Why B2B Startups Fail – And How to Prevent It |  |
- Why B2B Startups Fail – And How to Prevent It
- Twitter IPO Seeks to Raise $1 Billion
- Cut Down on Hassle with These Travel Apps
- Winning the Battle for Sales: A Sales Book for History Buffs
| Why B2B Startups Fail – And How to Prevent It Posted: 06 Oct 2013 04:30 PM PDT
Why do startups fail in the B2B world? Any number of reasons. Today we’re going to take a look at some of the main reasons, and more importantly, what you can do about it. The numbers are daunting. Startup failure rates indicate 50% of small businesses are out of business within five years. However, rather than focus on the negatives, you can learn something by looking at WHY startups fail. As you structure your startup, you want to keep those common failure reasons in mind. Anticipate them. Avoid them. Compensate for them. For anyone who doesn’t know what B2B stands for, it means businesses that sell to other businesses, rather than to consumers. Example: a marketing agency sells services to other businesses. Therefore, we refer to it as business-to-business, or B2B for short. On the other hand, a restaurant or gift shop sells to individual consumers. We refer to a business like that as business-to-consumer, or B2C for short. The challenges faced by each type of business are different. That’s why I want to focus just on B2B businesses today, so I can be more specific. Here are five reasons why startups fail in B2B markets — and how you can avoid becoming a statistic. 1. Making the Buyer’s Decision Too Hard or RiskyThis is a challenge that tends to afflict consultants selling services. Unless you’re selling to a former employer who already knows your capabilities, the buyer is a taking a risk on your startup consulting business. Jill Konrath, author of Selling to Big Companies and SNAP Selling and someone with deep sales expertise, has advice. In an interview at Management Consulting News she notes:
While her advice was intended toward selling to large customers, it applies equally well when your target customers are small businesses. A narrowly defined starter project should be in your set of offerings. It should be something that doesn’t require too much commitment from the buyer, can be completed relatively quickly, and doesn’t cost much compared to the buyer’s budget. I’d add this: it should be something you shine at doing, so you can delight the customer on your first project. Here’s another option to de-risk the buying decision: offer the traditional “money back guarantee.” Joel Libava, the franchise expert is residence here at Small Business Trends, has an email signature line that says “My Franchise Ownership Advisory Services Come With A 100% Money-Back Guarantee.” But what if you’re not a consultant – you sell software? You, too, need to de-risk the transaction. It’s one reason that online cloud software has become such a popular business model. Instead of requiring a payment of hundreds or thousands of dollars for a software license, a customer can sign up online in minutes and pay a modest monthly fee. The buyer is taking a smaller chance. It makes his decision process less risky, especially if the price is under $50/month. Offer a free trial and now you’ve made it even easier for the customer to try your product. Make your free trial one where no credit card is required for the trial — and now it’s almost completely risk-free to try your product. An alternative to the free trial is the freemium business model. In freemium, you offer a product online for free. Users who was coveted extra features have to upgrade to a paid premium level. The beauty of freemium is that it lets the customer try it for free. Eventually they may be asking you to develop features they’d pay for. Better yet, a freemium model develops an ongoing relationship. That gives you ongoing opportunities to convert users to paying customers. Freemium is a popular model, but not right for every B2B startup. For instance, if you’re selling a complex product into the large enterprise market, freemium may not be a good choice. Remember, too, that even if you have no product but sell services, it may be possible to turn that into an online monthly-recurring model. Think outside the box about “productizing” your service (see #5 below).
2. Having an Unclear Value PropositionSometimes it’s just not clear what the business is selling, who the proper target customer is, and the problem you solve for them. Sounds crazy doesn’t it? Here you are in business but you’re still trying to figure out who your customer is or what the product should look like. But it’s a common scenario. David Cummings, founder of Pardot, writes that the first 1 to 2 years in a B2B startup are spent finding a product/market fit. You need to get the first 20 customers signed up, and gain a better understanding of them and their needs. Startups often look very different a few years after launch. What I mean is, the product is different or the market being served is different, compared with the initial vision. That’s because after being in business for a while, actually dealing with customers, you understand the market better. Whether you’re a service provider or starting a tech company, once you go to market you figure out exactly what your offerings should entail. You discover which targets value the product, and which parts of it they value. You understand which vertical markets to serve. Sometimes the startup evolves to focus on a narrow niche. Other times the product is scrapped completely and something new takes its place, based on that early learning. If you can’t pin down what the customer truly values and is willing to pay for, and who your customer really is, then you may never make it past that initial stage.
