Anu Hariharan works with hundreds of startups annually as Managing Director at Y Combinator. Through experience, she explains five company-altering learnings from B2B startups that founders should consider at the earliest stages of their businesses.
Many startups will assume that their ability to raise funds reflects their ability to create a good product. That’s a mistake. Expect to need a few iterations of your product. Scaling too early—before you have a quality product—is a death sentence.
“If you hire too fast before you have product market fit, you have a bunch of people whose jobs depend on you not changing the product.” – Tom Blomfield
To find out if your product is good enough, focus on:
- Essence to the customer: Ask your customer how disappointed they would be if your product were no longer on the market. If at least 40% of your customers don’t say they would be very disappointed, then you probably have a moderately appealing, not a good enough product.
- Frequency of usage: Find out how often your customer uses your product. You should expect them to use it at least a few times per month.
- Demo conversion ratio: Consider how many customers you’re converting after doing a demo. If you’re converting less than 20%, figure out what is missing and is still needed to be more valuable to users.
Almost all B2B founders at YC underprice their products in the beginning. If the product you’ve built is valuable for businesses, it’s worth much more than $10/month. At the same time, your price can also help you know if you have built something valuable. If you have, your customers are eager to pay you more for access to your product and its features. They would be very disappointed if your product went away.
Underpricing gives the impression that you’re not serious enough about your product. Keep testing your price, especially with your early customers, until you reach a price point that makes sense. This will build the trust in the early customer base that’ll set you up for growth.
As a rule of thumb, if a 30% increase doesn’t result in customers push back, you are still not charging them enough for your product.
B2B is extensive; even in a single industry, there is a spectrum of scale. Are you serving a public business or small business with under 50 employees, or a mature business with 200 employees?
You can’t serve all of them because they all have different needs. Instead of trying to help all B2B customers, focus on serving an ideal customer profile early on. It’s okay to iterate, but you have to land on your segment quickly.
“Know who your easy customers are.” – Michael Seibel
Your easy customers are satisfied with the MVP you have built and ready to pay. With these customers, you can support your efforts to build a bigger and better version of what you’re offering.
Serving multiple segments even later on is hard. Since the new segment has different needs, the features required to satisfy the new users differ. If you wish to expand your customer profile, take time to build it with the customers’ needs in perspective.
Founders make the mistake of delegating early sales to a VP of Sales, hoping they’d figure out how to acquire customers. You hire a salesperson when you’ve figured out your go-to-market motion.
When’s that? It’s when your sales calls and demos are boring and repetitive. You need to do 100-200 customer calls and conversions to know if your product is good enough. By the end of it, your answers to the converting prospects’ questions start sounding the same.
“Do the sales calls till it’s so boring that you can predict it. That’s when you hire a sales leader.”
With the help of a sales leader, you can now scale up your sales efforts, train a sales team and reach more customers.
B2B startups should be able to scale without external funding in most cases. But instead, B2B startups get caught in the fatal pinch. Symptoms of the pinch are you’ve raised money, have a low month-on-month growth rate but don’t have the runway to experiment.
On the other hand, breaking even is an easy feat when you’ve raised money, kept your team small, and charged to support your CAC. You never have to rely on external investors to scale your company. That’s default alive.
“Default alive is finding a sustainable way to acquire customers and support them with the revenue they generate.”
Once you’re default alive, more investors are willing to give you money because investors prefer to invest in startups when they don’t need it.
No one can predict the economy, and default alive is also a safeguard against the ups and downs of the economy. It may mean you’re growing slower since you’re not investing in GTM ahead of time, but having a product that will last decades for customers is the metric that matters.
Go to Publisher: SaaStr
Author: Amanda Beaty