Posts Tagged: Small Business
A key investment thesis here at Version One is that we like to invest in companies that “sell to many” over companies that “sell to few.” This preference isn’t necessarily due to market size, but rather the structure of the market: are there only a few dozen customers that might buy your product or are there thousands, or even tens of thousands of potential customers?
Practically all consumer companies fall into the “sell to many” category, but what about on the enterprise side? How do we differentiate between B2B start-ups that sell to many vs. sell to a few?
1. “Sell to few”: Traditional enterprise sales
Start-ups in this category typically have a target market composed of dozens to low thousands of large (Fortune 500) companies. Selling into this market requires the traditional enterprise sales approach, comprised of a large ‘boots on the ground’ field sales team that works with key decision makers (e.g. CTO, VP of HR) in the customer organization. These are long sales cycles, often with multiple departments and stakeholders involved. And often, enhanced business services – such as custom product development or professional installation and consulting – are involved to complete the sale.
Startups that succeed with this approach tend to have founders with deep connections in the industry they serve, and often previously worked for one of the large incumbents in the market.
2. “Sell to many”: the scalable SaaS approach
Selling to many in the enterprise typically involves selling either to SMBs (where the owner/operator makes the decision on their own) or selling directly to end users (employees) in the organization.
Yammer and Unbounce are perfect examples of SaaS tools that are adopted directly by the end users. In these cases, employees feel a particular pain point and find a solution to address it. Based on the lower price points, these employees often pay for the product with their credit card, without asking IT for permission or assistance with implementation. These acts can often be start of a viral growth curve in the enterprise. Enterprise products that present a high-value daily utility for the people involved can have a high virality potential.
The SaaS model, with its inherent low customer acquisition costs (CAC) and ease of deployment, makes it possible for companies to be successful when focusing on the SMB market, as well as niche verticals. While traditional software monopolies needed to be “all things to all people,” cloud start-ups can focus on one area and do it extremely well.
Both approaches can create large and important companies, but they require different kinds of founders and investors that understand the nuances of each approach. At Version One, we’ve identified that we’re a more effective investor when focused on the ‘selling to many’ approach.
- The SaaS Manifesto: Navigating the Departmentalization of IT (blogs.wsj.com)
- Why Internet Companies Don’t Buy From The Enterprise Kings (techcrunch.com)
In the past few years crowdfunding platforms have transformed the way many projects are being financed – instead of just relying on family & friends to support them and their idea, musicians, film makers, entrepreneurs or simply anybody with a passion or a business idea can seek funding from Internet users on platforms like Indiegogo or Kickstarter. It opens up exciting new opportunities for creativity and entrepreneurship by connecting those with ideas and a passion to others with money and the same passion.
I am therefore very happy to have participated in the seed round of funding for Indiegogo, one of the leading players in this space (alongside my friends over at Metamorphic). Indiegogo’s founders Danae Ringelmann, Slava Rubin, and Eric Schell were the first to really see the crowdfunding opportunity and have built a truly global platform that has helped over 40,000 campaigns raise millions of dollars in more than 200 countries.
It still feels like very early times for the crowdfunding vertical so it will be exciting to watch this industry evolve.
- Slava Rubin: The CrowdFunders: IndieGoGo’s Most Extraordinary Campaigns (huffingtonpost.com)
- IndieGoGo aims to be the go-to for crowdfunding (gigaom.com)
- Slava Rubin: Six Steps To Raising Startup Funds On Crowdfunding Platforms (huffingtonpost.com)
I met with 10 early-stage startups in Seattle yesterday and it was a good reminder for me what some of the most important messages are that you want to bring across to an investor when you have a limited amount of time to present your company. Here are the 4 key points that I very much care about:
- Company vision / elevator pitch: I too often get founders that cannot describe in 2-3 sentences what the vision of their startup is and what their company is all about. Make it simple and start the conversation with it. Otherwise, the investor will feel kind of lost as they don’t even know what you really want to build.
- Team: everybody has a team slide but in an early-stage environment I really want to know who can actually build stuff (and see examples of what they have built) and who are the “suits” (and what concrete value they are bringing to the team). Your team is only 3-4 people strong so you better have the right guys on board to start this company and you need to bring this across to the potential investor.
- Competitive advantage: think long and hard about how you differentiate from other sites out there. Too often founders overestimate how differentiated their product is when it is actually just a nice evolution of existing products that will have a hard time convincing users to switch.
- Distribution: distribution often doesn’t get the necessary amount of attention and founders seem to assume that people will just flock to their site so really go through the different marketing channels and come up with a strategy that make the most sense for the product you built.
So keep your pitch short and simple and make sure to address those 4 points – it will sure help to make your pitch more concise!
P.S.: I had a great time in Seattle and am always impressed by the consumer internet scene down there – perhaps this will turn into more investments soon!
Start-ups are all about the people creating and growing them so all of our founders and CEO’s are continuously looking to add great talent to their teams. Going forward I am going to highlight some of the job opportunities here on the blog – so consider applying if you are interested in one of the jobs below (and please spread the word if you know of any candidates that might be a fit):
Technical Dev Lead for Weddingful: http://www.weddingful.com/job.html
My take: Great opportunity to get involved at a very early stage of a promising company and lead product development – must think and act like a founder!
Top notch engineers for Indochino: http://bit.ly/dftKsg
My take: Indochino is one of the fastest-growing Internet companies in Vancouver and was recently named one of North America’s top startups. The company wants to revolutionize the online apparel industry so tons of interesting product development challenges around customization and personalization.
Both opportunities are based in Vancouver.
I have been very impressed with what Mark MacLeod has done for numerous Montreal and Toronto startups as their part-time CFO. A former CFO for numerous startups himself, he started StartupCFO Enterprises a few years ago in order provide financial and strategic guidance as well as back office admin services (so everything from help in the fund raising process to running pay roll / accounting). Every startup with serious ambitions needs good support in the financial area but great part-time CFO’s are hard to find and often not affordable. But by offering his services to about a dozen start-ups, Mark has not only found a business model that works for him but is also a tremendous addition to the startup community out East.
So where is the StartupCFO of Vancouver? Reach out to me, would love to chat.