The revenue challenge in scaling B2B startups
Business-to-business startups have a particular challenge when it comes to developing repeatable and sustainable revenue.
As a startup you go through several phases as you refine your proposition, business model and target markets. It’s an iterative process, perfectly captured in Eric Ries’ “Lean Startup“.
But with B2B startups there’s an additional challenge with finding their product-market fit, which is that business-to-business sales are generally harder to scale than B2C.
Obviously, there are some exceptions to this rule, notably products and services aimed at micro-businesses and SMEs. But, for many B2B startups, sales processes are more complex, often with multiple stakeholders, partners and channels to consider.
Which means it’s harder to generate a volume of opportunities in those critical, early stages of a startup’s journey.
If you think about it, there are typically 3 key stages of revenue that a startup will go through:
The Random stage is no doubt familiar to many entrepreneur. Typically it’s how you get your business off the ground, something I’ve referred to previously on Linkedin as the Jerry Maguire moment – “I’m going to take my one client and we’re gonna go all the way.”
The most difficult bit is getting to the second stage – Repeatable.
Sure, you can get one or two customers through your network, family or that chance meeting at the coffee shop… but what about customer #3, #4, and #5?
This is the phase where your product-market fit is emerging and you need a sales process which you can repeat.
For many B2C startups this is done through highly-scalable online channels, which enables faster experimentation. It’s the classic “growth hacker” playbook.
If you have a solution that can be purchased online, the process for sales acquisition can be tweaked and refined over a shorter timescale, which enables you to rapidly move towards repeatable, and ultimately, sustainable revenue.
Which is what investors are looking for.
But, for more complex B2B sales, this process is a difficult one.
Yes, online channels can generate leads for the pipeline but that doesn’t necessarily accelerate the sales process. Plus the time lag from lead to revenue often makes online channels too costly for many B2B startups, both in terms of burning through their marketing budget as well as losing traction.
In my experience, you need the higher-touch approaches to your target market, such as trade shows and face-to-face meetings, because they enable you to gather real insight from your market and fill in the inevitable gaps that you get from low volumes of data and leads.
But this is all slow. It takes time… and it’s messy.
B2C startups can conceivably launch an online marketing campaign, drive visitors to their website and see converted sales within hours… compare that to a typical B2B sales process.
Just scheduling a meeting with a senior decision maker will take weeks and then sales-cycles can run to months if not years. If your sales cycle takes 6 months then direct learning from the market is going to take a long time.
Couple that with the typical high-costs involved in lead generation, which effectively reduces the number of market opportunities that an early stage B2B startup can afford to engage with, and you can clearly see the challenge.
So, here’s the thing: it’s precisely because B2B startups are dealing with low volumes of opportunities and messy one-to-one relationships that they miss a critical part of the process – tracking and measuring.
In B2C startups, particularly those with online customer acquisition, there are so many tools available to measure the customer journey through the sales process. Online products are tweaked, metrics tracked and the next iteration is measured to drive revenue.
Somehow, with B2B startups, particularly where there’s a higher-value or complex enterprise solution, this is overlooked.
Partly it’s down to having a lower volumes of opportunities to manage (when you’ve only got a handful of prospects there seems less of a worry about process and pipeline) and partly it’s because that most Founders don’t have a formal sales background.
This latter point is compounded by the fact that, in the early stages, it’s the Founders themselves who are selling.
When you’re tweaking your online customer acquisition process it can feel quite a technical task, in some ways removed from “real sales”. When you’re evaluating how you are performing in B2B sales face-to-face – it’s much more personal.
I’ve experienced Founders who have dismissed losing a sale by saying that the prospect “didn’t get it”. A Founder’s evangelical zeal for “their baby” can bring a great energy to the sales process, but usually it lacks objectivity.
Or worse, I’ve seen entrepreneurs just let a prospect go cold because they didn’t want to chase them too much (or were too busy to follow-up).
Whichever it is, the point I’m making is that as well as seeing these as deals on the path to repeatable revenue, these are learning opportunities to help you refine the process.
For me, the best approach is to always be building a repeatable sales process.
As an example, let’s imagine that you are a B2B startup with a couple of paying customers for your product or service.
Next steps are to find more customers, obviously.
But, as importantly, you need to be thinking about the sales process from the outset:
- what are the steps from initial conversation through to revenue?
- will you need to provide a demonstration or pilot?
- what’s involved in implementing the solution?
Having a process in mind will give you two key things:
- When you engage with prospects you will have a clear idea of next steps and the direction you want to take them. Remember, you’re not just after feedback – you’re after an order!
- Also, by having a process you can track and measure your progress with each prospect. This will help you both make it more repeatable but also help you better understand where and why prospects stall (and they will) and help you figure out what you need to do to correct this.
There are many tools out there that can help with this, or you can simply track it in a spreadsheet from the outset. But the important part is that you are tracking and measuring it.
Plus, once you’ve figured out how to get from random to repeatable revenue you’ll be in a better position to scale up to the next level, with a solid process that you can invest in and resource to drive sustainable revenue growth.
This article was originally posted on LinkedIn in 2017