Punditology - Postings by Jerry Kestenbaum
(CEO of BuildingLink)

As Founder and CEO of BuildingLink.com, (a 12-year-old "SAAS" company that has weathered a few booms and busts and come out okay) maybe I think I've got a few tidbits of insight worth sharing.
And maybe you'll agree and you'll "follow' me.
Or maybe you won't.

 

Monday, August 29, 2011

A recent posting by Geoff McQueen on the challenges of launching  B2C startups versus  B2B startups has some good lessons for "grown-ups" who are playing around with the idea of quitting their jobs and starting their own "whatever".

"Startups for GROWNUPS"?  What do I mean by that?   Grownups are people who would like to start a venture for a new or better idea but want a much lower  risk/reward ratio than is usually associated with startups,  90% of which fail! 

Grownups are people who don't need to chase a $100 million buyout exit plan to get their juices flowing  (or any exit plan at all!) and who are looking to minimize as much as possible the  heart-stopping, "all-in", doubling-down of risk associated with these types of monnshot startups.

People whose go/no-go criterion can emerge from answer to life-size questions like:  "Can I start something that will pay off at least as good as, or maybe 2-3 times better than my current job", and "Can I start something that, if successful, could on the up side provide more "earnings and job" security long-term than what I am now doing, but at any rate, on the down side would probably be no less secure long-term".

People who simplywant a chance to create something of their own, leveraging their own talents and experience, and live off the fruits of their creation, instead of working for "the man" their entire lives.

For people like this, B2B is a much better fit than B2C, even though B2C gets all the press coverage. For starters, businesses are used to paying real money for solutions that remove pain and improve function, so you will not spend forever trying to answer the "how will you make money - who is going to pay for it" question. To quote just one line from Geoff's post: 

The biggest reason why business customers make a great market for your startup is that they have money, and arenít afraid to spend it to solve a real problem. There are lots of unsolved problems in business today in areas such as sales, marketing, finance, operations, management and more where technology can be disruptive and highly valuable.

Recently, I spent an afternoon with a younger family member, who was having an understandably depressing experience of being a real estate attorney in a contracting economy, trying to hang in there while try to guess the arrival date of the anticipated pink slip. He talked of wanting to start a legal technology business in an area that he felt he had above-average expertise. But the risk of leaving a job, of jumping before being pushed, of making a mistake,  was all but paralyzing.

We chatted, and I asked him to project his salary for the next two years - which at $65K/year came out to $130K.  I asked him "If you worked your butt off for the next two years, what is the likelihood that you could earn at least $130K of business during that 24-month period".  Based on his knowing that contract jobs in that area of legal technology tend to be in the $5K - $20K range and typically take 1-5 weeks to complete, he estimated that hard, relentless work would produce an 80% likelihood of at least that earnings level.  So where's the risk?  There really wasn't any. We didn't even need to project a huge upside potential to see that it made sense to go forward.

The biggest challenge to viability in most start-ups is the "cost of acquiring a PAYING customer".  Because his was a B2B idea based on doing something that is already being done, but  better and cheaper, and because it was possible to see what people were ALREADY paying for solutions to the problem he was addressing, it was possible to quantify the risk and the likelihood of modest success. And that allowed him to jump before being pushed.

(4 years later - the business continues to be working out for him , growing nicely but slowly, not yet reaching the tipping point of easy, organic  growth, but having already left the other alternative of the "job" far behind.  No regrets)

So read  Geoff McQueen's article above,  about the advantages of the less "sexy" B2B sector for your startup. And if it inspires you to follow it, you'll have a much better shot at success and at being proud of what you've done  ("proud" with a lower-case "p"), and you'll be happy with a life-sized start-up endeavor, because that's good enough for you and your family and your other life goals.  Life-sized is really good enough for most of us - once we learn to ignore the media telling us how big we are "supposed to" want to be. 

But if you are a strictly larger-than-lifesize person who is drawn to only the "moonshot"ideas that if successful will have everyone jealous and admiring of what you have created, then you had better stick with your big B2C idea.  It's a guaranteed narcissistic success, because even when you fail financially, you can still talk about what an  incredible idea you had, and spread your own "if only" story:  if only you hadn't failed you'd have been someone really special who would have changed the world  (or at least changed the way that teenagers shop).

And if you are lucky, maybe a grown-up B2B friend of yours will buy you a "Vente" size cup of coffee at Starbucks. If only.

Posted by Jerry K. at 9:29 AM