3. Too Long A Sales CycleA couple of years ago, a consultant worked with me in a business development and strategic planning capacity. His expertise was in a consumer-based industry. As we evaluated different opportunities and tried to forecast sales, one day he just blurted out, “Wow, it takes a long time to move the revenue needle, because it takes a long time to close a sale to another business!” Now, to me, it didn’t seem all that long. In that case, we were looking at 90 days. I’ve known B2B sales cycles that can take a year or more. But when you’re used to retail sales that are made on the spot in a matter of minutes, then 90 days seems very long. As a broad rule of thumb, the bigger the sale amount, the longer the sales cycle. One danger with long sales cycles is that it just takes too long to get your first customers. When I worked in a software business, and we introduced new products, we called that “getting referenceable customers.” With a completely new product you need early customers, for a number of reasons. One reason is so that you can point to those early birds in other sales calls. Prospects always ask, “How many customers do you have?” “Who else is using your product?” Startups with a long sales cycle get caught in a catch 22: they need customers to point to, but it takes too long to get them. Another danger, of course, is that your business will run out of cash. You have to invest up front in development, marketing and sales, even before a single sale is closed. And that takes money. Even if you have a full pipeline and interested prospects, your money may run out before you close enough sales. The runway is not long enough. So what do you do? First of all, try to shorten the sales cycle. Re-evaluate your business model. For this it helps to have someone — a mentor, a smart colleague, a business coach — look at your “quote to cash cycle” with fresh eyes. For tech companies, a cloud services business model where customers pay a small fee monthly instead of one large up-front free, may help. At least then it’s easier to get those all-important first customers. Plus, a cloud model often makes marketing easier. The only proviso is, that it’s like building a castle a grain of sand at a time. Monthly recurring revenue models are very profitable in later years, but can take a long time to generate meaningful monthly revenue. It’s not always possible to abbreviate the sales cycle enough to solve cash flow issues. In that case, you’re going to need a source of funding to get you through the early days (personal savings, friends/family, angel investment). If that’s not possible, then you’re going to need to find something easier to sell, while you’re waiting for the big ticket sales to close. For instance, if you are developing a product that simply will take a long time, perhaps offer freelance programming services or consulting on the side. If you are a former corporate employee, doing some consulting for your former employer may provide needed cash flow while your pipeline fills and eventually sales start to close. As I was growing Small Business Trends, for years I wrote freelance articles, served as an editor for another site, and consulted on the side. It was like I had two jobs – one for the services I hired out, and one growing my business. Sounds like a drag, doesn’t it? It was. But I was faced with the reality of needing cash flow while my site grew large enough to attract sponsors and sustain revenue. To deal with the workload and drudgery, you need a strong vision and sense of optimism to sustain you. And there are trade-offs. Growth took longer than if I had obtained outside funding. But the advantage is that I didn’t have to give up equity. I didn’t have to go into debt.
4. Spending on the Wrong Things in Your B2B StartupThere’s a way to start a business — and a way not to start a business. You could spend the first six months outfitting your business with expensive equipment, furniture and office space. Or you could focus on getting sales instead. Inexperienced business owners, especially those who come from a corporate background where offices are fully tricked out with staff to spread the work around to, often spend too much in the beginning. Not only do you waste precious cash, but it’s the wrong mindset. Startup founders need to be focused on money coming in the door, not money going out. Some businesses have no choice. Retail, restaurants, medical, manufacturing — they need to be outfitted in order to open the doors. But many B2B businesses can be frugal. Try to get by with little infrastructure in the beginning. For instance, businesses such as Web design, marketing agencies, consulting, publishing, writing, virtual assistant services, and event management do not require you to have an office with full-time staff. Using the power of the human cloud, you could look for freelancers all over the world (or locally). Assuming you are disciplined enough, you could work out of your home instead of investing in office space. The same goes for hiring. Getting your first employees is both exhilarating and challenging. Yet, hiring too quickly can be expensive, and can distract and derail the company. And since it is hard to scale back once employees are on the payroll, hiring too fast is the fastest way to recurring monthly losses. Patrick Hull suggests on Forbes that you should hire slow and fire fast. He writes, “When it comes down to it, employees can be a huge cost for your business and can become an even bigger cost if they don't fit. That is why it's important to take a step back and really think about each and every hire you make.” I definitely agree with the “hire slow” part. However, firing fast is easier said than done. Firing often brings drama, legal entanglements and expense — three things that can devastate a small company. Noted startup investor Paul Graham points out that hiring a lot of people paradoxically can slow you down. It takes time to recruit and onboard your new hires, communicate with them, and get them buying into the vision. And you probably aren’t going to be ready for them at first, unless they are selling, building your product, or delivering your service. Check out my list of 18 startup costs to avoid - especially in the first 6 months. They include office space, trademark filings, large print runs and more.
