B2B, you can have multiple companies serving the same need for different types of businesses. You can target a niche, go upmarket, low market, mid-market, etc. Whereas, in B2C, markets tend to be winner-takes-all. Facebook has no real competition. They’re WhatsApp, Instagram and Facebook. What else is there after them?

4. Software spending is growing

We’re in the golden age of tech. Businesses are still transitioning to the Internet, and software spending is growing. Businesses use more and more tools. I was recently speaking with a company that uses 80 tools to manage their business. They’re still thinking about getting new products, and why shouldn’t they? If they can automate a task or improve a business process, and the return on investment is there, it just makes sense, no? A lot of job functions are still underserved. Marketing or development may be well covered, but there’s still a lot of other functions in companies that can be helped. Think archiving, purchasing, operations, etc.

5. Legacy vendors still control the market

Legacy software companies like Oracle, Microsoft and SAP control a market cap of 83%, and own 93% of all software revenue. This means that only 7% of all software revenue is in SaaS; the bulk of the revenue is still legacy software. A lot of products will probably transition to more Software as a Service models, and there’s a lot of things that will need to evolve in terms of tools to give better service and better results to businesses.

The Best Technology Business to Start in 2018 is B2B

6. Profits are cool again

After the bubble burst in 2008, a lot of investors realized that they can’t keep investing in high-growth companies that don’t necessarily have business models. There’s less and less investment in companies that are just acquiring users, growing and then eventually thinking about monetizing. Monetization is a key part of it. It’s easier to bootstrap and build a sustainable business in B2B because you’re expected to sell, have sales and be sustainable. You can’t just acquire all the businesses and then someday try and convert these companies into customers. It doesn’t work like that in B2B.

7. The innovation industry is booming

If you look at the US, the Asian or the European markets, there’s more and more people working in innovation in businesses because companies have started feeling the heat. They realized that their business models need to change. One way for them to do that is to acquire startups that can help them leverage an advantage over competitors. This increases the odds of successful exits for B2B entrepreneurs. If you build a meaningful product, it might not become a sustainable business, but maybe a company will need it to build or expand its product offering.

8. B2C incumbents are going B2B

Last, but not least, B2B is becoming cool-er. Because of the consumerization of enterprise software, business users have come to expect the same kind of user experience that they get in B2C in B2B. More and more exciting B2B products like Slack, Box or Intercom are coming up each year, and they’re attracting more and more attention. Even companies like Dropbox and Facebook are slowly transitioning to more B2B services because they realize there’s a lot of money in B2B.

As an entrepreneur, if you’re willing to dig deep into the value chain and the needs of the market, you can find opportunities for breakout products. You just need the patience and the dedication to do the research. There’s countless opportunities in B2B, and that’s why it’s truly exciting. :-)

How to Identify Follow-on Markets (With a Great Bowling Analogy)

How to Identify Follow-on Markets (With a Good Bowling Analogy)
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

Let’s talk about bowling…

If you imagine the move from early adopters to the mainstream audience as a bowling alley where each pin represents a niche market…

As you knock over a pin – or capture a significant share of that niche – you can move on to adjacent markets… and then knock them over.

But, to be successful, the key is to make sure that the next pins you hit are related to the ones you’ve already knocked down so that awareness, word of mouth and case studies travel from one pin to the next. That way, you don’t have to start from scratch every time you enter a new market.

This approach is what Geoffrey Moore, author of Crossing the Chasm, calls the “bowling pin” strategy.

Facebook is a company that executed this strategy really well.

Facebook started at Harvard and then spread to other Ivy League colleges, before eventually reaching the general public.

If they had started out with 1,000 users spread randomly around the world, the service wouldn’t have been very useful.

But having the first 1,000 users at Harvard created value for students. Those students had friends at other colleges, which allowed Facebook to jump from one college to the next.

Much like in bowling where it’s much harder to hit a split – when the pins have clear separation – then to hit adjacent pins, you want to make sure your follow-on markets are related.

