Substitute Products: What Solution is Your B2B Product Really Replacing?

Though rarely perceived as a competitor, Microsoft Excel is almost always an actual competitor for software startups.Joshua Porter, Ex-HubSpot Director of User Experience

In large companies, the core business functions are well served by technology vendors. There’s Intuit for finance, Taleo for recruitment, Salesforce for CRM, and Microsoft for almost everything else.

But, Intuit, Taleo, Salesforce, and Microsoft didn’t start with large solutions addressing the needs of every customer. They started with a subset of what their products can do today.

As a small and scrappy startup with limited resources, you must identify where your solution fits in the market and how it works with your prospects’s technology platforms. The best beachheads come from capturing emerging processes and opportunities.

Are businesses quickly changing the way they do marketing? Are there ways to capture those new processes?

It’s good to have a vision for the end product, but early on, you won’t be able to go for the big win. Unless you’re bringing some kind of disruption to the market, you can’t position your solution as an all-in-all platform. You need to find the gap you’re going to fill.

Startups that solve real business problems always have to replace some kind of solution.

Maybe it’s a manual process, an Excel spreadsheet, or a legacy solution that never quite solved the problem completely. To find your gap, you have to understand the substitute products (your competition), and what you’re enabling (your solution’s value).

Examples of Substitute Products
Is Your Solution Competing Against Excel, Manual Work, or Other Substitute Products?

In other words, you must figure out how your solution is differentiated and whether that differentiation is valued by prospects. This, in a lot of ways, is a perception game. Often times, perceived comparables and perceived value matter more than real competitors and real value.

How to Compete Against Substitute Products

You can have the greatest product in the world, but if your prospects think your solution is just like Dropbox, you’ll have a hard time charging more than Dropbox. Your perceived comparables matter more than how different you think your product really is.

In the same way, if prospects don’t perceive your solution as valuable, it won’t matter what benefits it provides. The only value that matters is the value that prospects perceive from your product. What impact do they feel it has?

Think less about the direct competitors and more about how your solution can fit in their technology mix. For startups, substitute products and the status quo are typically more dangerous competitors than large incumbents.

Understand the technology mix, play nice with the existing solutions, find your fit and beachhead, and then expand to take over the world.

What Can B2B Entrepreneurs Learn From Solopreneurs in 2019?

For the longest time, there were only two major paths for tech entrepreneurs:

  • A. You raise capital, and you’re expected to grow fast;
  • B. You self-fund your business and can grow at your own pace.

These paths weren’t mutually exclusive, and they both had advantages over one another but, overall, those were the options for founders.

Either you went big, or risked being labelled a lifestyle entrepreneur.

Now that the costs of building new products have decreased, generations (and mentalities) have changed, and business gatekeepers have lost some of their leverage, new and more diverse paths have become real options for entrepreneurs. Enter solopreneurs:

What Are Solopreneurs?

Solopreneurs are business owners running their businesses alone. They can work in either B2B or B2C, in tech or in other domains, and have modest or grand ambitions.

The core difference between entrepreneurs and solopreneurs is that solopreneurs choose to build their businesses alone.

Solopreneurs – Interest Over Time
Google Trends – Growth in Interest for the Term ‘Solopreneur’

Although this post focuses on solopreneurs in technology, what’s particularly interesting with solopreneurs is that they embrace the constraint of being solo.

As Lean and B2B entrepreneurs, there’s a lot we can learn from their approach and mindset, specifically:

1. Solopreneurs Use Constraints to Define Their Businesses

We’ve already talked about the importance of the entrepreneur fit in building and growing a startup.

With solopreneurs, the entrepreneur fit is at the heart of their decision to start up. By limiting the scope of the business ideas they evaluate, and being keenly aware of the lifestyle they’re trying to have, they’re able to make better decisions as to what the right business is for them.

B2B entrepreneurs need to learn to keep the entrepreneur fit front and center. Building a business you’re not uniquely qualified to build can lead to de-motivation and the feeling of being estranged in your own business.

To achieve speed and success, it’s usually best to build for your unique competitive advantage(s).

2. Solopreneurs (Often) Use Quick MVPs to Validate Their Businesses

A rising trend among tech solopreneurs is the idea of building really quick MVPs and throwing them out into the world for validation.

Although this requires distribution channels to get visibility and it won’t work for enterprise or mid-sized businesses, I’m not convinced that it’s a bad way to get a quick feel for a business idea.

The reality is that, if it takes longer to conduct interviews than to ship a minimum viable product, it’s probably best just to ship the product and see how users react.

By building something quickly – say 12 startups in 12 months – and putting it out there for the world to try, you limit the scope of what you’re building and avoid getting too caught up in your idea.

Executed properly, this approach allows you to learn and pivot quickly after failures.

3. Solopreneurs Embrace Codeless MVPs

Another interesting trend pioneered in part by solopreneurs is the idea of creating codeless MVPs:

With the rise of Application Programming Interfaces (APIs) and Web Services, people of all backgrounds are now able to build tech products. This means that teams can now create (and iterate on) basic versions of their products without or before hiring (or partnering with) development talent.

This approach can change your team structure, the business dynamics, and speed up your product-market validation.

For B2B entrepreneurs, it can help transform your early mindset from “Can we build this?” to “What external services can allow us to create and validate this quickly?”

4. Solopreneurs Can Only Focus on the Essential

There’s only so much you can do as a solo founder. Put too much on your plate and your run the risk of burning out. Put too little (or too much of the wrong things) and your run the risk of stagnating.

When you have a team, it’s easier to stretch and assign unessential tasks to co-founders or employees. You may not bear the brunt of it, but these tasks can destroy productivity, team morale, and slow down your growth.

