So far, we have gotten the right mindset about B2B sales, but what about the company we are about to start? The cold truth from Stephan Schambach on the business you need to start:
Preamble) B2B start-ups fail just as often – except when they don’t.
The one thing to understand about B2B start-ups is that the likelihood of success increases noticeably as they grow. In other words, if you grow big enough, your position only improves, whereas B2C plays are at the mercy of users’ preferences for much longer.
1) Fulfil an unmet need.
At the risk of stating the obvious: successful B2B companies fulfil a certain need in a new way. In the case of Demandware, Stephan had long noticed a gap in e-commerce solutions between the full-blown in-house solution on the one end and an ASP-/outsourcing model on the other. The only other company capitalizing on this gap at the time was Salesforce.com in the CRM field, which didn’t make the SaaS “niche” any less attractive.
2) Enter a large and growing market with an unfair advantage.
You will want to make sure your potential win is worth the struggle: depending on the industry, you can usually grow to a maximum of 5-25% market share – which makes a $100m market a bit of a sad affair. As a rule of thumb, any market that has a size of $1bn+ and continues to grow is a good one to be in.
That being said, you want to bring an unfair advantage to the game – IP/patents, customer lock-in, industry expertise – you name it, but whatever advantage you have will ultimately both accelerate your growth and serve as a barrier of entry against new competitors.
3) Sell your solution the right way.
The story of the two extremes of e-commerce that Stephan himself used is a great example of an effective sales approach. Effectively, he positioned Demandware as a new solution that combined the best of two worlds (cloud-based infrastructure with minimal capex, full range of features through the browser for maximum control). With that, Demandware cuts through the endless list of “simple” e-commerce providers and can cut to the chase in sales talks.
4) Be smart about your business model.
Demandware refined its business model to be smart in two ways: like a classic SaaS companies, all customers sign up for a monthly plan that provides them with (a) minimum risk, (b) continuous updates (this is the USP you use to sell a monthly/yearly plan) and (c) Demandware with recurring revenues. On top, rather than charging some misplaced license fee per month, Demandware receives a percentage of the retailer’s revenue and nothing else, which fully aligns the interests of customer and SaaS provider. (As per (2), feel free to call this “shared success business model”)
5) Get the smart money, and lots of it.
First up, any self-respecting VC will place a huge premium on a stellar team. Inversely, your chances of raising money will dwindle if you don’t have a fantastic team – tough luck!
With the right team in place, you will then want to get investors on board who have friends in the right places and can help with hiring and sales. In fact, getting the right investor far outweighs the downside of a potentially lower valuation, so go for the best investor not the highest valuation.
Stephan pointed out that a B2B business should expect having to raise $80m, and today more likely $100m on its way to firmly establishing itself. With that kind of money, you won’t find a way around the US anyway, so go there as early as possible: Getting to a 1.0 product and initial traction with customers is totally doable in Europe, at which point you will want to have set up a US corporation, and then spent a month or so testing the waters by talking to investors in the US.
Congratulations, you are now set up for even more work. Signavio’s Gero Decker will round out the series in part 3 with his account of how Signavio went from its first customer to multi-million dollar revenues and sales offices in the US and Singapore.
*dramatization. May not be accurate.