5. Not Having a Scalable, Profitable ProcessThis is a huge issue with service providers such as marketing agencies. All too often you hear about small businesses where the owner succumbs to the straw that breaks the camel’s back. One day she decides to close up shop and get a job. Why? She and her team are working hard, but barely making money. After another sleepless night worrying about how to make payroll that month, she has just “had it.” A few years ago, John Warrillow, a very successful entrepreneur in the business services space, wrote a book called “Built to Sell.” In it he discusses why so many service businesses have a hard time. After years of struggling often the owner can’t even sell the business – because there’s so little value in it. And the owner never seems to get ahead and earn enough profits. For profitability and growth, you want to create a business that is scalable, with replicable processes. Otherwise, too many projects are one-offs. That’s a problem for two reasons. (1) It hamstrings profits – you never gain efficiencies if you’re always doing something new. (2) You’ll never develop deep expertise that differentiates your business, either, if you’re forever dabbling here and there. Here are just some of his lessons about creating replicable, profitable processes:
Those are important lessons for all service providers, if you want to get past living from hand-to-mouth in your business. ConclusionThese five are not the only reasons B2B startups fail. I won’t kid you. Other things can get in the way. Maybe it’s the economy, or maybe you launched before the market was ready for your product. Despite your best efforts, a business may still fail. But armed with knowledge, and perseverance and a positive attitude, you may be able to avoid becoming a statistic. Images via Shutterstock: Startups, value, solution, chart, process The post Why B2B Startups Fail – And How to Prevent It appeared first on Small Business Trends. |
| Twitter IPO Seeks to Raise $1 Billion Posted: 06 Oct 2013 01:45 PM PDT
Twitter’s value to the business community as a networking and marketing tool is well known. But its value to investors remains to be seen. In filings recently with the Federal Securities Exchange Commission, the company says it will try to raise $1 billion with its initial public offering of Twitter stock. That’s pretty aggressive for a business that, even with its popular promoted tweets, is still not profitable. In fact, in the last six months leading up to June 2013, Twitter’s net loss actually increased by 41 percent to $69.3 million. Over the same period, however, the company’s revenue increased by 107 percent to $253.6 million. Twitter Return on Investment for BusinessesThe company obviously believes that with strong and steady revenue growth, Twitter will eventually be profitable. And investors will probably see that too. But other businesses, especially entrepreneurs and small business owners, already know the return on investment they get simply by using the microblogging platform. Take a look at a recent survey about how Twitter influences customers. For example, 72 percent of those who follow your business or brand on Twitter are more likely to buy from you in the future. And 82 percent are more likely to recommend your product or service to friends and family. Read more about Twitter at Small Business Trends. Calculate the Value of Your BusinessYou may not be planning to ever take your company public. Most small business owners are not. But figuring out how much your company is really worth can still be important. Creating a valuable company, perhaps one you might be able to sell one day, has to do with more than just annual revenue. The key to increasing the value of your business is to show potential buyers (or investors) how the company trends over time both operationally and financially. This means having several years of audited financials. It also involves having a detailed succession plan listing important mangers and employees who will run the business after a sale. Finally, you should have up-to-date contracts with key suppliers. Blue Bird Photo via Shutterstock The post Twitter IPO Seeks to Raise $1 Billion appeared first on Small Business Trends. |
| Cut Down on Hassle with These Travel Apps Posted: 06 Oct 2013 09:00 AM PDT As a small business owner, travel is probably an integral part of how you do business. A recent study by Oxford Economics found that investing in face-to-face interactions with out-of-town clients and potential clients has a significant payoff – for every dollar invested in travel, companies made $9.50 in revenue and $2.90 in profit. But as any seasoned business traveler knows, these excursions can be a major source of stress. From delayed flights to hard-to-navigate cities, travel is full of potential problems. In a recent survey, CWT Solutions found that travel-related stress negatively affects both the traveling employee (or owner) and the company's bottom line. Fortunately, technology has come a long way in making travel simpler and easier. Travel apps are a particularly convenient and portable way to deal with a variety of travel issues. Travel AppsTripIt
TripIt is a free app that allows you to easily keep all of your travel information in one place. You no longer have to print out and keep track of boarding passes, hotel reservations, or rental service information. Instead, simply forward the confirmation emails from these venues to plans@tripit.com. TripIt then integrates this information into a seamless travel itinerary, which you can access quickly and easily from your smartphone. You don't have to worry about WiFi access. Your itinerary is available with or without it. The app also provides notifications for upcoming events, directions to all of your destinations and tools to share your information with interested parties. TripIt is available on the iPhone, iPad, Andriod, Blackberry and Windows Phone 7. FlightTrack
