Why B2B Startups Should Target SMBs First, Not Big Enterprises

Through Lean B2B: Build Products Businesses Want, I get to talk with a lot of smart and ambitious founders.

They’ve either begun by building a MVP or by doing customer discovery within their relevant network, and because their end-game is enterprise, the opportunity only seems to make sense to large organizations or they’re hoping to gain legitimacy with key lighthouse customers, they decide to go enterprise-first.

Although large companies like Taleo and Vontu have been built enterprise first, my advice to founders is always to start smaller by targeting small and medium businesses.

Here’s why:

  1. The learning cost is higher: In the enterprise, there’s more steps just to be able to have meaningful discussions: you need to get through the door, understand the buyer groups, the decision-making process, the industry and build a relevant network.
  2. You front-load risk: Investors–especially in B2B–don’t typically want to fund customer development. It’s likely that everything you do prior to landing your first few customers will be pre-funding, on your own dime.
  3. You need a longer runway: The longer the sales cycle, the longer it will take to land your first customers, and the more cash you’ll need to tough it out. To survive, you want to reduce the time it takes to get early sales as much as possible.
  4. It’s harder to gain momentum: As a B2B founder, your chance of success is related to the proximity you’re able to have with your early adopters and your ability to react/adapt to their feedback. It’s much harder to get fast feedback loops going in the enterprise where stakeholder groups are larger.
  5. You’ll likely have to build too much: As Atlassian Head of Design Karen Cross said, in enterprise, it’s often about designing for the 100%. Without understanding the whole product, you won’t get customers to truly buy in.

Going enterprise-first is just riskier; it takes longer to build a base of revenue and get the metrics you need to raise funding. In most cases, it’s enterprise or bust.

At the time when I joined Psykler, they had a working product, several mid-to-large businesses in the pipeline, and the basis for a customer development panel. We had 10 months of runway and were committed to enterprise-first–as the software needed large sales teams to truly be valuable.

Screenshot of the Psykler Complex Sales Dashboard

The Psykler Complex Sales Dashboard

We had to retain our early customers, reach product-market fit and raise capital just to survive.

As fast as we thought we could get there, we needed a significant acceleration event to succeed.

In the end, it didn’t happen and we ran out of cash.

To go enterprise-first, you need sufficient runway to reach product-market fit, get early sales and raise money. If you don’t, your startup is probably already dead… and you just don’t know it.

Selling to small businesses is a great way to start a business. You can go up-market anytime the business has been validated.

Why The Business Problem You Choose to Solve Will Make or Break Your Startup

It’s hard to get honest feedback. Hearing, “It’s interesting” is not really validating a product. There’s a scale of comments with or without value. Entrepreneurs need to judge if the feedback is valuable and stay skeptical.Pete Koomen, Optimizely Co-Founder and CEO

Choosing a problem to solve is one of the most vital decisions your startup will make.

If you choose a weak problem, you’ll quickly find out when you try to sell, but unfortunately, the difference between an average and a significant problem is much harder to make out.

You might be able to build a successful business solving a lesser problem for your prospects, never quite realizing the amount of money you’re leaving on the table.

Prioritizing problems is an essential exercise. In the end, you might decide to pass up on a significant problem for lack of passion or interest, but at least you will have chosen a problem in full awareness.

Beyond scoring problems, there is no magic formula to help you select the problems your company wishes to solve.

You need to draw a line in the sand and decide which problems to address. Be mindful that intuition, passion and the entrepreneur fit should also play a role. Your team is a critical part of your business’s success.

How to Avoid Getting Blocked By Influencers in B2B Customer Development

You were able to turn a buying influence into a coach to help you identify the stakeholders and build a compelling product, but it doesn’t seem to lead anywhere.

Other business stakeholders seem skeptical of your assessment of the situation; they sing a very different tune from the one your coaching influence sings. They seem to be meeting with you more out of politeness than anything else. What’s happening?

It’s not uncommon for prospects to pretend they have more power, budget or influence than they actually do.

Maybe your coaching influence doesn’t have enough credibility with the other stakeholders or maybe she/he’s not in a position to influence anyone.

Keep your current coaching influence but develop stronger relationships with the other stakeholders. Get another coach on your side. Speak with the economic buyer. Figure out what’s really holding back the deal.

If you find out that your coaching influence has a bad reputation in the company, other stakeholders may resent working on anything that helps him out. If that’s the case, cut your ties with your coaching influence, take a step back and approach the company through another stakeholder.

The Deadly Sins Your B2B Startup Should Avoid

Good entrepreneurs learn from their own mistakes. Great entrepreneurs learn from others’ mistakes.Dave McClure, 500 Startups Founding Partner and Investor

There are reasons why nine out of ten B2B startups fail to find a profitable market.

And the great thing about starting a SaaS company in 2016, is that you don’t have to make the mistakes entrepreneurs have made before you.

Founders like Steve Blank, Eric Ries, Bill Aulet and Jason Cohen have written tons of valuable content on improving your odds of success as a founder.

It’s widely-available content yet… the causes of failure for B2B entrepreneurs are often very similar.

Here are the deadly sins I see time and time again:

  • Implementing technology that requires too much change in the company;
  • Implementing technology that changes too much the way people behave or work;
  • Building technology that is too hard to use;
  • Building technology that doesn’t deliver on the promise;
  • Building technology that should be a feature of an established product, not a solution of its own;
  • Selling technology that doesn’t have clear benefits and value;
  • Selling technology that can’t avoid comparison to established players the prospects already know very well;
  • Selling to anyone, anywhere, regardless of your ideal customer profile.

Don’t fail if you don’t have to. Find mentors, get the best methodology and remain honest with yourself.

You’ll already be ahead of the game if you do all this.

Why Being a Great Salesman Hurts Your Customer Development Process

You don’t learn through sales calls, it’s not customer validation.Jason Cohen, SmartBear Software Founder and CEO

Being too good of a salesperson can hurt your validation process.

Initially, learning and customer references should be prioritized over making money. You want prospects to honestly need and use your product.

Your plan is not to make money from the first clients. Money will be there later, so being generous with your early clients is an excellent idea.

It’s important for prospects to understand that you don’t have a product yet. You’re not just a regular vendor; you’re looking for a partnership more than just a sale.

You want to help them reach their objective, but in exchange, they must understand that you need to have product orders before anything gets built. That process must be clear.

Look, you have to understand that you’re getting in on the ground floor and for that, you’ll always be recognized as our first customer and I’ll always remember that.Steve Smith, CakeMail Co-Founder

The worst thing you can do is to try to sell. You don’t know what your prospects want, you have no idea what the solution could be, and you don’t even know if the people you’re meeting are people you would like to sell to.

Find out what prospects really need to become clients.

With a good personal network, it is possible to ride relationships and land your first clients without really learning anything. However, riding relationships doesn’t lead to a scalable and repeatable model. At some point, even the best professional networks dry up.

Keep the sales tricks in your back pocket. Learn before selling if you truly want to build a business.