Imagine you’re thinking of buying a tablet. What will make you decide whether to buy? What will make you decide which product to go with? Who do you have to consult with? How will you evaluate whether this is a good or a bad purchase? How long will you take to evaluate the options?
Now put yourself in the shoes of someone about to authorize the purchase of $2M of enterprise software. Ask yourself the same questions. Are the answers similar? If you ask the same questions, why are the answers so different?
There are three critical areas of differences between B2C and B2B startups:
Being unaware of these differences is a big reason why many B2B startups never seem to find their fit in the enterprise (or even with small businesses).
Return on Investment in B2C vs B2B
There are three main reasons why businesses buy technology. To…
- …Increase revenue;
- …Decrease costs;
- …Increase customer satisfaction.
A B2B transaction is, by definition, an investment; an investment in future profitability, cost reduction, timesaving, productivity, sales or customer satisfaction.
Unlike consumers, businesses never buy technology simply to look good, for fun or for the user experience. Expectations of ROI are always built into the purchase of new technology.
The new accounting software has to be fast and reliable, the new marketing automation solution has to have an impact on bottom line and the new support platform has to help serve customers better.
ROI estimation is an essential part of making any kind of sale in B2B. ROI is the native tongue of decision makers and one of the main ways in which products are compared and evaluated.
Client Relationships in B2C and B2B Startups
B2B markets are generally much smaller than B2Cs. Burning leads in B2C may not be a big deal if the market has millions of potential customers, but, with substantially smaller markets in B2B, burning leads quickly become a big deal.
To succeed in B2B, entrepreneurs need to build deep relationships with a relatively small number of companies. Relationship-building skills are critical to landing long-term agreements and growing existing relationships. This is one of the reasons why B2B companies are often service-focused and operate with a different business model.
Trust and stability are essential factors. To sign long-term maintenance, consulting or upgrade deals, clients must be convinced that your company will be around for the next two to five years. It’s one of their first considerations.
Your company can’t change product overnight. Transition must be planned for fear of alienating prospects. You’ll most likely validate your product with the same customers you will do business later on. You can’t just disappear if a product doesn’t work out.
The relationship leading to and from a sale is much more critical in B2B. Starting off as a consulting firm is a strategy every B2B entrepreneur should consider.
Decision-Making Process in B2C and B2B Startups
For large purchases, customers in B2C sometimes consult family, friends and their social network, but it rarely gets more complicated than that.
For a big-ticket B2B purchase, requiring the approval of four to six stakeholders tends to be the norm and the end user may not even participate in the decision.
Validation in B2B often requires winning over a group of buyers. New Strategic Selling authors Robert Miller and Stephen Heiman talk about three types of buyers — Economic, Technical and End User in B2B.
These three types of buyers often have completely different — sometimes conflicting — motivations and worldviews. It’s vital to develop positioning and support collaterals that appeal to different stakeholders in the target organization, from the CEO to the budget operator.
Although there are other differences between B2C and B2B startups – funding, services, money, etc – the above are the three main differences B2B entrepreneurs need to be aware of.
So, Why Aren’t There More Enterprise or B2B Startups?
Enterprise is a major opportunity. Yet, for a lot of entrepreneurs, enterprise is scary.
It looks like a big mess of departments, business units, projects, functional groups, intradepartmental policies, corporate rules, politics and many other things that startup founders may have never been exposed to.
That complexity turns off many entrepreneurs. They choose to start up in B2C because of their personal interests or because it feels easier to scratch their own itch and build a product they can use than build a solution an enterprise customer will use.
B2B opportunities tend to attract different kinds of entrepreneurs than consumer opportunities (Find out if you have the profile of a B2B Entrepreneur).
The Challenges of Targeting Businesses
Unless founders have prior experience working in the enterprise, starting up will force them to get out of their comfort zone to face the following challenges:
- Acquiring the Industry Context: Domain expertise is often required to target the enterprise. If you don’t know how companies do business, what matters to them, what they fear, how they perceive themselves or what their yearly schedule looks like, it won’t be easy.
- Building a Relevant Professional Network: You might have a good early adopter network, but if it doesn’t connect you to the enterprise market, you’ll have to re-mix it. Connections are the best way to get through the door.
- Estimating the Return on Investment (ROI): Cost justification is a critical part of selling in B2B. You need an ROI to make a sale, but if you don’t have clients you can’t calculate an ROI… It’s a fine line you’ll need to walk.
- Raising Sufficient Capital: As entrepreneur and investor Jason Lemkin states: $750k gets you very far along, post MVP, in a consumer start-up. In the enterprise, it gets you almost nowhere. A prototype, yes. Customers? Maybe not. A sales team? No way. Demand gen marketing? Fuggedaboutit. It’s $2M to get anywhere.
- Reducing the Enterprise Risk: A big part of selling to the enterprise is being able to understand the customer’s perception of risk (migration, change, costs, etc.). If you’ve never worked in the enterprise, you’ll have difficulty imagining the complexity that goes into purchasing new technology.
- Understanding the Whole Product: In enterprise, the bar is much higher for the product. There are a lot of things that must be put in place just so you can be considered a valid vendor. To sell, you need to understand the minimum feature set.
These challenges can overwhelm the most experienced entrepreneurs. It’s critical for founders to be humble about what they know and don’t know.
Targeting the enterprise won’t be easy, but it doesn’t have to be scary. To succeed, you must be ready to get out of your comfort zone.
More on What Makes B2C and B2B Startups Different
- The Best Technology Business to Start in 2021 is B2B
- What’s The Lean Startup? And Can B2B Startups Apply its Methodology?
- Do You Have the Profile of a B2B Entrepreneur?
⚡⚡ Enjoyed this content? I go into way more detail on this subject in Lean B2B. It covers the ins and outs of finding traction in the market for B2B products. Check it out »
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