You Say Days, They Think Months.
Why international B2B startups struggle to win, and work with, US customers and what to do about it.
Preparing to speak forces me to collect and organize loose mental threads and give them structure. So, when I was recently invited to talk to a cohort of Swiss startups in San Francisco, part of the Swissnex acceleration bootcamp, I took it as an opportunity to do just that.
The topic was partnership/customer development in B2B, from the perspective of international (i.e. non-US) startups doing business with American corporations.
I had plenty of B2B startup content material from previous workshops, but I wanted to create something new and incorporate up-to-date learnings from experience. I wrote to several friends, international entrepreneurs who succeeded (and failed) in their quest to enter the US market and sell their (technology) products and services to US customers.
I asked them to describe the most critical challenges they faced and combined their feedback with the body of knowledge I accumulated over the last 10 years, working with international technology companies in Silicon Valley. And incorporated my learnings from helping global corporations scout technologies and startups.
First, the Good News.
Before we delve into the problems that international entrepreneurs must overcome, some trends that are making their life easier:
- If you roamed Silicon Valley just about a decade ago, you’d have been hard pressed to find a large corporate presence, outside of tech giants, a few telco operators and the largest automotive brands. Fast forward to today and every meaningful innovation startup hub in the world has become a corporate playground.
- Companies from all industries are hungry for innovation and want to partner with, and buy from, startups. They are creating lightweight procurement processes, appointing scouts, establishing outposts.
- Corporate VC has never been bigger or more active. The jury is permanently out on CVC, but it is undeniable that it has become a common fixture of venture deal making. The number of funds continues to rise, as well as their level of activity, and geographical presence.
- Digital M&A (i.e. dealmaking between corporations in traditional industry and digital startups) is going mainstream in all industries. Traditionally, corporations have motivated acquisitions to drive synergies, eliminate competitors or grow market share. Starting in 2016 there has been a growing trend to acquire technological know how and capabilities first, often in new unfamiliar digital domains.
The 8 Challenges
1. Best-in-class product (or not)
Every experienced operator I spoke with, agrees. The first and most important problem that many international startups must tackle is that their product is, quite simply, not good enough.
At home, moats and relationships can hide a product’s flaws or its immaturity. Is the product “best in class” in its category, or a least in its core use case? Are usability, look&feel, documentation, onboarding top notch? Is the product easy to deploy and integrate at scale? If not, exposure to global competition will lay bare fatal weaknesses.
“Competition in the American tech industry is global. There’s nowhere to hide.”
There are no shortcuts here. Best to take the time to make sure you are ready, before attempting to enter a mature, highly-competitive market like the US.
2. Marketing “air cover”
The average business buyer in the US is targeted by a higher density of marketing investment than in any other country.
That means that reaching that buyer is more expensive here than almost anywhere else. It also means that they have developed finely-tuned defense mechanisms against advertising, unsolicited sales calls, email marketing, etc., limiting the efficacy of any investment in marketing air cover.
It is best to focus limited marketing resources on narrowly defined and precisely profiled target buyers. Niche strategies are almost always the most logical choice.
3. From 0 to 1 (customer)
Closing the first US customer is orders of magnitude harder than closing the second. Buyers expect meaningful references and track record in their sector. “Who have you worked with before, that I know?”
How do you get that first, elusive charter account, then? One of the most effective approaches is also one of the least scalable: identify the absolute best fitting, no-brainer, easy-to-win customer profile for your solution and spend time in person, obsessively, day-to-day with potential early adopters and prospects that fit that profile.
Industry matchmakers, such as specialized industry analysts (for example, in enterprise technology, Gartner and a handful of other firms) can also dramatically shorten the sales cycle, if used correctly. They aggregate and inform demand on the customer side and provide precious intelligence on the vendor side.
“They are not cheap, but often worth it.”
Once the first one or two accounts start engaging, then it is critical to secure references and access to executives willing to act as testimonials. International startups fail often at this, since they have a thin understanding of the intricacies of publicity arrangements, use of trademarks and references management policies that US companies, especially public ones, put in place.
