7 ms·

Why Companies Should Buy From Startups

53 points by outericky 13y ago

CJefferson 13y ago
Point 2 - "A Startup's Only Mission is to Create Value for Your Company". And there was me thinking a startup's only mission is to get noticed by some big company, acqui-hired, and shut down at a moment's notice. While I realise this is the most cynical comment I could write, it's also my experience with far too many of the startups. This is particularly bad with web startups as (a) it seems to happen more and (b) once the website is gone, so is the product.
- nwenzel 13y ago
  Post author here. I think that's more common in consumer startups without a clear path to revenue and profitability. I know it happens in the B2B world as well, but I don't believe anyone thinks 42Floors, Cratejoy, AirBnB, Square, or Casetext are on their way to an acqui-hire. It's certainly not our plan. Buying from startups is not without risk. But buying from large vendors also carries risk. A diverse set of suppliers is a good thing.
  - duiker101 13y ago
    On what basis are AirBnB and Square still classified as startups?
    - outericky 13y ago
      While "big" and successful, they are still young companies with startup ideals. Not simply legacy companies where every employee is long removed from the original drivers and mission. Just because AirBnB has a $1B+ valuation, doesn't mean it conducts business like IHG or Marriott. They still have startup values.
  - CJefferson 13y ago
    Out of interest, at what point do you think a company stops being a startup? Picking the one company from that list I am most familiar with, AirBNB has been going since 2008. AirBNB are now the people acquiring and shutting down / changing other startups!
    - nwenzel 13y ago
      To classify a company as a "startup" I'd go with either Steve Blank's definition (An organization in search of a repeatable and scalable business model [0]) or Jacobellis v. State of Ohio (I know it when I see it [1]) Sure, AirBnB certainly appears to have hit the scaling part. But I bet they're still trying to find new models and new markets. Hilton, Marriott, Starwood and others dominate the corporate travel market. Dropbox appears to be moving towards photo sharing on the consumer side and config/settings sharing on the tech side. Startup, not startup. Probably irrelevant. I know that there's value in having companies who think like a startup as vendors. Procurement departments aren't structured to be allowed to think that way and I think that's bad for the companies they serve. [0] http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ... [1] https://casetext.com/case/jacobellis-v-state-of-ohio/paragraph/dae98ad0-1274-4172-b81e-cdc4e7e0e633#.UwTfeEJdUzE https://casetext.com/case/jacobellis-v-state-of-ohio/paragra...
      - grimlck 13y ago
        So is Google a startup then? They are definately trying new models and markets - Glass, self driving cars, robots, etc. How would AirBnB be any more of a startup than Google?
- greenyoda 13y ago
  Also, even if they sincerely try to do so, a startup may not have the resources to service a large enterprise. For example, a multinational company with offices around the world will require support that's available 24/7 (you can't ask customers in Asia to call you in the middle of their night). And the bandwidth requirements of a large company may swamp the startup's servers. But the biggest problem is stability: even if the startup's goal is to build a real business rather than being acquihired, most startups fail suddenly (e.g., due to cashflow problems and a lack of a bank credit line), and that would leave their customers scrambling to replace some critical part of their infrastructure. That's why established companies are reluctant to bet their business on a startup. Anyone who is considering starting a company that markets to other companies needs to think about these issues (which probably accounts for the predominance of startups that sell to consumers rather than businesses).
  - voidlogic 13y ago
    If you are a startup offering 24/7 support, then staffing a 24/7 support desk needs to be part of your plan. It basically means cycling or dedicating two of your team members into the two 8 hour shifts that don't overlap with your primary operating hours. If you are getting a number of large enterprise signups, this should be easy to justify. These people could have useful roles (like QA) they are also performing.
Aoyagi 13y ago
Isn't the modern thing to do buying the startup themselves?
callmeed 13y ago