Solopreneurs are constantly forced to re-evaluate and re-prioritize tasks. This helps keep their focus on the truly essential tasks, and forces them to embrace the lean methodology.

5. Solopreneurs Start with Lower Expectations for Their Businesses

For some reason – be it media or culture – we don’t hear the same kinds of stories about solo founders that we hear about startups.

Because they don’t have a team and generally haven’t raised large sums of capital, solopreneurs experience less pressure for their business to sell, grow big, or morph into something else. This helps keep their expectations in check.

Considering the time it takes to get a B2B business off the ground (18 to 24 months), and the Long, Slow, SaaS Ramp of Death, it helps to have the right expectations at start up.

The Mindset Stays, the Title Doesn’t Need to

With more types of entrepreneurs comes more potential paths to success.

Maybe you want to start as a solopreneur, but eventually, as your business grows, you decide to hire a team. Or maybe, you follow the reverse trajectory.

Chief among the lessons learned with my previous startup, HireVoice, was the fact that it’s best to be solo during early customer development and large pivots.

If you have a team and/or co-founders, compromises might lead to the creation of a business everyone is ok with, but no one loves. Worse, you may create useless work just to keep the team engaged, which is absolutely not lean.

Overall, there are a lot of things we can learn from solopreneurs. The more models we know, the better equipped we’ll be to handle what’s up ahead.

User Segmentation: How to Find Your Product’s Best Customers Using Data

Entrepreneur and investor Jason Lemkin says that if you have 1 customer in a segment, you can get 10.

With user segmentation and a bit of data, you can find your business’s best customers to double down and find more. In this post, we look at how entrepreneurs can use data to find their product’s best customers.

Whether your product attracts the customers you were initially targeting or not, you want to make sure that the segments your business focuses on won’t limit its ability to grow.

How Poppulo Used User Segmentation to Find its Best Customers

User Segmentation: The Poppulo Case Study

Late last year, I caught up with Andrew O’Shaughnessy, the founder of Newsweaver, now Poppulo. We talked about the early days of the company.

Newsweaver started as an email marketing platform. They had customers, revenue, and were growing.

Looking through data and interacting with customers, they noticed that a very small number were using the tool for internal communications – to send announcements to employees, internal surveys, etc.

Looking closer, they realized that the internal communications segment was one of their most engaged and profitable.

This realization led them to rethink their product focus and target that market exclusively.

The customer pivot transformed their business. They went from a Red Ocean – an hyper competitive market like email marketing – to a Blue Ocean, a market with very little competition.

Making the non-obvious decision paid off for Poppulo.

It’s important to follow the money trail and find the biggest opportunity for your business. Even if you think you’re already acquiring great customers, strategically exploring user segmentation and customer segments can help solidify your positioning (and keep you from leaving money on the table).

How I Found Lean B2B’s Best Customers with User Segmentation

User Segmentation: The Lean B2B Case Study

We don’t need to look very far for another example…

I wrote Lean B2B to help B2B entrepreneurs; the book and its marketing made that fact pretty obvious. Yet, evaluating buyers a few years after publication, I realized that innovation consultants loved the book, found value, and were extremely willing to refer it to their peers.

For an author with limited time and resources, it made sense to use this insight to prioritize promotion efforts.

How to Use Data to Find Your Product’s Best Customers

You probably already have a sense of whether you’re targeting the right customers or not, and you know what great customers look like. It’s the perfect time to dive into user segmentation.

To find the best customers from your customer base, we’ll look for signals within your data or analytics.

Your first task will be to codify your definition of what a great customer is. We’ll then use that definition to segment your customer base.

Depending on the areas of focus of your business, you can look at:

  • Retention / Churn: Cancellation rate or monthly churn;
  • Advocacy: Net Promoter Score, word of mouth or virality;
  • Customer engagement: Repeat visits, time on site or activation rate;
  • Revenue or profitability: Customer lifetime value (CLV) or average revenue per paying user (ARPU).

You’ll convert these inputs into a recipe; a form of customer value score.

It’s important that this score is a very close proxy for customer value and customer success in your business.

Key Thresholds for User Segmentation

Once you have your recipe, you’ll define 3 thresholds (buckets):

  1. Your best customers: The first percent atop your rankings;
  2. The next best: Customers ranked within the first 2 to 10%;
  3. Your worst customers: The last 10% at the bottom of your list.

Depending on how technical you are, you might be able to find these customers using SQL, your CRM, database exports or people analytics in tools like Mixpanel, Amplitude or Intercom.

The reason why you focus on these 3 groups is that: your top percent represents your best fits. Your “fans”.

If you do this right, this segment will include the customers most likely to advocate for your business.

The next 10% gives you a good comparison point. It can also reveal some of the lowest hanging fruits to help you create an exceptional product experience.

The last 10 – and this one is optional – helps you define who you shouldn’t be targeting. There’s a lot to learn there as well.

With these less-than-ideal customers, you’re looking for the characteristics and habits of the people that were never really a proper fit for your company. You can use those to create a negative persona – an archetype or profile.

Going Beyond User Segmentation to Home in on Your Best Customer Segment

To dive deep and understand the breakdown of each of those segments, you can do a market segmentation analysis, doing interviews to refine your segmentation.

Since you’re targeting people you’ve already sold to – or have already convinced to try your product – it should be easier to get them to engage with you.

Depending on your customer base and how deep you want to go, evaluating your customer segments can take anywhere between 2 weeks to 2 months.

This may seem like a lot of time, but it’s definitely worth it if you are to make an important focus decision.