Most B2B startups initially sell to other startups before going after more established companies. And for good reason. Startups are approachable, quicker to close, and more forgiving when things go wrong. But is selling to startups really a good growth strategy in the long-term?
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Why sell to startups in the first place?
There’s nothing more powerful in sales than customer intimacy. And as a startup selling to other startups, you have unique insights into exactly what your customer wants and needs. But there are many other good arguments to be made for selling to startups first:
1. Startups are easier to reach
Unlike larger companies, startups usually post their contact details online. Most of the time, you can even quickly find their founder’s info and reach out directly. This means less dealing with gatekeepers and more time spent talking to the decision makers who actually matter.
In the early days of ElasticSales—the on-demand sales company we launched before Close.io—we landed 7 paying customers in 14 days just by reaching out to founders. Before we even had a website, we researched startup contact info, picked up the phone, and called them. (If you want to try this strategy out for yourself, you can see our original sales script here.)
2. Their decision-making cycle is much faster
Until you know who your ideal customer is, you want to be able to test different ones quickly. Startups are smaller, more nimble, and have a faster decision-making cycle than larger companies. Which means they won’t string you along with a long maybe. They’ll tell you yes or no right away.
3. They understand what you’re selling
If you’re selling a technical product, then going after small, technically minded teams is much easier and faster than dealing with a larger, more traditional organization. Startups generally need less hand-holding and will be able to tell right away whether they can integrate your product with their current systems.
4. They’re comfortable buying from you
Trust is one of the most important factors when it comes to closing deals. When you’re a startup selling to other startups, you speak the same language, which helps you build a level of trust and comfort that you otherwise wouldn’t be able to.
Startups also don’t have the same reservations and doubts that a larger company might have about buying your product. They’re not worried that you’re a startup yourself and might be more forgiving if bugs or issues arise.
5. The founder-to-founder connection is strong
The entrepreneurial world can be incredibly supportive. When you reach out and ask for a 15-minute call, it’s difficult for other founders to decline as they were in that position themselves not too long ago. You can use that empathy to your advantage and connect with them on a personal and business level.
6. They can be influential beyond just the startup ecosystem
Startups are the current rockstars of the business world. And many founders and companies are influential beyond just the startup ecosystem. Businesses of all sizes look to influential founders to tell them what tools and technologies to use. If you can get in with this crowd, you have the chance to build hype and buzz with customers you otherwise wouldn’t reach.
7. You might hit the startup jackpot
When you sell to other startups you become a part of their journey. Which can have huge returns. Take Twilio—a cloud communication provider—for example. As a startup, Twilio sold their services to other startups like Uber and AirBnB. When both of those companies exploded, Twilio went along for the ride and eventually became a billion-dollar, public business themselves.
How to market and sell to other startups
Selling to startups isn’t the same as selling to your usual SMB or Enterprise client. They’re completely different beasts that need to be tamed in a different way.
We’ve spoken at length on this blog about sales in general, but when it comes to selling to startups there are some specific best practices you should follow:
Know your audience and their needs
No matter who you’re selling to, you need to do your homework about who your ideal customer is before reaching out. But when it comes to startups, you need to be especially judicious.
Startups don’t want to waste time with your generic sales calls. Before you reach out, know who you want to talk to, why you’re calling, and why they should want to talk to you.
Use startup data tools like Mattermark and Crunchbase to tell you who your best contact is at a company. Or look for signs that it’s the right time to reach out, like funding announcements or jobs for hire on places like AngelList.
Hang out where other startup founders hang out
The startup market has much more of a community aspect than other industries. Founders generally hang out in the same places, and if you want to sell to them you need to be there as well.
Start by checking out Hacker News, ProductHunt, Growth Hackers, and other industry specific or niche Facebook communities. Be active and ask for feedback on your product or share your experiences of starting a company. Look for ways you can build authentic relationships and connect with your potential customers.
Lose the BS
You might be able to get away with a buzzword-laden pitch to someone at a larger company, but a technical startup founder won’t stand for it. To sell to startups, you need to lose the lingo and buzzwords. Instead, you need to be straightforward and transparent. You have to be specific, not ambiguous. And if you don’t know the answer, tell them “I don’t know.”
Founders have fantastic bullshit detectors and they’ll see right through you.
The dangers of selling to startups
At this point, it might seem like startups are the perfect customer. And in many ways they are. (Especially if you’re a startup yourself.)
But there are also dangers that come with including them in your sales strategy.
By their nature, startups are volatile companies, which means they can be unpredictable customers. Not only that, but you have to be comfortable with the fact that startups often:
- Have smaller budgets than larger organizations: This means your customer acquisition cost (what you’re willing to pay to get them as a customer) has to be smaller as well.
- Churn at a much higher rate: Not just from going out of business, but because they might make a hard pivot and not need your product anymore. This makes their lifetime value much harder to calculate.
- Give feedback that can muddy your product roadmap: Startups change quickly, and acting on all their feedback is a dangerous game. Startups will often request features they think they’ll need once they’ve grown to a certain point. But often don’t when the time comes. Blindly following customer requests like this can leave you with serious feature creep.
- Are vulnerable to the funding market: If you sell to startups with lots of funding you’ll do great when the funding market is strong. But when that dries up, it could impact or even kill your company. I’ve seen this happen again and again, and founders always like to complain about it: If only funding hadn’t dried up at that point, we’d have succeeded, but it was outside of our control. No, it was not outside of your control. It was very much within your control to decide to focus on startups that require a generous funding environment, and you should have hedged against the possibility that the funding environment would change in the first place.
Startups should be part of your sales strategy. Not the entire thing.
It used to be that selling to startups was only seen as a stepping stone to selling to SMBs or enterprise. But that situation has changed.
Today, the startup model is used across industries and company sizes. With how quickly markets change, companies need to be smaller, faster, technical, and more nimble. So when you build a product and a sales culture that serves startup customers, you’re in essence preparing yourself for the future.
This doesn’t mean that you should only sell to startups. But that you should be aware of what it takes to sell to them successfully. Do your research. Be active in the community. And then make the call whether selling to startups makes sense for your business.
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