How to Find Follow-on Markets That are Related

To find the next “pin”, it’s important to understand what you’ve already created and be aware of new or emerging opportunities.

What have you built? What came up as you were winning over your initial market segment?

  • Did users from other segments sign up despite your marketing’s focus being on a completely different market? Were some of those user groups larger than others?
  • Did any of those users find real value in your product? Were there segments that showed equal – or maybe superior – performance than your target market customers (churn, engagement, NPS, return on investment)?
  • Did users from other market segments contact your team wanting a slightly different product or solution? Did they have the budget to pay for custom development?
  • Did your team build authority or visibility that can be leveraged to enter in a new market?
  • Did your team gain knowledge or insights that can be used to strategically expand in a new segment?
  • Have customers recommended your product to companies outside of your target market? Have those companies found value using your product?

You’re looking for the intersection between the easiest segment to capture and the greatest strategic benefit for your organization.

Which segment opens most doors? Which segment strengthens your position of leadership? Which segment helps your finances the most?

At this point, since you’re building from a position of strength – with revenues and an established company – you can prioritize longer-term opportunities.

Ask yourself: which follow-on markets will help you knock down pins #3, #4, #5 and beyond? Find the best customer segment and do it! :-)

How to Evaluate and Find the Best Customer Segment for your Startup

How to Evaluate and Find the Best Customer Segments for your Startup
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

Great. Your product could be useful to different customer segments. Pharma, legal, marketing, construction… How do you go about selecting which one to focus on?

First thing first, you need to create an hypothesis profile for whom you want to target.

Have your company ever sold to businesses in those market segments? Are there specific users or customers you could refer to to get started?

You need to understand the pains and benefits your solution could have for these customer segments. You’ll conduct customer interviews to gather enough information to make your decision.

You’ll create basic personas – archetypes representing certain types of users or customers – for the prospects you need to recruit for the interviews.

If you’ve never sold to these markets, don’t worry, we’ll use assumptions to get the ball rolling.

Defining Your Customer Segments

For each segment you’re exploring, ask yourself:

  • Who would be the buyer?
  • What would be their typical job title?
  • What interest groups do they share?
  • Which associations or trade groups are they members of?
  • What are their professional goals?
  • How big are the businesses they work for?
  • Which industry or niche are they serving?
  • Which blogs, industry publications or websites are they following?
  • Where are they located?
  • Why would they buy your solution? What makes your offer compelling?
  • What are they currently doing to solve the pain your product is solving?

You don’t have to go too deep here. You’re merely looking for a frame to guide your recruitment for the interviews.

You want to know:

  • Who your solution is for
  • What their typical role is
  • Why they would buy a solution like yours
  • Where you can find them

With qualified prospects, good credibility and the right email script, you can expect a 10 to 20% contact-to-interview success rate.

Because we’re only trying to speak to 5 people per segment, we’ll contact 50 contacts per segment. All in different organizations.

If you look for more, you may accidentally find yourself lowering your recruitment standards.

When targeting companies under 100 people, it’s often best to start with the CEO.

When targeting companies between 100 and 200 employees, VP or director level in the appropriate department is a good place to start.

If you’re targeting larger enterprise companies, you can find the right roles to target using a neat trick on LinkedIn.

How to Recruit Within Different Customer Segments

Once you’ve identified the right people via LinkedIn, Twitter, industry directories or any other relevant platform, you can use tools like Hunter.io, DiscoverOrg or LinkedIn Sales Navigator to find the right contacts.

I personally like to use a widget called Clearbit Connect to build contact lists. It allows you to quickly understand the company structure and find email addresses. It’s also free under 100 contacts per month.

From there, you’ll draft a simple, straightforward email asking for a 15 to 20 minutes call or meeting. You won’t need much more.

The email script below should help you get started. Remember to adapt and personalize it for every contact, not just the name!

Subject: {International growth}

Hi {Max},

I enjoyed {your 2-part series on employee retention. I had tried to find a job with startups in Hong Kong when I was living there and I know it’s not easy}.

