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Comment by dsugarman | Hacker News Reader

>If you are in Silicon Valley and your customers are mostly well-paid consumers with no free time, or other venture-backed startups, well, I’d be worried.

That's the most beautifully I've heard this thought articulated. I constantly hear people in SV talk publically talk about how they're living years in the future due to getting services from startups that haven't yet hit other markets. These people are very wealthy and very short on free time; they incorrectly assume the rest of the world is as well. The reason Uber became so successful was because it became cheaper than a cab in most major markets with world class service. You have to really dig deep to justify most other on demand startups having the ability to jump the shark and it's because they don't have a plebeian offering.

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The idea behind "living in the future" is that products generally get cheaper and easier to use as early adopters contribute feedback, founders learn more about their market, and outside capital puts more minds to work on the problem. Hence, products that are only for "wealthy folks in SV with no free time" eventually become cheap enough that everybody can use them.

Uber certainly followed this growth curve - it started out as a service to call a black car to drive you around town, something that even the founders called a luxury for 1%ers. So did computers as a whole ("I think there is a world market for maybe five computers." - Thomas Watson, 1943), smartphones (at $600, the iPhone was considered a toy for luxury consumers when it came out), Facebook (initially only for Harvard University undergraduates), and LinkedIn (started with wealthy professionals who had lots of contacts).

It doesn't mean all startup ideas for wealthy, time-poor consumers will cross the chasm, but it seems to be a lot more feasible to go from wealthy consumers to poor ones than the reverse.

(Interestingly, it's the opposite story with B2B startups, where it's easier to add functionality than cut prices or improve ease of use. Hence the low end eating the high end, per Innovator's Dilemma. Actually, this effect in B2B markets may be behind the cost-reduction effect in B2C markets, as consumer firms start finding cheaper alternative suppliers that have recently moved up-market.)

> it seems to be a lot more feasible to go from wealthy consumers to poor ones than the reverse

This appears to be the crux of your comment, and it's an excellent point.

I’m not sure I agree 100% with your thesis on the B2B side.

I’ve seen a few companies recently that seem to be getting strangled by the long tail. They have large numbers of low paying, price conscious customers draining resources. They can’t raise prices to a level that enterprises would be happy to pay since this would kill their established customers. Enterprises don’t want to pay a different higher price, why would they. The companies usually skimp on sales, especially field sales, so they have trouble competing in larger deals. And they can become arrogant that their niche solution, while better at one thing, can take on larger platforms that solve multiple problems.

Not saying your points are invalid, just that there seems to be a bit more at play and going from the long tail to the enterprise doesn’t seem trivial and shouldn’t be an after thought. In B2B it does seem like all the biggest winners have generally nailed the enterprise, but not necessarily the long tail.

Central to the Innovator's Dilemma thesis is that the company has to be profitable on the low end. The idea is that by going after low-margin customers, it forces them to cut their cost structure to the point where this is profitable, usually by investing heavily in automation & UX. Then when they want to move upmarket, this cost structure is a competitive advantage they can leverage.

Note that successful applications of this theory usually don't try to sell the same low-margin, self-service product to enterprises. Rather, they create a new "enterprise" product, priced according to what enterprises will pay. They get to leverage all the infrastructure, R&D costs, and ecosystem that's already gone into the mass-market product, but then apply that (with some additional features, and usually hardened security & reliability) to beat incumbent enterprise software on price.

Curious which companies you're thinking of - I can think of a few other mass market SaaS companies that have stumbled recently for the reasons you mentioned, but they have other things going on too.

> Enterprises don’t want to pay a different higher price, why would they.

If you can't convince an "enterprise" why they should pay more than a standard customer you're bad at sales. It's simple math.

good article on topic:

https://training.kalzumeus.com/newsletters/archive/enterpris...

it's not just that they are price insensitive, but you can use trigger words (auditing, apis, slas) to segment them into a higher tier since they have to have certain services provided.

Pro tip - along with auditing add permissions and security. For example Github charge twice as much for 50 repositories on the Organisation plan as the personal.

One of the downsides of many startup types never having worked in a traditional enterprise place is they don't appreciate the features that will move you from the "small team in the company using" plan to the "whole department / company" custom plan where you're charging hundreds of dollars per user.

> Enterprises don’t want to pay a different higher price, why would they.

They would. The people buying products on behalf of enterprises aren't spending their own money, they're spending their company's. They'd happily spend an extra 10-30% (or more) if it means better support, easier setup and all-around less stress or headache for them.

> It doesn't mean all startup ideas for wealthy, time-poor consumers will cross the chasm, but it seems to be a lot more feasible to go from wealthy consumers to poor ones than the reverse.