B2B Startups In Consumer World

The world presents many challenges for business-to-business (B2B) startups.  Every big-name startup we hear about these days started out and built its strength in the consumer market before approaching businesses.  Those start-ups whose products have no place in consumer markets are facing especially challenging conditions: their survival rate is about a 10th of that for new companies targeting consumer markets.

The problems already appear at the idea stage.  A new idea for the consumer market can be tested on a variety of prospective customers: your friends, parents, neighbors, even just some strangers at the mall.  Should you, however, have an idea, technology or service for, let’s say, Amazon or General Electric or AIG, how would you go about testing it?  Who would you ask and how would you know if their opinion is representative?

But let’s say, for arguments sake, you are lucky enough to have an aunt who works at Waymo who tells you that your idea may result in a new LIDAR which would cost 10 times less than the cheapest current version and that this difference would be a huge enabler for them.  Armed with this encouragement, some money from your parents and 18 months, you produce a prototype.  By the time it is ready, your aunt no longer works at Waymo, but she has hooked you up with one of her former colleagues.  After meeting with you, the colleague is sufficiently impressed but advises you that your prototype needs to be smaller in order fit onto the car.  After another 12 months and another ten thousand dollars, you are ready to show her a smaller unit.  You have also found some smart people who see the potential and are ready to fund you provided you can show them a supplier agreement between you and WAYMO or at least a positive Waymo testing report of your LIDAR.  

Well, your aunt’s friend, unfortunately, just left Waymo but she has put you in touch with some people who, in turn, put you in touch with the Waymo supplier management team.  Armed with your second-generation prototype and filled with confidence, you meet with these people.  Much to your surprise though, rather than admire your prototype, they start asking you questions about product safety and different certifications.  They ask you about your manufacturing and wince, as if in pain, when you tell them you made your prototype at home in your garage.  After exchanging exasperated glances, they sit patiently through your presentation and, after you are done, talk to you about the WAYMO supplier qualification process.  “Why don’t you get the paperwork ready for supplier qualification and we will be in touch…”.

By now you are about two and a half years and thirty thousand dollars into the project.  Studying WAYMO supplier qualification guidelines, you learn that in order for Waymo to even install your prototype on their test car you need to spend another two years and two hundred thousand dollars for some of the required certifications.  You will also need an insurance policy for up to one million dollars and a letter of commitment from a third-party manufacturer.  Oh, by the way, those components which make your LIDAR so revolutionary?  The ones you sourced with such difficulty from South Korea?  Turns out they are not certified in the US and will be inadmissible in testing until the manufacturer certifies them.  Right about now, you start wishing that instead of sinking your time and money into your personal project, you had helped your friend with that social network app for cat lovers: your friend started about 6 months ago and already has ten thousand clients!

This story is completely fictional of course and exaggerated for effect!  However, everyone involved into a B2B technology startup from the beginning will no doubt recognize some of the key difficulties specific to B2B startups, and it is worth bearing these hurdles in mind.  Indeed, starting a new B2B company is not for everyone. It is for the very few, true innovators who cannot help themselves from keeping on solving technical problems most people are not even aware of.  Startups targeting businesses, especially technology startups, have to contend with much longer timelines, higher costs and greater risks compared to their B2C counterparts.  Is there a way to cut costs and reduce timelines and risks?  Well, we know of no universal blueprint or magic business plan.  But we always have a few good ideas these startups can act on to improve their odds.

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