Top 4 Reasons Companies Shouldn't Buy from Startups: 1. Startups have a high(er) chance of failure or pivoting into something you didn't buy. ("Fail fast" is a popular mantra [a]) 2. If the startup does have an "all-star team" as you say, they're more likely to get acqui-hired by Google/Facebook and the product subsequently shut-down. (I've said before that this is a byproduct of the acqui-hire craze and I still believe it). 3. Many startups (especially those with all tech founders) seem to suck at customer service. They tend to focus on automation and hacking their way to avoiding any type of high-touch service (the exception seems to be companies that make support tools). Do you prefer phone support from your software vendors? Don't choose a startup. 4. Their pricing doesn't fit your buying model. Many government and educational institutions must buy using a PO process. Large companies don't want the "small team plan" for $29/month. FYI I'm not posting this comment to be a prick–rather it's a thought exercise. If you want companies to purchase from startups more often, stop trying to convince them why they should and start addressing the reasons why they don't. [a] http://www.feld.com/wp/archives/2009/04/the-best-entrepreneurs-know-how-to-fail-fast.html http://www.feld.com/wp/archives/2009/04/the-best-entrepreneu...
- lifeisstillgood 13y ago
  Counter-points 1. Pivoting away from revenue is pretty stupid thing to do. If you are buying from me, and so is Tom Dick and Harry, I am getting a strong market signal. 2. The team is so good they might get acqui-hired and you are worried your multinational company is now relying on them - well there is a solution to stop another company acqui-hiring them.... 3. Customer service sucks most places. Some use it as a differentiator (Rackspace), but a lot of the time customer service should be automated (lost your password?). And "on-boarding" new customers by hand - this is gold that some startups are learning about 4. I will happily send you an invoice and set up a monthly billing run. It just won't be for 29 dollars a month :-) But yes - I agree with your main thrust - we should make it easy and simple to get a yes turned into a paid invoice from a corporate budget holder.
  - deleted 13y ago
    [deleted]
sz4kerto 13y ago
"Large vendors can't follow an idea just to see where it leads. Startup vendors bring innovation to you so you can succeed." Well, large vendors are exactly the ones who can just follow an idea an see where it leads. Startups need to focus. See Google, see Microsoft Research, see IBM, etc. It's another story why they don't do it enough and why the results often do not reach production, but the statement is definitely false.
- nwenzel 13y ago
  Agree that large vendors "can" but don't alway "do." Not sure Google is the typical large company though. Microsoft Research is a great example though. As is Walmart Labs and any other division built on the Skunkworks model. Though, IBM is selling off what were core assets because they don't deliver the growth and margins that Wall St require. It's either a great move to move towards the future, or a sign that they aren't able to serve customer's needs. Kudos to their leadership for seeing it no matter which one it turns out to be. I'd love to hear Clayton Christensen's thoughts on IBM's recent moves.
bdunbar 13y ago
I work at a startup. But I've got mixed feelings about this. My last gig was at a mid-sized manufacturer. We bought a reasonably expensive product from a startup. We bought installation, and support. Worked for me: I didn't have to think about it much, except as a bit of hardware in a rack. 18 months later they folded. The day _after_ that I got a call from my boss: 'you now own X'. Go forth and support. It was a constant PITA from that point until we got rid of it, two years later. And it really soured the company on 'startups'.
steven2012 13y ago
I think over the last year or two, the culture of Silicon Valley startups is to leave their customers high and dry when they basically get tired of running a startup and get acqu-hired, or when they pivot because they don't make enough money. It's this lack of true conviction in what they are working on, and the culture of chasing the juiciest, low-hanging fruit to enrich themselves rather than serve their customers that would make me never, ever purchase from a startup until they are much bigger. This idea of "fail fast and fuck over your current customers" is probably the thing that would most endanger the startup culture of Silicon Valley at this point, if this keeps happening at the rate that it has been.
- nwenzel 13y ago
  Post author here. Absolutely agree that any company transition, whether an acqui-hire or divestiture or acquisition or shutdown or product version sunset, that hurts customers is a a horrible thing. That said, the acqui-hires and shutdowns get a lot more of the press than the companies that serve their customers quietly. Customers are investors. They invest their time, people, and budget into your product. That's true whether you're the newest NoSQL database to hit the market or Oracle. When you sell to a customer, you're making them a promise.
  - Silhouette 13y ago