I’m contacting you because I have a software company trying to {improve how businesses expand internationally}.

I’m not looking to sell anything, but since you have so much expertise with {international growth}, I’d love to get your input to make sure we don’t build the wrong thing.

Can I schedule a quick call with you next week? {Monday or Tuesday} perhaps?

Let me know, thank you.

{Etienne}

 

Sending one-to-one emails is time-consuming. You can use tools like MailChimp or Streak to send bulk personalized emails.

If – after sending the emails – you don’t hear back within a couple days, followup. I like to followup every 2 business days, but it’s really up to you.

Don’t take silence as rejection. Prospects are busy; they take vacations. You might have to followup 7 times to get an interview, but chances are, you’ll get 5 interviews before that.

How to Conduct Problem Interviews

From there, your goal is to have educated discussions with the prospects.

You want to figure out:

  1. Whether the problem your product solves exists within their organization, whether they’re actively trying to solve it, and how much pain is caused by the absence of your solution.
  2. If the company has budget and typically buys solutions like yours.
  3. What kind of impact (or ROI) solving this problem could have on their business.

Key questions will be:

How much is this problem costing you?

AND

Within the organization, who is responsible for [ the problem ]?

If it’s them, jackpot! If it’s ‘no one’, the problem either doesn’t exist or it’s just not a priority at the moment.

If they say ‘someone else’, take note, and consider you might have to change the role you’re targeting within these organizations.

You can get started using my latest customer interview script below:

Get Started Fast – Download my Latest B2B Customer Interview Script for Free

Make sure you ‘own it‘, and adapt it to your solution and target segments.

If you don’t, you’ll just be collecting wrong data points.

As you conduct interviews, make sure you establish common ground with prospects and open the door for a follow up call. You don’t want this to be the end of the relationship.

You’ll want to steer clear from:

  • Confirmation biases: the tendency to interpret information in a way that confirms your preconceptions. In other words, wanting to confirm that this segment is a good fit for your product.
  • Interviewer biases: The tendency to frame questions in a way that suggests an answer. For example, do you think Google is the most innovative company in the world?
  • Response bias: Making the prospect feel pressured to share a certain point of view or idea.

How to Evaluate Customer Segments

After doing 5 interviews in each segment, do you feel the need to dig deeper or speak to different stakeholders?

You don’t want to go too far, but if you need to dig deeper, do another series of 5 interviews with the new role or segment.

The information collected should help you select the right beachhead or target market for your business.

It might feel like a lot of work, but once you’ve mastered the basics, you can run through this process in just a couple of weeks.

More on Customer Segments

How to Calculate Your B2B Startup’s Total Addressable Market

How to Calculate the Total Addressable Market for your B2B Startup
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

In B2B, your beachhead market should be worth at least $10M…

What does that mean actually?

The measure typically used for market sizing is the Total Addressable Market or TAM.

It’s basically the amount of annual revenue you could earn if you achieved 100% market share in your beachhead market… which is… not usually realistic.

Notice, I wrote “annual revenue”. It’s important to understand that TAM is not a number of customers but rather dollars per year. Willingness to pay is key.

You get your market’s TAM by multiplying the total number of users by the revenue per user. For example, if you have 10,000 customers and you can charge up to $10,000 per year, your TAM is $100M. It’s starting to be a big opportunity.

For your beachhead market, you should aim for a TAM of $10 to 100 million. If it’s more than that, it makes sense to segment it a bit further. If it’s less, your beachhead market may not be worth going after considering it’s highly optimistic to think you’ll get 50% of the market.

Therefore, it’s important to pick a market segment of the right size. You want to get enough word of mouth recognition within your beachhead to become the market leader.

Now there’s many ways to build a $100M market:

  • You can get 10 customers paying you $10M per year;
  • You can get 1,000 businesses to pay you $100k per year;
  • Or you can get $100M customers paying you $1 each year.

As entrepreneur Tim Ferriss says, higher pricing means that you can sell fewer items and manage fewer customers; it’s a way to focus the business.

