The Real Reason B2B Startups FailAnd What Founders Can Do About It
For years, B2B tech investors and entrepreneurs have been indoctrinated that the leading cause of death for early stage startups is failure to achieve product/market fit. In other words, if a new company doesn’t get customers and revenue, it is because the team built something that no one wants. However, even light scrutiny uncovers that founders are not getting the whole story.
It isn’t difficult to find examples of companies that have irrefutable product/market fit, but still labor intensely (and frequently unsuccessfully) to land customers and grow. My good friend leads a highly compensated professional sales team at a publicly traded, fast growing cybersecurity company. Wall Street loves this stock, and no one challenges the assertion that the company’s product has checked the box for product/market fit. Still, the company spends hundreds of thousands and even millions on any sales rep who can convince prospects to buy the product. The company attracts and hires the best sales talent and offers jaw-dropping compensation. Still, experienced sales reps get fired every week for failing to effectively sell a product which has irrefutable product/market fit (and Wall Street’s blessing).
Founders (and investors) may be operating at a great disadvantage by not properly understanding and preparing for the true risks a startup faces. Building the right product is essential, but there is clearly another part of the story. Without arming founders with accurate data, the challenge of building a successful business goes from being merely difficult to reaching a level that approaches tortuous extremes. Entrepreneurs who do not identify this very real danger, and then commit to a deliberate plan for defending against it, risk failure no matter how great the product.
By attributing too many premature B2B startup deaths solely to problems with PMF, entrepreneurs ignore what I believe to be the true culprit: lack of appropriate focus on founder-led selling. Great founders are great salespeople. They rarely start with sales skills; their background tends to be in technology, or deep domain knowledge of their particular field. Successful B2B entrepreneurs are not sales professionals by training (and “born salespeople” don’t exist). Rather, successful entrepreneurs become competent sales professionals by making a deliberate and steady effort to attain the skills they need to succeed. With all the demands competing for an entrepreneur’s time, you will calculate the priority you place on developing your sales skills based on the expected payback. For your calculations on how to invest your time, consider the following potential payback you can expect with a greater emphasis on developing your sales skills:
First, selling to businesses is hard, no matter how wonderful the product. You need to prepare for that challenge. The insurance world has a saying (it’s almost like a secret handshake), “Insurance doesn’t get purchased. It gets sold.” This anecdote isn’t unique to insurance! It applies to every product in every B2B industry. This needs to be your new mantra: “[My Product] doesn’t get purchased. It gets sold.” Accept immediately that building a great product is a critical first step. However, it is only a first step, and if you don’t match your great product with great selling skills, you will join the long list of failed companies where the COD is (perhaps incorrectly) described as lacking PMF. Truly, no product sells itself.
Second, even a slight increase in revenue from your early sales efforts can radically impact the equity you retain as you fundraise. Revenue, and the hope of fast revenue growth, drives company valuation. You might land a decent investment with one or two early logos who prove out your concept and provide some evidence of PMF. However, if you land several logos, and demonstrate a pipeline of more logos, your story goes from plausible to extremely powerful. Your message to the investment community becomes, “If a founder with no sales experience can land these deals, imagine what we will do with funding to build a seasoned, professional sales team.” Cha-ching. Valuation goes up, and dilution goes down.
There are lots of additional arguments for making sales acumen a top priority for any B2B entrepreneur, but I will mention just one more. I recently came across this definition of an entrepreneur: “An entrepreneur is anyone who provides value in exchange for monetary compensation, with or without them having to be there.” Anyone can be a freelancer, but to be an entrepreneur you need to create a system for growing revenue that is scalable, repeatable, and that functions autonomously. Very few startups evolve from founder-led revenue to a company where deals get done without heavy founder involvement. Your chances of successfully making the transition to something that is repeatable will radically increase in proportion to the knowledge and experience you acquire about how B2B sales really happen.
Each entrepreneur knows best how to run her own company. As you deliberate and execute, be sure that your calculus reflects the importance of becoming a founder who is ready to sell. You need to appreciate the risks of not executing on opportunities to land your first customers, and also be aware of the huge financial upside of driving early revenue and successfully building a professional team to scale your revenues in the future.