Using Technology to Address Waste

by Private

It is now fashionable to start consumer facing companies that promise to radically change behavior and create new markets. The companies that have done this well have become legends and inspired a generation of entrepreneurs. That is a good thing. Indeed, on an absolute basis that may be where the majority of the profits accrue over the next 10 years. However, those profits are vacuumed up by a small number of very large companies. My belief is that the highest number of profitable tech companies will be those that address waste in the b2b space. That is, if you want to increase the likelihood of launching a successful tech venture, understand where the largest areas of waste are for businesses in a given industry and then build a solution that minimizes or eliminates that.

I’ve chosen to focus on serving other businesses (as opposed to consumers) for the familiar reason that they can be sold based on a P&L. That is, if my product saves you $10 without diminishing your operation, that $10 falls to the bottom line. This sale is a little bit easier than convincing consumers that they should spend their time or money in a specific way.

When selecting which industries to examine, let the Wayne Gretzsky quote be your guide: “skate to where the puck’s going, not where it’s been.” For instance, crawl through the economic census category by category and list out the most slow-moving, boring industries that are there. Examples I’ve found include “Lumber without yard merchant wholesalers,” “Office machinery & equipment rental & leasing,” and “Const/trans/mining/forestry machinery & equip rental & leasing.” These are all large market that will bore you to tears, and that is the point. Most of them have not taken full advantage of existing technology systems to optimize their businesses. This is not surprising: a lessor of construction equipment will not be likely to build a world class inventory management interface. You, Harvard MBA, could if you spend the time and effort to learn the business. Take the following example as a possible opportunity: in the construction business, each project manager orders her own materials for the project. This is fine for some things, such as lumber, concrete, etc. but problematic for others, such as emergency generators or elevator systems. The latter two examples are critical path items that are often highly spec’ed out but need not be. The specs can (and often do) lead to long lead times that delay the continuation/completion of a project. This is very costly. A technical solution to this problem would be to create vendor supply chain visibility – showing if the spec’ed product in stock and, if not, what is the lead time and the next closest item available. This would meaningfully reduce project times and costs.

While the above example may or may not be a good business, it is a classic example of how relatively simple technology could be applied to non-technical industries in a way that addresses waste. The larger point is that entrepreneurs ought to take step back from the consumer-focused frenzy (my sense is the vast majority of startups coming out of HBS are B2C) and think about industries where there is low hanging fruit due to lack of technology adoption.

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Infiltrating the Enterprise

by Katharine Nevins


Using customer development methods for enterprise products seems hard, but Dropbox is making it work

Lean startup wisdom says that a startup should get product in front of customers early and often in the process of customer development.  Feedback from real customers voting with their clicks and their dollars is the cheapest and most reliable user data you can get to improve the product, marketing, etc.  Customer development as we’ve been learning it, however, seems like it would be challenging to do when creating an enterprise product.

Unlike consumers, who are can be found cheaply through Twitter, Facebook, and Google Adwords, enterprise software buyers are relatively few and tough to access as cheaply.  Assuming that the startups can find enterprise decision-makers through their personal networks, LinkedIn, etc, getting real feedback from them might still be difficult.  My understanding (based on having worked on small business accounting package Quickbooks) is that getting businesses to trial a product is not trivial.  At Intuit, we paid small business owners well to spend 1-3 hours using the product in front of us and providing feedback based on a fake data file; higher-end enterprise customers likely have an even higher opportunity cost for their time, and are less likely to give a startup their attention.  If they do agree to try the product, they generally have to enter their data, integrate it with their existing products, and train their employees to adopt it before they can give you really valid feedback.  They take on the risk that if there is a bug in the early version of the product, their business could be disrupted  Therefore, trying even a free product is not as low-cost for them as it would be for a consumer, and they are less likely to do it.

To convince an enterprise to adopt or buy a product, the startup would typically have to demonstrate return on investment or some other metric.  For a very early product, such data might not exist, or might not be compelling yet.  Sunil at Triangulate discovered that it was hard to sell a better couples-matching engine to companies such as eHarmony without being able to quantify the revenue lift it would generate.

Even if a startup succeeds in getting early customers and collecting real feedback, understanding what the customer needs and requirements really are in an enterprise also seems like it would be difficult.  In the small businesses which used Quickbooks, the decision-maker, the purchaser, and the user were often different people.  For example, the CPA would “make” her small-business-owner client buy Quickbooks so she could make the most of her time during tax season.  The small business owner would buy the product, then have his wife/ office manager set up and maintain the books.  Each party had different ideas about how the product should work.  This problem is likely exacerbated in a large company with multiple teams using a product and multiple stakeholders who care how it works.

What happens if the early product you show customers is bad?  What if you lose their data or cause a business disruption?  Feedback is valuable, even when it’s negative.  However, if a startup makes a bad impression on one of its 10 potential enterprise customers, it may be doing itself real damage.

