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How B2B innovations are presenting a ‘very quick path to revenue’ for entrepreneurs; B2B startups are interesting because instead of needing millions and millions of users, you need thousands

How B2B innovations are presenting a ‘very quick path to revenue’ for entrepreneurs

Quentin Casey | June 22, 2014 7:00 AM ET
When Dax Dasilva founded LightSpeed back in 2005, it took a full month to get his first customer setup with the company’s retailing software.

Today, Mr. Dasilva is adding close to 500 stores to his customer roster each month. Nearly 20,000 stores — processing $7.3-billion in annual transactions — now use LightSpeed’s retail commerce tools to track inventory and improve sales. Among LightSpeed’s clients are DASH, Harman Kardon, Frank & Oak, Adidas, and Fender Guitars. LightSpeed, based in Montreal, has raised $30-million from investors, including Accel Partners and iNovia Capital. Revenue at the 180-person company, Mr. Dasilva adds, is doubling every year.

Mr. Dasilva credits the company’s business-to-business (B2B) focus for LightSpeed’s rapid growth. “I think our success is directly related to the fact that we’re selling to businesses,” he said.

B2B startups are interesting because instead of needing millions and millions of users, you need thousands

Selling to other businesses differs greatly from targeting individual consumers.

“It’s easier for a consumer app to go through the stratosphere and really take off,” Mr. Dasilva said, pointing to Instagram as an example. “You don’t see that as much with business apps. Businesses have to research, evaluate and see if the app is right for them.” In other words, business consumers are more cautious because they actually pay for your product.

But if the fit is right, it can be very lucrative for your company.

“If you build the right system for them, and you continue to expand the system… they’re probably going to stick with you and be a long-term customer,” said Mr. Dasilva, LightSpeed’s CEO, noting B2B customers are “more sticky” than most consumers.

“We’ve got retail customers that have been with us since 2005… A product like ours becomes the lifeblood, the operating system for their retail business. So they’re not going to leave your product unless you really let them down.”

“B2B startups are interesting because instead of needing millions and millions of users, you need thousands,” he said. Those smaller numbers make it possible for the founders of a B2B company to actually talk with a swath of potential customers — and craft a product to their needs.

And as opposed to many consumer products, B2B innovations typically provide a “very quick path to revenue.”

“It’s easy to see which businesses have legs,” Mr. Litt said recently from Silicon Valley, where he was meeting with customers and investors. “You look at the customers they have, and at the amount of revenue they’ve generated from those customers so far, and pretty easily on a napkin you can forecast where that business could be in the next couple of years.”

Robert Niven, chief executive and founder of CarbonCure Technologies Inc., said B2B selling typically doesn’t require the fancy marketing and branding that consumer selling does. Your product either benefits your client’s bottom line or it doesn’t.

“B2B has very clear rules of engagement,” said Mr. Niven, whose Halifax-based startup produces technology that infuses carbon dioxide into the concrete-making process, thus making “green” concrete blocks that don’t sacrifice quality or price. “There’s less of the emotional marketing,” he said. “It’s very cut and dry. You essentially know where you stand.”

But as Mr. Litt notes, B2B companies are not without their challenges.

Problem No. 1 often involves finding customers. “In B2B you have to find your customers and get in front of them,” Mr. Litt said. “It’s very difficult. I think that’s where B2B companies often fail — they don’t get to the point where they find a serviceable market or channel where the customers live.”

Jeff Thompson has founded and sold two B2B companies: UserEvents, which was sold in 2013, and Conseros, sold in 2009. Both companies sold their products to large enterprise customers, such as big banks, telecoms and insurance companies.

“One of the challenges with B2B, particularly in the high-end enterprise space, is that the sales cycles can be long. They have their own buying and purchasing process,” said Mr. Thompson  from Fredericton, N.B. Thus, patience is key.

He recommends a “Trojan horse” approach: partnering with players that already sell to the companies you want to sell to. “It was a way for us to scale-up without having to invest in a large, world-wide salesforce in the early days,” he said.

Mr. Thompson also stresses that the success of a B2B company largely hinges on its first few clients.

“The first five or 10 customers are critically important. Each of those implementations — whether its cloud-based or on premise — they have to go very well, because you need those as case studies,” he said.

“If you have those case studies, that’s going to help reduce the friction in the sales process. So make sure each of those early projects go very, very well.”

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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