Why startups should choose B2B
by Alex MacCaw
Business to business companies are back, and if you're thinking about building a startup I want to try and convince you to build a company that appeals to businesses (B2B) rather than one that appeals to consumers (B2C).
Let's start with some of the advantages that running a B2B gives you:
Immediate and impartial advice: Businesses won't sugar coat any feedback. They'll tell you exactly what their problems are, what they think of your service, and what they will pay for. I can't tell you how valuable this kind of feedback is.
Profitability: There's no better indication that you're on the right track than someone giving you money. The biggest perk of being a B2B is the near-immediate market validation. Just keep iterating until people pay you money. Getting a B2B profitable is a order of magnitude easier than a B2C. If you're solving a problem with a measurable benefit, companies won't hesitate to pay you.
Choice of funding: When profitable, you're in a much better position when it comes to raising money; you have a choice. You can choose to bootstrap the business and grow it organically, or you can choose to inject venture capital. It all depends on your goals. The key is that you have time to make an informed decision, and don't have to lose control and take the business in a direction you'd rather not just to keep it afloat. If you do decide to raise, it'll likely be on better terms.
Acquiring customers: Finding customers and converting them is that much easier, because you know who they are, where to find them, and they're generally willing to pay. You don't have to resort to growth hacking, huge advertising campaigns, building marketplaces and solving one-sided social graph problems. You can approach companies with traditional direct sales and marketing.
Realistic exits: Valuing a company with healthy revenues is much more straightforward than a highly leveraged consumer focused startup. Exits may be smaller, but they're more likely and you'll keep a bigger slice of the pie. Conversely with consumer startups you'll generally have to put all your chips on the table and bet large. As mentioned before regarding investment, profitability gives you the freedom of choice — you don't ever have to exit if you don't want to.
Traditionally it's been fairly difficult to break into the enterprise market due to prohibitively large development and sales costs. Not so these days — development and distribution costs are a fraction of what they once were, and companies are finally moving away from their protracted enterprise sales cycles.
This means that what were once startups' weaknesses have become their competitive advantage. As a startup, you can compete against larger corporations on cost, friendly support, beautiful design and development agility. In short, the product actually matters again! Startups and smaller companies can start to eat away at the dinosaurs.
On the surface of it B2B's may not be as attractive as consumer startups, or command their following in the tech press. However a company is what you make of it; it all comes down to having passionate customers, attractive design, a good culture and intelligent branding. Source control wasn't attractive until GitHub got into the scene, and credit card processing wasn't sexy until Stripe appeared.