Why Companies Should Buy From Startups
blog.simplelegal.com
blog.simplelegal.com
1. Startups have a high(er) chance of failure or pivoting into something you didn't buy. ("Fail fast" is a popular mantra [a])
2. If the startup does have an "all-star team" as you say, they're more likely to get acqui-hired by Google/Facebook and the product subsequently shut-down. (I've said before that this is a byproduct of the acqui-hire craze and I still believe it).
3. Many startups (especially those with all tech founders) seem to suck at customer service. They tend to focus on automation and hacking their way to avoiding any type of high-touch service (the exception seems to be companies that make support tools). Do you prefer phone support from your software vendors? Don't choose a startup.
4. Their pricing doesn't fit your buying model. Many government and educational institutions must buy using a PO process. Large companies don't want the "small team plan" for $29/month.
FYI I'm not posting this comment to be a prick–rather it's a thought exercise. If you want companies to purchase from startups more often, stop trying to convince them why they should and start addressing the reasons why they don't.
[a] http://www.feld.com/wp/archives/2009/04/the-best-entrepreneu...
1. Pivoting away from revenue is pretty stupid thing to do. If you are buying from me, and so is Tom Dick and Harry, I am getting a strong market signal.
2. The team is so good they might get acqui-hired and you are worried your multinational company is now relying on them - well there is a solution to stop another company acqui-hiring them....
3. Customer service sucks most places. Some use it as a differentiator (Rackspace), but a lot of the time customer service should be automated (lost your password?). And "on-boarding" new customers by hand - this is gold that some startups are learning about
4. I will happily send you an invoice and set up a monthly billing run. It just won't be for 29 dollars a month :-)
But yes - I agree with your main thrust - we should make it easy and simple to get a yes turned into a paid invoice from a corporate budget holder.
As an example: I love Stripe as much as anyone, but I find it extremely odd that a company that touches up to 100% of another company's revenue doesn't have a phone number on their support page [a]
Maybe I'm old-fashioned but I think there's more to it. At my company, at least, great customer service has been a cornerstone for us and a reason people refer us and don't leave us.
See Amazon.
Assuming that was meant to be an example of good customer service, it's an ironic one. I'm increasingly voting with my wallet for local stores over Amazon for any big name items. This is mainly because Amazon's unpredictable pricing, including sometimes dramatically overpricing things for a while, is turning me right off trusting them or assuming that they'll be cheaper the way they almost always used to be.
Free delivery, we'll-call-you-back customer support, and a smartly automated returns process are all great, but they are still vastly inferior to being able to walk for two minutes from my home and buy what I want right now, and being able to return it just as easily on the increasingly rare occasions there is a defective disk in the box.
Between this kind of nonsense and a couple of years of getting Christmas wrong for lots of people, I'm not sure how much longer Amazon specifically will be able to rely on the good will they've built up over the years without a change in course.
When you're a giant corp, you can afford to be slacking on CS. But when you're a small structure with a limited amount of stability and cash flow, why would you take the risk to screw your PR ?
I'm biaised, I'm doing specialised tech support for a Giant so I it's obvious to me.
I've been looking to move to a smaller company (Ie a startup) and I found not so many positions, most being standard CS and nothing technical which is surprising. Might be because I'm in Europe though.
1. Startups have a high(er) chance of pivoting out of something you don't want. They aren't stuck selling you the same bloated database (or whatever).
2. Don't buy from startups that don't have a path to monetization and growth. If the path leads to no where. That's not a company, that's a resume bullet point.
3. Don't buy from a startup just because they're a startup. If they suck at service, they're not worth your time and money.
4. Yes, startups should fit to customer expectations. But if a big company's or govt's buying model prevents them from buying a superior product, then maybe something is wrong with the buying model. Govt buying decisions led to a $300M webapp. Marc Benioff offered to build and host it for free for 5 years.
http://www.washingtonpost.com/national/health-science/health... "A White House official said the administration could not have accepted the offer, because it ran afoul of federal contracting rules."
Are you saying don't sell to them on principle?
We're talking to several universities now to find the best way to serve them. Sometimes we run into structural road blocks. One school requires a printed hard copy form be sent between departments for processing. But we're still trying to find a way to make it work. Mostly because I'm hellbent on moving companies, schools, and governments from paper to digital.
Do you have a resource that can definitively tell which startups are bad and which ones are good?
But, if I'm a company looking for vendors, I evaluate "good" vs "bad" in the context of sustainability of the org. If they don't have a path to profitability and sustainability as a company, they're bad. If they do, they still may fail. But big companies fail too. I know no one gets fired for buying Oracle, but what are you missing if you ignore Postgres?
Rely on a startup and when it fails, the part of your business that relies on it fails with it.
The exception to this is parts of the company that are either specifically geared towards hunting new technologies, or subsidiaries/departments with lots of autonomy and shorter timeframes. Basically folks who are tasked with experimenting and moving on. Even then, it's a better fit with services (boutique ad agencies and investment banks supporting large firms) than products with lock-in.
While I realise this is the most cynical comment I could write, it's also my experience with far too many of the startups. This is particularly bad with web startups as (a) it seems to happen more and (b) once the website is gone, so is the product.
