This month GSVlabs’ Chief Innovation Officer, Alec Wright, sat down for a Q&A session with members from our startup community to help them better understand and prepare for engagement with large enterprises. Alec spends most of his time helping G2000 companies adopt new technologies and advising early-stage startups on fundraising, sales, and partnership development.
The following questions were asked by founders of early-stage enterprise companies and cover everything from best practices in relationship building to how to develop differentiated products and company narratives. Our goal is to showcase the questions that are most top-of-mind for early-stage startups, as well as our perspectives on how they can optimize for success.
Startup Community: “How do you identify startups that will serve as good matches for enterprise?”
Alec Wright: “The answer to that is really driven by what a specific enterprise hopes to accomplish by engaging with new technology solutions — sometimes it is investment, commercial partnership or just a need to buy new technology. This often influences the level of enterprise-readiness or validation we look for when identifying startups for a partner.
More generally, we are looking for a startup team that has a strong sense of their customer/market and the differentiation they bring to the table vs. the hundreds of other startups in their vertical. We want them to be willing to collaborate and have the sophistication to work effectively with a 90,000 person company, but also advocate loudly in the areas where they really are the expert and have unique knowledge or resources.”
SC: “How can non-business founders (technical founders) refine their pitch to leave out the nitty-gritty tech specifics and sell the commercialization opportunity?”
AW: “That’s a great question and one of the most common challenges I see with new, technical founders and even non-technical founders that have a highly technical product. It also really depends on your audience. Focus on the outcomes you can create with your technology and how this will change your customer’s competitiveness in a market — not the underlying tech itself.
When talking to enterprises:
No one is getting excited about the technology (outside of a quick chat at a networking event). Enterprise buyers invest their time and resources in solutions because of the tangible, predictable business outcomes that it can create, not because of the cool factor of the underlying technology. This isn’t to say that technical differentiation isn’t of value, but it is a means to an end — tangible ROI for the customer.
When talking to investors:
You often find more interest in the underlying technology, but even then, the focus should be on what that underlying technology enables and how this creates a competitive advantage in the market. For both audiences, save the technical deep dive for when they ask for a technical deep dive. That is almost never in “the pitch.”’
SC: "Any advice on how to push for closing deals quicker without affecting the relationship we’ve been building with the key decision-makers?”
AW: “The balance of building a sustainable, high-trust relationship, while “pushing to close” is always really difficult to find.
Which side of the balance you end up on usually depends on the nature of your product and the average account value. If winning a deal likely means $10k in account value and $25k LTV, there is going to be a real limit to how long you can spend building trust with a buyer. If a win means $50k-$100k in account value at $200k+ LTV, you have a lot more leeway (and need) to really build that relationship.
A couple of things I have seen as effective:
Find a low-cost Proof of Concept engagement model you can propose that causes a buyer to put some skin in the game (even if it is only a couple thousand dollars or some very senior team time). This can be a great litmus test for how serious a buyer is and will give you the confidence and momentum to keep the relationship moving forward.
Set mutual expectations on timelines. Ask them to “opt-in” to your discovery, diligence, and deployment timeline. You can recognize there will be delays, but going in with a structured step by step process that gets you to close in 60 days can set expectations and make you more comfortable following up and pushing in a respectful way.
Find a catalyst in their upcoming business to drive action and frame the value that will be lost if you cross the line without the solution. Maybe it’s a shift in the market, a new acquisition, etc. Create a “cost” for them not moving quickly.
Always schedule the next call before you are off the current. Even better, set up standing calls every two weeks, just as a way to keep the momentum going and create an expectation of regular touchpoints.
There are a million other approaches, but there are things I have found effective at keeping momentum and getting a win (or loss) quicker.”
SC: “What is the best way to intrigue investors after you’ve maximized bootstrapping to the highest point? ”
AW: “I think that what investors look for in a bootstrapped company is similar to any early-stage company: they want to know where you are, the milestones you will achieve with your funding, why they should have disproportionate confidence that you will achieve those milestones, and how hitting those milestones will set you up to be a very big business capable of generating venture-style returns.
Bootstrapped companies that have achieved some traction actually have a great advantage. The fact that you gained traction and growth without capital gives investors a ton of confidence that you can accelerate that process with capital. If you can set up a framing that your level of success without funding indicates you are highly differentiated and high-potential, funding will enable you to become a breakout company. Then paint a vision of what you could look like in that world.
One final thought is to frame the situation as “now the only reason we are missing out on massive value creation is that we don’t have the capital to invest in growth — every day that we aren’t investing in growth is a day we are missing a huge opportunity.”
