Elephant hunting as a startup

Original article

Most startup entrepreneurs these days have heard about the concept of product/market fit. The term product/market fit was popularised by the best-seller “The Lean Startup” which most startup founders these days have read and embraced. It embodies the fact that a startup starts with an idea but that idea is rarely exactly what the market needs, and so the entrepreneur creates a Minimum Viable Product (MVP), gathers feedback from the market and iterates on the product until such time that the product meets the needs of the market.

In a B2C startup, the game consists of first looking for your product/market fit, and then aggressively acquiring customers through growth hacking strategies and some paid marketing.

But unlike B2C startups, B2B startups typically have much fewer customers, and each customer is worth a lot more money. In B2B SaaS startups, the charging model price is usually set based on a rate card and the more a customer uses the platform, the more this customer will pay. At my previous startup Comufy, we used to charge based on the volume of data stored in our system. Depending on the nature of the business, the value of single deal can range anything from a few dollars a month to hundreds of thousands of dollars a month.

Now let’s assume that you are selling an expensive piece of software. Typically, the bigger the client that you go after, the bigger the deal. In startup jargon, going for the big guys in the field is called “elephant hunting”. The typical elephant would be a large bluechip customer. Everytime that you successfully kill an elephant, you will celebrate and rejoice at the fact that your credibility is on the rise and the fact that your bank account will start to look healthier.

One needs to be careful of elephants however, for if you fail to kill them, they might well be the ones killing you. Unlike young and dynamic startups, elephants are organisationally dinosaurs and striking a deal with an elephant will require your entire team from sales to engineering to engage with the elephant at different levels of the organisation. This engagement happens over months, sometimes year. We once signed a contract with Universal Music Group, and it took a whole 18 months from first engagement to contract signup. 18 months is a long time in the life of a startup, and the effort expanded to hunt this elephant is effort that you are not putting into other deals. What is worse, elephants have this tendency to pay late, very late. The typical contract would have 3 months payment terms, but even then you will have to chase this money and the elephant may well start paying you 5 months after you first started to work with them. For a small startup, this is a cashflow killer and could well take you out of business.

So what can you do? Hunting elephant feels fantastic, but to survive, the best strategy typically involves hunting a healthy amount of smaller player who will pay you less but will onboard faster and pay on time, while you hunt for elephants on the side. Your typical effort should be 60% time spent on smaller players and 40% of your time spent on hunting elephants.

Every startup is different and your experience may differ, but if you are new to the B2B world, I hope that this will give you food for thoughts.

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