With the right foundation, your startup can overcome any crisis.
In the business-to-business (B2B) startup world, there’s an abundance of capital, renewed interest and a lot of new players who want to become active in the space. This is an area that we know very well. We’ve always been B2B, and we’ve always believed in the global depth of talent and ability to innovate. It’s from this background that I share some of what we’ve observed in successful B2B companies.
The big question for startup founders is this: How can they increase the chances that their startup will succeed and not become one of the many that fail each year? I dig deep into seven common causes of startup failure in my book Anticipate Failure. But in addition to that, there are certain laws of business building that have long been in place and must be followed. They can make the difference between a fast-scaling, successful startup and one that never quite reaches escape velocity.
Let’s take a look at these laws of business building.
It starts with observing a problem
To begin, every great B2B company starts with an observation about a significant customer problem that exists or a space in the B2B ecosystem that hasn’t seen innovation and really needs to be reinvented. What we find is that there is a product-oriented founding team that asks, “How can we reignite the space?” or “How do we solve this problem and express the solution in a product that a lot of people would be interested in?”
There’s usually an entrepreneur who isn’t steeped in a particular area, but who makes an outside observation, and the founding team has the relevant talent to build the product that needs to be built. They identify a pain point, design a new product to address it, and then they put together the right team to build it. Getting that initial product and product-market fit are essential. Even better is to secure product-market fit in a market that has many product adjacencies. This will enable second and third acts.
Then comes the founder-led selling phase
Next, there is the founder-led selling phase of the product — matching your product with the customer’s needs. This has to be done by the founders. A common mistake is when the founder is deeply technical, and the founding team hopes it can make a sales hire who will have the customer conversations and sell the product for them. Unless it’s another founding team member, that formula almost never works. This is the time when you’ve got to get that initial set of customers right, which is naturally the role of the founding team. It’s very important to lay that strong foundation for a B2B company.
Then, when the time is right, there is a transition from that founder-led selling to recruiting your first one or two missionary or professional salespeople who can then take over that role and get out to a much wider group of customers. A founder is not typically going to know how to scale a sales team to reach $1 billion in revenue. This is where you need to bring in an experienced executive to lead the charge — whether it’s building the sales team or a multi-product engineering team that can deliver on time with high quality. If you’ve never done that before, now is not the time to try to learn on the job.
The transition to execution-oriented sales leadership
After you get this sales team up and running, there’s a very important transition in getting from those initial salespeople to building sales leadership that’s execution-oriented, having marketing that can fill the funnel and then putting the systems and processes in place to execute. At that point, it becomes an execution game of knowing which customers to go after; having the right marketing in front of that; creating the right kind of funnel management and sales leadership; recruiting, hiring, training and enabling salespeople on the product; expressing very clearly the selling proposition of the product so that the next incremental sales hire can actually get it right; and so on. These things and more have to be executed in a perfect way. Fortunately, these are very learnable, doable and repeatable patterns.
Again and again, we see founders who haven’t done this part of the scaling before make the wrong sales hires; they don’t enable them or spend their precious marketing dollars on the wrong things. They don’t have the systems in place to know whether their sales are predictable or if the sales funnel is qualified. Ultimately, this is a phase in which you’re still taking very expensive capital, but you’re making all the same mistakes again and again. It’s better to make new mistakes than repeat old ones.
When everything seems like it’s going right
And so, you are at a phase where you’ve got a lot of things going right: You’ve figured out the customer pain point, the product, the initial selling and the expansion part of it. And then, once you hit escape velocity — a $10 million run rate — a tremendous amount of cheap capital is available. This is a very important phase of a company where you’re moving from founder-led selling, to early selling, to repeatable, scalable selling. You have to get that right before you go off and raise a lot of capital that is just very cheap and totally hands-off.
Yes, ample capital is selectively available to the breakout companies. But there is still a lot of hard work and business building to be done from a company’s inception to its breakout. And if you’re not getting those steps right — if you haven’t followed the laws of business building — you could very well end up in a situation where you don’t have the right people around the table who are going to get you to that breakout level. And you’re probably just raising capital, but that capital that doesn’t understand how B2B companies are created, built and placed on a path to success.
The laws of business building still apply, and they must be followed if you want to guarantee your startup long-term success. Cheap capital is widely available, but you must use it at the right time. And until you know you’re a breakout, don’t settle for cheap, dumb capital. Hard work, the right people and discipline all play a signifcant role in getting a company to breakout status.