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Some Thoughts About Doing SaaS And IT Business On The B2B Market

ArcticStartup and the startup ecosystem talks a lot about consumer IT products – gaming, media services, Facebook APPS and so on. There is less talk about how one can make IT business with business customers. The business market might not be as glamorous as the consumer market, but it is a good market if one appreciates stable cash-flows, the occasional big deals and intelligent, consultative sales. In this article I would like to share some of the experiences I have gained from over ten years of IT hosting business in MicroLink and Elion and being the co-founder in Recommy.com – a service helping businesses to improve their service with customer feedback.

I would start by stating the obvious: The B2B market is different from the B2C market. ☺ One main fundamental difference comes from the fact that the person buying the service in a business rarely does it alone. Or even if he does it alone then the choice has to be rationally justified to someone else – the boss, the users, the owners. This fundamental difference means that unlike in the consumer market there is practically no emotion based buying. People don’t buy a service for their company with arguments like “the neighbor has it”, “This new laser-weapon would get me through this level” or “I would look cool in this shirt/boots/car”. This is by the way why we do not have hybrid-trucks – the rationale of reliability and price/performance just is not there (yet). This might look like a small difference but this has a lot of important consequences. Here are a few of them one should consider when starting a B2B SaaS business

The sales process is long – it might take a month from “the lead” to the first paid invoice, but more likely it is 6 months or even a couple of years. You do need to pay a salary to your salesman though all that time. Take that into account when making your business plan, calculating the price for your service and choosing whether how to start expansion to foreign markets. Doing things like Google Adwords and an easy registration process on your webpage do help, but they act more as a lead generator, very-very seldom do you get paying customers through just registration. It is face-to-face meetings, phone-calls, Powerpoints that build trust. Remember that it is not just one person deciding so the buyer and you need together prove the benefits of your service to many others. There is also an upside to this – as the buying process is long then so is the “quitting your service” process. This also needs consent and a decision process from many people and you have many chances to avoid it (if you are smart and fast).

The best argument to sell your service is saving money. If you can prove that your process X will be Y number of euros cheaper or that you will directly gain Z amount of new revenue then you have a good case. However, you need to take into account that change of processes or systems is really expensive and difficult for a business. The potential savings gained are weighed against the investments and discomfort needed. So if you offer just something cheaper then you have to target the moment when the company needs to change its current system for some other reason anyway. Unlike selling clothes you cannot just sell a new IT system to a business with aggressive marketing or do it “in the heat of the moment”. One possible way how to approach this question is to offer something new – a new service+process that the business is not doing currently, but that it will like to start in the near future. That is what we are targeting with Recommy – asking feedback from its customers is still something that 90% of companies do not do, but we think many of them will. There is of course an upside to this rational also. Once your service is implemented it will need a lot of argumentation from the competition to replace it.

Corporate buyers are (very) conservative or at least some of the important folks (the bosses) on the decision board are. You are mostly selling to “brick and mortar” businesses. In other words a fancy tool that helps you communicate on Twitter, Facebook and Spotify at the same time with your Windows 8 phone is not something that the B2B market is longing for. Having the latest version of Ajax, a HTML5 interface or the biggest number of GHz does not help you a bit. Most of the people you are selling to don’t care of IT, many of them hate it – that is why they chose to become excellent car-mechanics, lawyers, hair-dressers and non-software developers in the first place. So have something that a normal non-IT person can understand on the table. Something that will make their business easier. But here again we have an upside - if you have been successful in selling your service then you don’t need to follow the latest technological trends and change to the newest cloud-storage platform whenever that comes along. People in general hate change.

Trust and reliability are very important. There is this old purchasing manager saying – “Buy IBM and you will never get fired”. This means that calling your company “a startup” might not be the best marketing message. Closing investment rounds and running on VC capital is suspicious for your potential customers as you might not be around in 2 years and they need to think through their strategy for that. It is better to be small, but cash-flow positive, like Recommy ☺, than a fast VC-money burning star like Groupon. Besides cash position your most valuable assets are your customer references. So try to get some big brands on-board as early as possible. “Who are your other customers?” is the first question any experienced purchasing manager asks you. Again remember that the purchasing manager needs to explain to his boss why he chose you. So be reliable economically and on the market. And again the upside here is that if you once have gained a decent customer portfolio then it is hard for the competitors to just come and beat you.

So summarizing this one might say that there is a huge inertia in the B2B market. You no longer neet to be surprised how companies like SAP, IBM and Oracle manage to be successful even though the user experience they sometimes provide is like something from “the 70’s show”.

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Märt Ridala is one of the owners at www.recommy.com, but at daytime works as the E-mail service development manager at TeliaSonera Group.

Top image MAINFRAME COMPUTER by Shutterstock

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