Now, before getting started, let’s consider the limitations of TAM.

Total Addressable Market vs. Serviceable Obtainable Market, Which is Best?

As we said, unless you have a monopoly or unlimited financial resources, capturing 100% of the TAM is almost impossible.

Although investors usually work with TAM, a better measure of a market is SOM or Serviceable Obtainable Market. SOM is a good reminder that we need to factor in:

  • Competition
  • Geography
  • Culture
  • Regulations
  • Financial limitations
  • Willingness to pay
  • Market cannibalization
  • Resources – How many customers can we realistically support?

Those are all limits we must understand to properly assess market segments.

For example, messaging app WhatsApp is banned in some countries. Its TAM probably includes China… which makes its TAM bigger than its SOM. Same with Facebook.

For SOM, it’s a good idea to handpick geographies or markets and assign a targeted market share percentage based on local competitive environments.

But, let’s get back to our total addressable market.

There are three ways to calculate TAM:

  1. Top-down;
  2. Bottom-up;
  3. Referring to external research.

Let’s take a look at each approach.

Referring to External Research

Now, the easiest thing to do is to refer to external research.

Has Gartner, Forbes, Forrester Research, Marketing Sherpa, or another credible analyst published market estimates? If so, can we base our assumptions on those data points?

Depending on your market thesis, this may not be best for your business.

If there’s already a market research report out there with all the information you need, it might be too late to tackle the opportunity.

What you probably want to do is a Top-down or a Bottom-up sizing.

Top-down Analysis of your Total Addressable Market

The top-down approach uses secondary market research to define a subset of customers unified by the characteristics of your market.

Usually, to calculate your total addressable market, you start with a large number and then narrow it down based on the criteria of your segment. Hence, top-down.

You need to find the data related to the variables and criteria used for your market segmentation. For example, if you provide a product to business travellers. You’d first look at the country population, then look at active population, then at the age of active population travelling once a year, once a month, once a week, etc.

You could use data from:

  • Government data and census surveys (E.g. data.gov or data.europa.eu)
  • LinkedIn
  • Directories, trade groups and industry analytics
  • Worldwide Financial and Economic data sources like Quandl
  • Bureau of Labor Statistics
  • Or various sub-market data

As you do, it’s a good idea to take note of your hypotheses. It helps manage uncertainty and gives you base assumptions to go and validate.

You can use this template for Top-down (or Bottom-up) TAM calculations.

Total Addressable Market Bottom-up Analysis

Now, the best way to calculate your total addressable market is through a bottom-up analysis – also called ‘counting noses’.

It starts with your market thesis and your primary market research – interviews, surveys, willingness to pay – looking at the users fitting your customer profile.

For a bottom-up analysis, you determine the local market size – how many people fit in your local target market – and then extrapolate that to a wider population.

For example, you’d start with your current ideal customers, figure out how many companies in your region fit that profile and then expand that globally.

Bottom-up analyses are perceived to be more accurate, because they’re anchored around proven data points that can be magnified to uncover the whole TAM population.

Again, you want to map your hypotheses for this analysis.

What Makes a Good Total Addressable Market

As a rule of thumb, you need to go as deep as needed to be able to make only defensible assumptions – However, if you’re off by 20%, it’s good enough.

So, once you’ve ran the numbers, what do you get?

Your TAM will be larger than your SOM because it includes all the markets you don’t serve or can’t target yet.

So, let’s keep in mind that you’ll have a hard time getting 50% of those segments within a reasonable time frame.

Anything under $5 million per year can be a problem. It will make it difficult to convince investors that your market is worth tackling.

Anything over $1 billion raises flags. You need to refine your assumptions until the market size makes sense.

Once you ran the number for your market segment, it’s time to get out of the building and validate that market. Let’s do it!