4. Providing “peace of mind”
As an international entity with limited history in the US, you are a risky proposition for a new customer. Do you have the capabilities to deliver? Can you guarantee support? Are you here to stay? Prospects may not explicitly state their concerns, but they are certainly real and their mitigation necessary to get to the proverbial signature on the dotted line. Providing adequate “peace of mind” should be a top priority, throughout the pre-sales, sales and customer onboarding touch points.
“It is important to think about what you can do to make people feel at ease about the solution.”
All successful entrepreneurs recall stories of when they took a 2-day trip for a 1-hour sales meeting. Or when they agreed to service level agreements so stringent they did not realistically know if they could guarantee them. Or when they opened an office two buildings down from a key customer’s headquarters just so that they could literally walk up to their door.
From a structural standpoint, there are also several strategic options that can be considered. The dual company model, for example, has proven its viability as a way to accelerate expansion, while maintaining a clear separation of commercial and product development operations.
5. Value, not technology
US corporate buyers are fundamentally value oriented. Technology is only interesting to the extent that it can generate meaningful results for shareholders. And value is not measured by product features or even benefits alone.
Value = (benefit-opportunity cost)/(price+switching cost)
Focus on the core value you bring, not the technology. What material advantage and quantifiable benefit can you create for a corporate customer? And is it significant enough to justify the risk they take in working with a startup?
It may help to have a basic set of spreadsheets for NPV, ROI and breakeven analysis ready for a typical customer implementation, to support the business case.
6. Our “days” is their “months”
Time is money. This is literally true of a pre-cashflow startup and generally applicable to most companies. Yet, this cliche’s urgency varies dramatically depending on whether you deal with a large company or a smaller business.
US markets are dominated by large corporations. As companies become bigger their organizational complexity balloons and their decisions take longer. If you target large companies, expect sales cycles between 6 to 18 months. Some deals may even take years.
“We’ve had deals that have taken literally 3 years to close. So be careful if the target is large companies.”
In addition to company size and decision chain complexity, another characteristic of American industry complicates things: dynamic labor markets. Reorganizations, job changes, priority resets are frequent and swift, especially in the tech sector. With median job tenures well under three years, if your sales cycle is months-long and involves multiple decision makers, you are almost guaranteed some of those decision makers will change over the course of the opportunity lifecycle.
Sales process discipline comes in handy. Complex sales processes should be broken down in smaller steps with interim deliverables and increasing levels of commitment e.g. LOI, POC, trial/pilot, master agreement, production deployment, so that progress is clear and new resources can easily jump in.
7. IP, security, open source… matter!
While doing business in the US is relatively easy, regulation, compliance and contract law are as complex matters in the US as anywhere else. Hire a contract lawyer ASAP, in other words.
US corporations put a lot of structure and emphasis around intellectual property, copyright, software licensing, brands and trademark use.
“Legal, compliance, certification issues can sometimes take up 30 to 70% of a sales cycle.”
When dealing with software, security has become a major concern companies, as well as open source code buried inside a product or
cryptography export rules that may limit use of the technology, for example in OEM contracts. Insurance against malfunction, source code escrow, management of trademarks and intellectual property are all top concerns of corporate procurement managers.
Vendors should be prepared for thorough technical due diligence, know industry-specific regulatory frameworks and audit software for open source content. They should create a technical due diligence “pack” that documents all open source code, security and performance specs, plus all certifications, benchmarks, forensic reviews and legal opinions.
8. Understanding procurement policy
How do customers actually purchase? What kind of purchasing limits do managers have?
All US companies of a certain size have well-codified purchasing policies. Managers typically have quite a bit of freedom and purchasing power, but within set limits. For example, a company may consider any contract under, say, $50,000 as “below the line”, while a $100,000 deal may require VP-level approval and a $250,000 one a sign-off from a Senior VP.
“Our typical deal is $50k to 75k. A what level do these investments get approved in your organization?”
If you find out that you will need VP-level approval, but your contact and champion at the customer is a Director, don’t be shy. Ask them directly how they plan on supporting you in getting to the appropriate level.
At the end of the day, business is about proven value, relationships and trust. International entrepreneurs and executives that can deliver products that generate value, build high-payoff relationships and quickly engender trust are going to be successful. Understanding what the most important risks are, and how to mitigate them, can only help to accelerate the process.
If you’d like to have a look at the slides, they are on Slideshare. To learn more about FireMatter, check out our website.