All of these issues around using lean startup/ customer development methodologies to build enterprise products makes me question whether putting real products in front of customers is really the leanest way to get customer feedback for early enterprise products.  However, Dropbox is pursuing an interesting strategy to get around many of these problems to get traction in businesses.

As it happens, online file storage, sharing, and management is a need shared by both consumers and businesses.  Dropbox has started with the consumer segment, and as a result seems to have bypassed many of the difficulties in penetrating enterprises.  They were able to acquire early customers at relatively low cost; it is unlikely that an enterprise online file management product would have gone viral the way Dropbox has.  Having acquired customers, they were able to incorporate feedback and improve the product to the point that there is now minimal risk of serious problems like lost data.

Now that the product works well for consumers, it can infiltrate small businesses and larger companies.  As it turns out, many consumers have day jobs at SMBs and enterprises.  In the case of online file management, it’s possible to have your consumers double as enterprise decisionmakers/ buyers/ users as well.  By having loyal consumers surreptitiously use Dropbox in the workplace, for free or on their company expense accounts, they demonstrate value to real companies, and will have a compelling case when IT decision-makers need to formally approve and pay for the employees’ existing use of Dropbox.

This tactic is ideal for products with similar utility for both consumers and businesses; email (Google) and productivity applications (Zoho) come to mind.  How do other kinds of enterprise startups get early customer feedback and gain traction with early adopters?

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Can B2B Companies Use Lean Startup Techniques?

by Oliver Jay

Why can’t they launch as early? 

Early vs. Late Adopters.  Eric Ries commented that “early adopters are so small that there is minimal reputation risk” for startups to launch early and learn as soon as a MVP is built.  I’m not sure if this applies to B2B companies.  In many B2B markets, the number of potential customers is generally far fewer and companies are often challenged with customer concentration.  For Rentjuice, launching early targeting a few Boston realtors can be a risky endeavor.  Rentjuice does not have the luxury of consumer-based companies like Triangulate, for example, which can keep pivoting by appealing to different sets of early adopters until it reaches PMF.  A half-baked B2B product shown to a few “early adopter realtors” runs the risk of 1.) losing that potential customer forever as it would be much more difficult to get in the door again, or 2.) irreversible reputational loss in Boston if the customer landscape is a tight and chatty one.  In fact, in other B2B tech industries like cleantech, the value of launching early is even questionable as early adopters are completely different from the mainstream target customers, making the value of initial customer leanings less relevant.  Aquion Energy’s case demonstrates this point.

Why can’t they pivot as much?

MVP Close to PMF.  By launching later, the MVP of B2B companies tends to be much closer to PMF and as such does not require as much hypotheses-testing.  B2B companies generally solve an existing market need whereas B2C companies often create a market need (ex. IMVU and arguably Triangulate’s initial hypothesis).  As a result, B2B companies already know which critical features and core functionality will be necessary and can build a MVP that is close to PMF.  B2B companies also tend to build initial products with one or two particular customers in mind that they feel are either 1.) a gateway into the industry or 2.) representative of the mass market customers.  The MVP therefore is typically built-to-suit with a fairly known list of customer requirements.

Long Feedback Cycles.  While B2B solutions are generally more complex and thus naturally require more time to iterate, another reason why the feedback cycles are so long is because of the complex decision making process of B2B customers.  B2B customers traditionally involve a number of stakeholders: the actual users, multiple VPs, the CIO/CTO, etc.  I believe it is this complexity of managing the expectations and needs of multiple decision-makers that makes for not only long feedback cycles but also prevents startups from being able to effectively test isolated hypotheses.

What Can Actually Be Applied to B2B Startups?

As Eric Ries commented, ultimately lean startups is a philosophy and a mindset.  Any new venture needs a culture of learning and capital efficiency.  Where this philosophy can be applied in the B2B world is with SaaS companies, particularly those targeting SMBs in fragmented markets.  Consider salesforce.com’s initial go-to-market strategy where they first targeted actual field sales people much like a B2C startup would target early-adopters.  There are enough individual sales people to limit reputational risk, allowing the company to launch a MVP earlier and run A/B tests to learn from initial users.  By directly appealing to the end-users, salesforce.com was able to bypass the long DMP B2B startups are typically faced with.  In essence, salesforce.com sold a B2B product using lean B2C startup strategies.  Dropbox can likely use this strategy to enter the B2B space.

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Is Being “Lean” Different for B2B Startups?

by Paul Lenehan

The lean movement is characterized by fast, hypothesis-driven, data-driven iteration, capital efficiency, and proving the concept before building scale. The success stories for this model are typically B2C startups like IMVU and Dropbox. Meanwhile, B2B startups like Rentjuice appearing to make fewer pivots than their B2C peers and in many cases require large amounts of capital. Why is this the case and can they still be considered lean? 