Buying from startups is not without risk. But buying from large vendors also carries risk. A diverse set of suppliers is a good thing.
Picking the one company from that list I am most familiar with, AirBNB has been going since 2008. AirBNB are now the people acquiring and shutting down / changing other startups!
Sure, AirBnB certainly appears to have hit the scaling part. But I bet they're still trying to find new models and new markets. Hilton, Marriott, Starwood and others dominate the corporate travel market. Dropbox appears to be moving towards photo sharing on the consumer side and config/settings sharing on the tech side.
Startup, not startup. Probably irrelevant. I know that there's value in having companies who think like a startup as vendors. Procurement departments aren't structured to be allowed to think that way and I think that's bad for the companies they serve.
[0] http://steveblank.com/2010/01/25/whats-a-startup-first-princ...
[1] https://casetext.com/case/jacobellis-v-state-of-ohio/paragra...
How would AirBnB be any more of a startup than Google?
But the biggest problem is stability: even if the startup's goal is to build a real business rather than being acquihired, most startups fail suddenly (e.g., due to cashflow problems and a lack of a bank credit line), and that would leave their customers scrambling to replace some critical part of their infrastructure. That's why established companies are reluctant to bet their business on a startup.
Anyone who is considering starting a company that markets to other companies needs to think about these issues (which probably accounts for the predominance of startups that sell to consumers rather than businesses).
It's this lack of true conviction in what they are working on, and the culture of chasing the juiciest, low-hanging fruit to enrich themselves rather than serve their customers that would make me never, ever purchase from a startup until they are much bigger. This idea of "fail fast and fuck over your current customers" is probably the thing that would most endanger the startup culture of Silicon Valley at this point, if this keeps happening at the rate that it has been.
Customers are investors. They invest their time, people, and budget into your product. That's true whether you're the newest NoSQL database to hit the market or Oracle.
When you sell to a customer, you're making them a promise.
Unfortunately, it is a promise that has no value. With the kinds of exit we're talking about, the promise is readily broken, and with little or no adverse consequences for the start-up.
Meanwhile, there may be strong incentives for a small business to pivot away to a different strategy or to take a lucrative exit, even at the expensive of existing customers. This situation is magnified dramatically as soon as any serious outside investment is involved.
You said it yourself, right at the end, if you just consider something you wrote from the other side of the fence:
Large vendors succeed by executing to a known plan.
Large organisations in general like executing to known plans, and relying on a start-up almost inevitably brings a much higher risk of having to change those plans than relying on more stable, established suppliers.
And while small organisations might be more nimble when it comes to changing plans, stability in the supply chain is possibly even more valuable in that context, because you have limited resources. Integrating with any external dependency takes work, and if you're going to do it, you really only want to do it once and then not worry about it.
The kind of lean, MVP-producing, pivot-happy, investor-funded, five-minute-old B2B tech startups we often discuss on HN are the antithesis of that stability. The really good ones offer enough advantage over doing things another way that using them is still justified, but most simply don't and it's hardly surprising that a lot of potential customers shy away from them and head for more stable ground even if it comes at a somewhat higher price.
The thing about direct primary care is that there is no easy way for a small health clinic to do the billing. Existing systems like Epic are very much stuck in the old way of doing things.
So a startup approaches my girlfriend and the doctor at a conference with a solution to direct primary care billing. They decided to give it a try. She says it's been fantastic. They've asked for features and had them implemented in days. They can just call up the CEO on the phone and ask for help if they need it (obviously that won't scale well, but for now it's awesome).
Try doing any of that with a solution from an established company.
My last gig was at a mid-sized manufacturer. We bought a reasonably expensive product from a startup. We bought installation, and support.
Worked for me: I didn't have to think about it much, except as a bit of hardware in a rack.
18 months later they folded. The day _after_ that I got a call from my boss: 'you now own X'. Go forth and support.
It was a constant PITA from that point until we got rid of it, two years later.
And it really soured the company on 'startups'.
They're not on a path to acqui-hire, they're not trying to pivot away from something you rely on, they have fantastic support (but more importantly a product that's so clear and easy to use you don't really need support).
We (SimpleLegal) are ZenPayroll customers and love it. They are the exact reason your company should seek out startups as vendors.
Though, I think you summarize it pretty well. Straightforward and honest answers to address objections.
I've certainly rolled this concern right into my own startup. It is more or less a monitoring tool, and provided as SaaS, so if the startup should go out of business for some reason, the customers would no longer have service, but they'd no longer be paying for it either - they'd be no worse off than they were before they started using my product.
Well, large vendors are exactly the ones who can just follow an idea an see where it leads. Startups need to focus. See Google, see Microsoft Research, see IBM, etc. It's another story why they don't do it enough and why the results often do not reach production, but the statement is definitely false.
Though, IBM is selling off what were core assets because they don't deliver the growth and margins that Wall St require. It's either a great move to move towards the future, or a sign that they aren't able to serve customer's needs. Kudos to their leadership for seeing it no matter which one it turns out to be. I'd love to hear Clayton Christensen's thoughts on IBM's recent moves.
"The Future of XYZ"
where the gist is "The Future of XYZ... doesn't exist".