More on Total Addressable Market Calculations

To Grow Fast, You Need Outbound. Here’s Why:

Proactive Growth Leads to Growth Velocity
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

Imagine this: Your team decides to focus on a segment in the farming industry. Maybe your company goes through a complete rebrand, uses some of the value propositions learned through discussions with prospects, but nothing really changes in terms of marketing strategy and acquisition channels.

How long do you think it takes to get 10% of the market?

20%?

40%?

50%?

If you’ve truly nailed a niche, you’ll eventually get there through referrals and a bit of luck, but it will probably take a lot longer than you initially anticipated.

If the market is real (Read: What a Market Is and Isn’t), customers will reference each other when making a buying decision, and word of mouth will amplify your growth efforts.

But there first needs to be something to amplify.

To capture your beachhead market, you need to focus on growth velocity; this means speeding up (product) discovery by prospects within your target segment (farming!).

If you keep on relying on customers finding you and organic growth, you’ll have a hard time reaching the necessary velocity for market dominance.

That’s why you want to switch to a proactive growth strategy.

Proactive Growth & Growth Velocity

When you seek out and target the exact customers you exist to serve, you can focus your resources on leads that convert. You also don’t have to build the wrong thing to accommodate the wrong customers.

Now, the good thing is that almost all markets self-organize into groups. LinkedIn groups, meetups, trade groups, conferences, ad hoc communities on blogs or forums. Or maybe, they have common suppliers, or they advertise in the same magazines.

If you understand where your market’s attention is, you can make real headways.

Figure out where they hang, what they read, where they go.

Analyze their networks. Reverse past sales and acquisitions. How did your best customers find you? Can you repeat that?

You have to find the reliable and predictable parts of your model and double-down on those.

Now, the issue is that not all channels and strategies can work for this.

In a great talk, Growbots founder Greg Pietruszyński explains the different options for founders early on. He says:

  • Marketing – like content marketing and brand – takes years. It’s not the easiest thing to start with.
  • Paid advertisement can work, but it’s expensive.
  • Organic growth – like search engine optimization – can also work, but it’s hard to get effective results early on.
  • Outbound like outbound sales or cold emailing is typically the fastest way to get in front of targeted prospects and customers.

You have to think of marketing, sales or acquisition channels in two ways:

  1. Can this channel allow us to directly reach prospects from our market?
  2. If it works, can we scale it?

Scalable Sales & Acquisition Channels for B2B Startups

Realistically, you could start by doing things that don’t scale, capturing visibility on communities, blogs, forums and speaking at targeted events while slowly transitioning to more scalable sales and acquisition strategies like:

Seach Engine Marketing – promoting your product on search engines like Google, Bing or DuckDuckGo. This is how Lightspeed POS and Vidyard got their starts.

Social and Display Ads – advertising on Facebook, Twitter, Instagram or LinkedIn. That’s how LANDR acquired a lot of its users. It’s also how Usertesting.com got started.

Outbound Sales – proactively reaching out to ideal customers via phone or email. That’s how Zenefits and Salesforce.com gained momentum in the market.

Existing Platforms/Distribution – Sometimes partnerships can work. And sometimes you can also leverage an existing platform used by your target market. That’s how Evernote and Airbnb got their start.

Growth specialist Brian Balfour says: “We always build our businesses off the back off someone else’s platform.”

That’s not false.

One last option may be what people in SaaS call “Engineering as Marketing” – building free tools or products solving the needs of target customers to gain traction and visibility. It’s a good way to position your brand as being ‘helpful’. It’s how HubSpot and RJMetrics found initial traction.

You need to experiment, find a system that works for your unique product/market combination and repeat it ad nauseum.

If you get it right, word of mouth will amplify your efforts creating a flywheel as you reach the right growth velocity.

A fragmented market – or many small markets – don’t make a big market. You might need to reinforce your beachhead market or create the channels for them to communicate if they’re not readily available, but that’s a risk. You have to make sure your beachhead is a real market first and commit.

In all scenarios, proactive growth leads to growth velocity. But proactivity is not enough on its own.

In an upcoming post, we’ll look at how founders can create company focus around growth. Sign up to our newsletter and get notified.