Fewer, More Powerful Customers: Dropbox and IMVU built their business with thousands of individual users, while B2B startups like Aquion and Rentjuice launch with a much small number of key customers. For example, if Aquion focuses on the utility market for batteries, they may only have capacity to serve one customer in their first several years of operation. While this is the most dramatic example, B2B startups often have a limited ability to conduct statistically significant A/B tests on the user base. More importantly, fewer customers means that each one has a greater ability to influence the direction of the platform, since losing even 1 customer by pivoting can mean a significant hit to short-term revenues.

Structurally, B2B sales cycle is longer and more involved with each customer, limiting the early learning from rapid acquisition and attrition of customers. Instead, lean B2B companies pivot prior to launch by building using the sales cycle to their advantage and building customer relationships early. Fewer post-launch pivots may be necessary due to greater understanding prior to launch. It may also be more difficult to pivot post-launch, due to the relationships and loyalty to early customers who may be alienated. 

Mutual Lock-In: Many B2B products like Rentjuice and Salesforce require customers to invest time in data migration and learning the software to realize the benefits. The lock-in builds value for the startup by creating a recurring revenue stream, but also can become a liability. Even small changes to the interface or features could confuse or alienate customers who have invested time in the product and may even rely on it for their income. Any platform that owns a significant amount of data that is core to your life (like Facebook or Google) must make pivots carefully. The difference is that most B2C companies accumulate data over time with limited initial investment by users. In addition, B2B customers have a service or sales person to call, so fielding complaints or questions from pivots can become costly.

Upfront Costs and Economies of Scale: Industries like biotech and cleantech require massive up-front investment of capital, making it difficult to consider them lean. For example, Nanosolar raised $447 million before selling a product and needed  build scale to be competitive in the price-driven solar industry. While capital efficiency may not be possible, pre-launch pivots are even more essential since post-launch pivots may be very costly. Focusing early hypotheses on both the science and customer-application minimizes the risk of launching a product that fails in the market. 

So, how can B2B startups be lean? 

• Talk to customers early to pivot before the product launches
• Choose early customers carefully
• Be prepared for difficult conversations when pivoting after launch

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Do Lean Startup Principles Work in Enterprise?

by Amit Jain


“What I love about the marketplace is that we do our products, we tell people about them, and if they like them, we get to come to work tomorrow. It’s not like that in enterprise . . . the people who make those decisions are sometimes confused.”  -- Steve Jobs 

As usual, Steve’s on to something -- enterprises generally are not as quick to adopt disruptive technologies, largely because it is more complicated for a person to make a decision (and consequently be held responsible) for a change that impacts multiple persons rather than to make a decision that impacts just one. 

So how should startups approach the enterprise space? Does it make sense for startups to use lean startup principles that have been successful with many B2C companies? 

Lean startup principles that work in enterprise: 

Agile Product Development: Gone are the days where the sales team of enterprises dictate the product roadmap.  Lots of enterprise startups are gaining traction (e.g. Yammer, Zuora, SuccessFactors) by taking a consumer approach of rapid product development cycles.  Agile product development forces companies to be in constant contact with its customers -- this is a habit that should be universally adopted by both consumer and enterprise startups. 

Get Out of the Office -- Talk to Customers: It is difficult to communicate the value proposition of your product  in the enterprise world via a forum or webinars (with the exception of obvious low-cost value propositions like Google Apps).  People who make technology decisions on behalf of companies are busy, hard-to-reach, and need to be convinced a startup will reliably serve a need - this level persuasion generally requires in-person interaction, especially for initial customers. 

Lean startup elements that DO NOT ALWAYS work in enterprise: 

Fail Fast: The idea of failing fast and iterating fast works great for analytics driven industries like social gaming where iterations are a matter of A/B tests that can be done daily.  However, enterprise world is different.  Not only is it a long decision cycle to close a sale, but its often a long cycle find the right person in the target customer’s organization to even test a product. Therefore, enterprise startups need to be more careful with their product releases than those in the consumer space because they have less room for error after each failure due to the large opportunity cost of time it takes to engage the next customer (this also partially explains why enterprise startups tend to pivot less than consumer companies). 

Chasm Will Protect your Failures: Moore’s Chasm argues that startups are protected from the fallout of early product failures with initial testers because this group does not associate with the eventual product’s target customer segment.  However, many enterprise startups that have a niche product offering inherently have a small world of customers.  So when an enterprise startup ‘fails’ with an initial customer, not only do you need to fix your product, but the startup needs to proactively support the product with this initial customer post-failures and preserve the relationship since this customer’s referral will be the best lead for the next customer. 

So does lean startup work in enterprise? Lean startup principles do make sense for improving product development in enterprise.  However, the jury is still out on whether the principles are conducive for the long sales and decision cycles of the enterprise world, especially for enterprise startups with niche product offerings.

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