Three Things I Learned Along the Enterprise B2B Startup Journey
This article is a guest post from Charlie Lougheed, CEO of Axuall.
Startups are not easy, but those who serve the B2B space have unique challenges. The B2B landscape is littered with the corpses of startups that, despite having superior products, never got a foothold within their corporate customer base. Bedeviled by market inertia, bureaucracy, misaligned objectives, and long sales cycles, many entrepreneurs wonder what they did wrong. Axuall is my fourth B2B company, so these challenges are all too familiar. However, despite all this, we figured out a few things along the way that helped us overcome these obstacles and flourish.
1. Clearly Define and Fiercely Defend Your Seat at the Table
Enterprise buyers have an innate need to categorize your product. As a result, nearly every corporate buyer will sooner or later have to answer two questions: (1) what category of need does your product meet, and (2) is there anything I have today that already provides this. The first is simple if your product represents a new category without a status quo. That said, it gets tricky when there’s an incumbent in your category.
In this case, it’s usually best to own up to the challenge from the start. If you have a willing sponsor, work with that person to build the justification for the replacement. Understanding and addressing buyer psychology, as I will discuss in the next section, is fundamental. People often underestimate the power of inertia and fear of sunk costs. Don’t just sell. Help your sponsor empirically justify the change. As the movie quote goes, “there can only be one highlander,” especially if you’re a single-category company. Make sure your product is the one standing in the end.
2. All Enterprise Problems Have Functional, Economic, and Psychological Components
Most companies that have been successful in the enterprise B2B space figured out how to address their customers’ functional, economic, and psychological wants and needs. Product function is generally the easiest rung in the ladder to climb, particularly if you’re entering a mature market where requirements are well known. You can ask your customers what features they desire or simply use your competitors’ websites as a guide.
Developing a product strategy that differentiates itself from the competition on the level of economic benefit is harder. However, when you do this, you elevate your company to a whole new buyer category, usually with much more capital to spend given the ROI. Take, for instance, how SpaceX changed the space business. They didn’t just copy the satellite-launching capabilities of their competitors; they figured out how to apply vehicle reusability to drive massive cost efficiencies and competitive pricing — ushering in new opportunities along the way.
But if you want to achieve the true trifecta, consider also layering psychological benefits into your deal terms. A mentor once told me that business buyers are just as likely to be influenced by emotion than individual consumers. Making the right decision as a corporate buyer can have a massive impact on a person’s career. If your product is new or revolutionary and it works out, that person looks like a genius. If not, it could be a career killer. Startups that recognize this and design their pricing and contacts to minimize downside risk for the buyer while maximizing their upside usually fare considerably better in the market. Consider this when structuring your contracts. For example, providing your customer a backout clause in the early stage of a multi-year contract will likely reduce their risk and make them look really good if it works out in the long run. In this case, you both win. You shorten the sales cycle, and they get the solution sooner.
3. Your Best Customers are Co-founders
And now, for what I love the most about midwest startups. While midwest startups often raise considerably less capital than their silicon valley peers, many local success stories have emerged from R&D partnerships formed with anchor institutions or large corporations in their region. Nothing de-risks capital burn and time to market more than a customer you know will use your product, pay for it, and scream its virtues to the rooftops. So how do you get that to happen? Let them be co-founders!
As you have probably observed, co-founders are fanatically loyal and motivated to succeed. They have aligned aspirations and goals. They have a personal stake in the outcome of the company. There is equity for them, both in reputation and economic terms.
In my experience, nothing feels better than having this kind of relationship with your early customers. They can be a guiding light and honest sounding board for your ideas. Moreover, they have insight that you probably don’t have on your own, and they provide a great way to test your solution at scale.
So my advice is to identify organizations you want as lighthouse customers and invite them to be co-founders, even angel investors. In exchange for product input, rollout, and references, reward them with similar equity as you would other early-stage team members. This has worked well for my companies, and I am proud to call some of my early customers my co-founders and partners!
About Charlie Lougheed: Charlie Lougheed is a serial entrepreneur whose startups became market leaders in their space. Charlie is currently the CEO of Axuall, an HR data network that empowers healthcare providers to manage the information that defines their careers while enabling the organizations they work with to leverage it to build smarter networks, reduce deployment delays, meet patient demand, and improve their bottom line.
