Here’s how to build a red hot business-to-business startup

This is a guest post by entrepreneur Roman Stanek

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I’m a serial entrepreneur, accustomed to taking risks. Yet, I was never drawn to the more glamorous, winner-takes-all nature of the consumer startup. Which is why I’ve built multiple business-to-business (“B2B”) software companies, with steady, yet predictable outcomes.

Things have become a lot more interesting now for B2B entrepreneurs. With the consumerization trend gaining speed, SaaS and cloud B2B companies look more like consumer startups: They’re exciting, customer-focused — and for the victors, translates into big money. As a result, investors are flocking to B2B-focused startups capable of disrupting the IT landscape, attracted by increasingly large IPOs and buyouts (Yammer, for example, which was recently acquired for over $1 billion by Microsoft, or Workday, with a current market cap of $8 billion).

However, despite the similarities, B2B-oriented startups have to contend with challenges that consumer-focused startups just don’t face. These include:

• Building products with the security, scalability and performance that businesses require.
• Facing high recruiting and retention costs for engineers and sales people.
• Convincing customers their products or services will enable them to save more while gaining a competitive edge.
• Re-assuring business customers that the startup will be around for the long haul.

Here are my three fundamental tips for startups, which are based on the lessons I have learned during my career.

Spend big on engineers

Long before a company can even dream of customers (and revenue), it has to spend — and spend big. It needs to hire an army of highly expert developers who understand business needs and are proficient at building modern, B2B-hardened platforms and apps that meet stringent corporate demands. This level of skill and experience isn’t easy to find, and those who possess these know their worth.

Competition to hire these engineers capable of building scalable apps and platforms is especially fierce in the San Francisco Bay area, where startups go head-to-head against behemoths like Twitter, Google and Facebook. Because of that local competition, a number of  companies prefer to recruit from other technology centers such as Austin, Portland, Ore., and Boulder, Colo., which offer substantial talent pools of  talented engineers.

Personally, I prefer to recruit from my home country, the Czech Republic, which boasts a good combination of technical talent and business acumen.

And one more point: It’s been my experience that the best way to entice talented developers is with the promise of incredibly interesting projects in a successful company. After all, great engineers — like great artists — want their work to be seen.

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Invest in a sales team with the right skill-set

It also takes skill and experience selling into businesses’ often-labyrinthine purchasing departments. That’s because the sales rep has to know who inside a company has the authority to buy, understand how customers work with suppliers, and recognize how new services need to work with customers’ current products. Perhaps more important, they also have a deep understanding of customers’ industries, the problems they need to solve to better compete, and their biggest concerns. In fact, there’s a correlation between the complexity of the solution, its price point and the need for a sales organization.

That’s why today’s B2B-focused companies — startups included — still need dedicated sales reps who can demo a product, explain its value proposition, offer competitive positioning and know how to navigate customers’ different purchasing processes. And if you’re thinking cloud-based services don’t need a fully functioning sales organization, think again. For proof, consider Salesforce.com, which reported 4,700 new employees between January 2010 and August 2012, primarily in sales -— and those hiring numbers are proving to be even more robust as Q3 hiring data emerges.

Getting good sales people means showing them you’re on the right side of a simple decision tree: What’s my chance of success? Is the company good? Will I have an easy life or a tough life selling the product? Are the products selling well?

In short, recruiting a great sales organization means you have to show them the potential of making great money selling great products and services.

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Demonstrate you are investing for the long run

Next, you need to convince customers they can rely on your company’s staying power. B2Bs instinctively try to buy from a small number of trusted vendors and being added to that list can be a major challenge. After all, no one wants to bet on a supplier — no matter how impressive its technology — that could disappear in a year or two. Clearly, I believe that the founder’s and management team’s experience running companies and solving problems play a huge part in this. But I also believe that a startup is judged by the company it keeps: namely, its investors and board. In Silicon Valley and the world at large, investors like Andreessen Horowitz, Greylock and Sequoia automatically confer a badge of honor that implies a startup’s star quality, stability and, yes, staying power.

That’s why B2B-focused startups need to be extra careful when deciding on investors. Sure, the size of the check matters — but even more important is the investors’ ability to bring in the board members, experienced management, customer connections and business networking best suited to the B2B market. The folks at Andreessen Horowitz, for example, help their portfolio companies meet potential customers and industry superstars, contact the media and even recruit top notch hires. That, along with their cachet, certainly attracted me, and I’m fortunate that they decided to invest in GoodData.

Building a successful startup is never easy. That’s especially true in the B2B market, given the upfront costs, experience and expertise needed just to meet customer requirements. But for those going into this market with the right funding, support and insight, the rewards can definitely outweigh the pain. Personally, I’m hooked on B2B.

Roman Stanek is the founder and CEO of GoodData, a company that offers a range of business intelligence software and reporting tools to help companies monetize big data. Prior to this, he was the founder of NetBeans.org, sold to Sun Microsystems, and Systinet, which was acquired by HP.

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Follow him on Twitter @RomanStanek

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