If you look at the experience of Jon Hirschtick, Scott Harris, Tommy Li, Dave Corcoran, John McEleney and Michael Lauer, the brains behind the startup Onshape, what’s interesting to note is that they had all worked in the CAD-CAM software industry for over 20 years before venturing out on their own in 2012. Their experience not only honed their skills in engineering CAD software, but also gave them the opportunity to understand business processes, clients, marketing, and brand building. More importantly, it gave them a firm grasp on the art of raising capital. So when they quit their jobs and worked at creating a revolutionary process, which was to bring CAD on the cloud and make the design operational on the mobile device, they had no problems with raising $169 million from core engineering investors — the likes of Andreessen Horowitz bet on them with very few business clients or customers on board.
This is why experience and relationships matter while building a B2B startup. "Startups must realise that in business, it is about entrenching themselves into the corporate ecosystem. You have to understand how corporate sales cycles work and who the decision makers are," says Ravi Gururaj, founder and CEO, QikPod. He adds that it is relationships that go a long way in finding success.
Most founders of B2B startups are convinced that their solution is the game changer, but whether the technology applies to a particular corporation is debatable. YourStory meets at least 200 B2B startups a year, at least 80 percent of which think their technology is the right fit even before having approached a corporate group. Sometimes it can even be the case that despite having been offered a pilot, the startup’s idea is not applicable to the larger organisation.
Recently, the logistics company Delhivery went shopping for an end-to-end HR solution and spoke to numerous corporate groups for a fix pertaining not only to data capture, but which would also be mobile-first and employee-centric. They asked for integrated tools like self-evaluation and gaming, which the large companies did not deliver at the desired cost, and which were not readily deployable. But then it met an 18-month old startup called Darwinbox, whose founders had worked in HR consulting and technology services. The founders were able to quickly understand Delhivery's needs, and in six months of meeting, closed a deal to deploy HR for 4,000 employees.
The deal closed because of the ability of the founders to understand corporate needs. "One often discounts that the corporate might need a solution that adapts to their environment quickly; that's when B2B businesses struggle," says Sanjay Anandaram, investor and startup mentor. He says that the founders have to spend time with department heads and figure out their requirements before making a pitch to the CIO or CMO.
Raising money with just a product idea is a long shot, and this is where networking events come into play. Aside from building technology, startup founders face the daunting task of getting noticed. Gaining recognition is an art in itself, because the beta-stage product needs to be shown to investors, while simultaneously winning clients. Five paying customers (long-term contracts) can go a long way in convincing investors about the potential of funding the business. Unfortunately startups go to investors with concepts and customers who offer two month pilots. "If you are a B2B business, we do look at the founder background, and the most important is the client billings that are consistent with their business plan," says Rahul Chowdhuri, partner at Stellaris Venture Partners.
The B2B industry is the largest in India. According to Frost & Sullivan, just the global B2B e-commerce market is $1 trillion. If one estimates that companies spend even three percent on technology, then this number is easily around $30 billion in market size in this industry alone. Now imagine the opportunities in technology for mining, oil and gas, and shipping and logistics.
So to get into these industries, B2B startup founders should do the following:
* Look to solve problems in your industry and those related to it
* Keep in touch with people from your industry and build relationships all the time
* Test your technology several times
* Sign anchor customers
* Raise money only if needed, because once you have signed businesses you don't need venture money to scale up
* Command a premium from investors if your technology is accepted by many corporates
Now you know how Onshape raised money. Experience counts, but relationships matter the most in business.