SC: “If you have technology that works B2B and B2C, does it make sense to do one first and the other second? Or have you seen it work simultaneously for startups?"
AW: “The B2C vs. B2B question is a good one.
I think it makes sense to run B2C and B2B2 experiments in the early days to get a sense of where you have the most attractive CAC/LTV dynamics, but I think establishing the infrastructure to scale customer acquisition in both those markets (as a small startup) is really hard.
You either want to optimize your marketing channels, product roadmap, etc. for a B2C, self-service approach, or a more complicated B2B sales cycle and user but with higher LTV.
We have seen a lot of companies try to solve this challenge by focusing less on the audience (B2B or B2C), and more on the sales model, i.e., is it a self-serve, digital marketing-driven model or an enterprise sales, account management driven approach.
The “state of the art” today is the Freemium Enterprise SaaS product — sold self-serve to both consumers and individual users/teams inside the enterprise. Only at a certain scale, once the product is validated and loved, do they invest in enterprise sales teams to close large value accounts. This is the Dropbox, Slack, etc. model.”
SC: “Do you have an opinion on raising from a Top tier VC versus a Micro VC?
What are the Pros and Cons?"
AW: “I imagine this is a very controversial question, and there are a million opinions on this. I don’t know if there is one way or the other that is universally the right way to go — I think there are Pros and Cons of each that likely get exaggerated based upon the trajectory the company ends up taking.
The classic wisdom is to chase Tier 1 VC money. These investors bestow a ton of credibility that helps enterprise/partnership development, hiring, additional capital, etc. Tier 1 VCs (especially today) are also the type of capital partners that can support companies that will need to raise hundreds of millions (or billions) of capital before liquidity. For the Ubers, Lyfts, Airbnbs, and Dropboxes of the world, these investors make capital raising and growth a lot easier (especially in the Series B to Series D space).
There are significant upsides to high-quality micro VCs too (especially those that make a small number of investments that represent the bulk of their fund). These investors put a ton of time, blood, sweat, and tears into supporting their portfolio. They are often more willing to ride the ups, downs, and pivots of an early-stage company and continue supporting the founder (as much as they can with a small fund).
If you raise from a Tier 1 VC and don’t end up being a rocket ship (you pivot, you stumble, etc.), it can be very difficult to keep up attention and investment from your VC. The Tier 1s are focused on creating $10B+ companies, and if at any point it looks like your company may not fit that model, they have major incentives to stop putting time and capital behind a portfolio company. You then have the signaling risk to other investors as to why this Tier 1 VC has stopped following on and is happy to get diluted (something the Tier 1s aren’t known for). This is not to suggest that all Tier 1 VCs have this dynamic, but it is something to consider when comparing investors.
SC: “More companies are going public, but it has become so much harder to fundraise. Do you have any insight into how the funding landscape has shifted over the last couple of years? Why has it gotten harder to raise money?”
AW: “I think it has gotten harder to raise money at various stages. Seed stage fundraising has become a lot harder (but I think that is good) and certain verticals have ebbed and flowed from hot to not.
Investors are now demanding real traction and differentiation before you “get to raise $1M”. I think 2014–2016 saw a lot of startups raising $1M-2M pre-launch, and we saw a lot of money get burned as startups went through their natural experimentation and pivots. Today, you need to bootstrap or hack your way to some differentiated traction before you are going to raise real money.
This isn’t true in certain high-interest and high-tech areas right now, but for the majority of industries/technology areas, startups are needing to show more real traction before they get to raise a seed.”
SC: “What’s the best way to go about pitching to large enterprises without a ready product or connections to high-level employees?"
AW: “You need to find ways to (1) build those high-level relationships or (2) find larger enterprises that are similar to your current “power users” and go in with a really focused relationship-building effort and messaging about the opportunity of this use case.
The best tactic I have seen to do (1) is to try to recruit a very low-touch enterprise advisory board. Go to mid/senior executives in your target enterprises and reach out asking just for a 20 min phone call for feedback/advice (not trying to pitch the product). Explain how they have a ton of insight in this area, and you are trying to get feedback on whether your SMB solution could be a good fit in enterprise. If the call goes well, ask if you can get another 20 mins in a week or two to get further feedback. If the second call goes well, ask them to join an informal group of advisors that gives you feedback on your enterprise strategy every quarter. You will be shocked at how quickly you build a group of 4–5 key advisors that get their “fingerprints” on your work and can open doors for you later on.”
If you are interested in our enterprise services