In the aforementioned survey, CWT Solutions asked business travelers to rate the stressfulness of common travel issues. Among the most stressful: Flight delays. While no app can ensure that your flight will arrive on time, FlightTrack will keep you informed of any delays, changes or cancellations, and will provide you with alternative flight options. In fact, FlightTrack can tell you anything you need to know about your flight, including your departure and landing times, gates and terminals, your aircraft model, and in some cases, your baggage carousel. For five dollars, you can get FlightTrack Pro, which syncs with TripIt and integrates your detailed flight information with your travel itinerary. FlightTrack and FlightTrack Pro are available on the iPhone, iPad, Andriod, Blackberry and Windows Phone 7. Taxi Magic
Hailing taxis to all of your destinations can be a stressful and time-consuming process. Taxi Magic is a free app that lets you book a nearby taxi with just the tap of a button. Using your smartphone's GPS and local dispatch systems, the app sends a taxi to your exact location while allowing you to track its progress on your phone. Taxi Magic also lets you pay directly from your phone, after which you'll be sent an expense-report-friendly email receipt. The app also estimates your fare beforehand, and lets you message your driver directly in case your location or plans change. Taxi Magic is available on iPhone and Android. Evernote
Evernote is a great organizational app. The app downloads to all of your devices, including computer, phone and websites, so you access it at every stage of your trip. It includes a text editor, photo upload tool, and voice recording device, allowing you to capture and save images, make to-do lists, schedule your plans and synchronize information with your travel companions. The Evernote Web Clipper also lets you clip online articles to browse at your convenience. You can find and clip tourist destinations, restaurant menus and much more. The app will also help you keep track of all your business documents, including word documents, excel spreadsheets and important emails. Evernote is available on the iPhone, iPad, Andriod, Blackberry and Windows Phone 7. So on your next business trip, don't resign yourself to needless stress and hassle – travel smart with travel apps instead. The post Cut Down on Hassle with These Travel Apps appeared first on Small Business Trends. |
| Winning the Battle for Sales: A Sales Book for History Buffs Posted: 06 Oct 2013 06:00 AM PDT
While this is not a book I would purchase for myself (I'll tell you why a little later), it is a book that you might miss out on if I didn't review it, and in so doing, would deny the target audience for this book a very satisfying read. Finally! A Sales Book for History BuffsWe all know them (I just happened to be married to one) — the history buff. Yes, these are the folks (usually guys) who can spend eight hours hiking the Gettysburg battlefield, who read every war book they can get their hands on, who analyze and strategize what might have been if Pickett did this or Alexander the Great did that. If this is you – or if it sounds like someone you know, love or work with who is responsible for selling, this is the book to pick up. If not for the great selling advice, at least for the sheer uniqueness of subject matter. This is a sales book that uses references to sometimes obscure battles in history. Does the Battle of Clontar in 1014 ring a bell? It's used to illustrate essential information on turning unforeseen opportunities into a value driver. Another example is Pyrrhus of Epirus vs. the Romans, which gives vital points on avoiding the pursuit of victory at all costs. Golden has chosen to create an association between war and sales as a method of remembering by association. And this is why I say that this is such a great read for the sales person who happens to be a history buff. They will eat this up on a stick. Inside the Structure of Winning the Battle for SalesThis is a substantial book – not so much in length, but in terms of serious content. It has more than two hundred pages and is divided up into three main parts:
Each chapter is dedicated to a specific battle and includes the following sections:
Who is John Golden?John Golden is the CEO of Huthwaite, one of the world's leading sales performance improvement organizations. If you're like me, you may not have heard of Huthwaite as a company, but you've probably heard of their scientifically validated behavioral research that includes the renowned SPIN® Selling program for sales and marketing professionals. Great Sales Lessons for Today's MarketplaceI am not going to lie to you. I did not read every page of this book. I did, however read several of the chapters with great interest. Let me share my take on just one of them; Chapter 24 on David and Goliath. I picked this one because we all know the story and I won't have to retell it and because I think you'll resonate with the lesson it teaches. David and Goliath's battle is used to teach the lesson that you don’t have to use the latest technology to win. This is an apropos lesson in today's overwhelming world of gadgets, Internet tools, bells and whistles that sometimes masquerade as sales tools but actually serve to kill the deal. So, back to David and Goliath. What you may not have known (or forgot) is that David was actually given access to all the best armor that the king had to offer, chainmail, bronze sword, bronze helmet — the latest in fighting technology at the time. Yet David chose not to use those tools because they would just weigh him down. Instead, as we know, he chose a simple sling and a stone and got the job done. In this chapter, Golden puts his focus on CRM (customer relationship management) tools and how they are often overkill for getting the job done. Hopefully, this example gives you enough of a flavor for Winning the Battle for Sales so that you can either get it for yourself – or the history buff sales professional in your life. I will say that even though I really do not like history or war as a topic, I have to give Golden credit for writing this excellent book and so skillfully weaving valuable sales lessons into a historic context that works in today's markets. The post Winning the Battle for Sales: A Sales Book for History Buffs appeared first on Small Business Trends. |
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