With the world buzzing over Apple’s reveal this month of the iPhone 6 and Apple Watch, it’s hard to believe that this multi-trillion-dollar tech giant was once a small computer startup.
For many entrepreneurs, the epic trajectory of Apple (AAPL) — or Facebook (FB) or Twitter (TWTR), for that matter — serves as evidence that the consumer space is where you go to launch a winning startup.
But that doesn’t always hold true. By foregoing the potentials of selling to business (as opposed to consumers), entrepreneurs are missing out on a world of opportunities — and lucrative ones at that.
As a board member at 1871, Chicago’s entrepreneurial hub for startups, I see a lot of startups and know what B2C companies can learn from B2B startups, including Fieldglass, MarkITx and Eved.
The B2B space is rife with potential; by integrating new technologies into traditional businesses, entrepreneurs can dramatically improve efficiencies, uncover new markets, solve longstanding problems and, in some cases, disrupt entire industries. Indeed, an increasing number of B2B startups are experiencing rapid growth while achieving enviable profit margins.
Take Fieldglass, for example. Once a small startup, the Chicago-based software company is now the biggest vendor management system (VMS) provider in the world. In May, it was reportedly acquired by SAP for more than $1 billion, one of the largest sales of a privately held tech company in recent years.
Or consider MarkITx, an online marketplace to trade enterprise IT hardware, which earned a $12 million valuation after only eight months of operations. After speaking with its co-founder Frank Muscarello, the company’s revenues are up 300 percent this year compared to last.
To launch the next great startup, here are six lessons that entrepreneurs can learn from B2B companies about how to launch the next great startup:
Target your first customers wisely
Many B2B businesses design their products and services around their initial clients, making it critically important to take a strategic approach to recruiting those first customers. Talia Mashiach, founder and CEO of Eved, went after large firms like Dell when her company was still in its early stages. She then designed Eved’s platform and online marketplace to address those customers’ needs and provide visibility into their meeting and the total amount spent on an event. That set the stage for the recruitment of other large-scale firms and helped her stock her online marketplace with more than 5,000 companies.
Long-term value of customers is critical
Generally speaking, B2B companies have longer sales cycles than B2C firms. However, most B2B customers are long-term customers and, in the end, companies can extract greater value from them. After Jai Shekhawat founded Fieldglass in 1999, it took him more than a year to land his first customers, which included Verizon (VZ), AIG(AIG), GlaxoSmithKline (GSK) and Johnson & Johnson (JNJ). But he held on to them, and now each spend billions on contract labor annually. To date, Fieldglass boasts a customer retention rate of more than 99%.
To generate steady revenue, focus on opportunities to generate reoccurring revenue
Prioritize customers that are most likely to use your product or service repeatedly.
Muscarello knew that financial companies would serve as ideal suppliers for his online exchange because they invest heavily in IT and frequently purge their inventory to make room for the latest technology. MarkITx’s first customer, the Chicago Mercantile Exchange, is now on its 22nd trade since August 2013.
Build something that sticks
To develop a long-term relationship with your customers, you need to create products or services that are inherently “sticky” and provide several levels of integration within a company. MarkITx’s dashboard plugs into companies via API and provides real-time data about the mark-to-market value of their assets and the optimal time to refresh their IT infrastructure. As a result, these companies regularly check the dashboard and are more apt to use MarkITx when it comes time to sell their assets. Fieldglass takes integration a step further by staying enmeshed in its customers’ problems. It monitors, for example, changes in labor laws (in Europe alone, Shekhawat estimates that there are 25-30 changes per month) and ensures that its software immediately reflect those shifts. In turn, customers grow more dependent on Fieldglass to manage their problem for them.
Look for a business idea on your desk
Think about the problems your company is facing or how you might address issues in your industry. There are business ideas there — maybe not sexy ones, but solid, profitable ones. Shekhawat came up with the idea for Fieldglass after serving as a contract developer, working for a technology vendor and consulting for buyers and customers, where he witnessed the challenges of managing contract labor. That insider knowledge also enabled him to build a company that easily overshadowed the five preceding competitors (all have since gone out of business).
Know when to venture further
Consider whether the work you’re doing now could parlay into something bigger. Before Eved went global in 2010, it was a local service company that grew to $10 million in four years and landed on the Inc. 500. But Mashiach knew that there was a bigger opportunity out there. So she sold Eved’s service side, took its R&D and re-launched it as a global company, with her sights set on a billion-dollar goal.
Linda Darragh is a clinical professor of entrepreneurial practice and executive director of the Kellogg Innovation and Entrepreneurship Initiative (KIEI) at the Kellogg School of Management at Northwestern University. Darragh knows the companies mentioned above as a board member of 1871, Chicago’s entrepreneurial hub for digital startups.