    When you sell to a customer, you're making them a promise. Unfortunately, it is a promise that has no value. With the kinds of exit we're talking about, the promise is readily broken, and with little or no adverse consequences for the start-up. Meanwhile, there may be strong incentives for a small business to pivot away to a different strategy or to take a lucrative exit, even at the expensive of existing customers. This situation is magnified dramatically as soon as any serious outside investment is involved. You said it yourself, right at the end, if you just consider something you wrote from the other side of the fence: Large vendors succeed by executing to a known plan. Large organisations in general like executing to known plans, and relying on a start-up almost inevitably brings a much higher risk of having to change those plans than relying on more stable, established suppliers. And while small organisations might be more nimble when it comes to changing plans, stability in the supply chain is possibly even more valuable in that context, because you have limited resources. Integrating with any external dependency takes work, and if you're going to do it, you really only want to do it once and then not worry about it. The kind of lean, MVP-producing, pivot-happy, investor-funded, five-minute-old B2B tech startups we often discuss on HN are the antithesis of that stability. The really good ones offer enough advantage over doing things another way that using them is still justified, but most simply don't and it's hardly surprising that a lot of potential customers shy away from them and head for more stable ground even if it comes at a somewhat higher price.
beat 13y ago
The flip side of this, and more interesting to me, is "How B2B startups can find customers willing to buy from them." Look at the list of objections to buying from your startup, and have straightforward and honest answers to address those objections.
- nwenzel 13y ago
  Great idea for a post! http://saastr.com/ http://saastr.com/ is a great source for startups in the SaaS space, but more so for growing in general than specifically addressing your point. Though, I think you summarize it pretty well. Straightforward and honest answers to address objections.
  - beat 13y ago
    Yeah, I love SaaStr and read it regularly! And I'd love to see a SaaStr post on directly addressing customer objections about buying from startups, for startups trying to sell to cautious SMBs and especially enterprise. I've certainly rolled this concern right into my own startup. It is more or less a monitoring tool, and provided as SaaS, so if the startup should go out of business for some reason, the customers would no longer have service, but they'd no longer be paying for it either - they'd be no worse off than they were before they started using my product.
vinceguidry 13y ago
This is some pretty brazen bullshit. If switching away from their service after they fold or get aqui-hired will cost any more than 0 dollars and 0 hours, and you still go with a startup, you are begging, not asking, for that bullet in the foot you're going to get.
nwenzel 13y ago
Post author here: I appreciate all the comments. Even the negative comments because it's important to know all reasons for opposition. I'll point you to another HN story today, ZenPayroll raises $20M [0]. They're not on a path to acqui-hire, they're not trying to pivot away from something you rely on, they have fantastic support (but more importantly a product that's so clear and easy to use you don't really need support). We (SimpleLegal) are ZenPayroll customers and love it. They are the exact reason your company should seek out startups as vendors. [0] https://news.ycombinator.com/item?id=7264844 https://news.ycombinator.com/item?id=7264844
- EpicEng 13y ago
  That's one example, but more often than not, startups fail. I'm not betting some portion of my business on a, what, 1 in 10 chance that they'll succeed? The value proposition would have to outweigh the possible downside.
georgemcbay 13y ago
I'm fine with the idea of buying from startups, but when it comes to *aaS services from startups that suddenly become useless if the company folds, I've seen way too many articles with the title: "The Future of XYZ" where the gist is "The Future of XYZ... doesn't exist".
RandallBrown 13y ago
My girlfriend is a medical assistant at a new internal medicine clinic. They are trying to do what is called "direct primary care" where you pay a monthly fee to see your doctor rather than getting hit with huge bills when you have something go wrong. The thing about direct primary care is that there is no easy way for a small health clinic to do the billing. Existing systems like Epic are very much stuck in the old way of doing things. So a startup approaches my girlfriend and the doctor at a conference with a solution to direct primary care billing. They decided to give it a try. She says it's been fantastic. They've asked for features and had them implemented in days. They can just call up the CEO on the phone and ask for help if they need it (obviously that won't scale well, but for now it's awesome). Try doing any of that with a solution from an established company.

53 points by outericky 13y ago

Point 2 - "A Startup's Only Mission is to Create Value for Your Company". And there was me thinking a startup's only mission is to get noticed by some big company, acqui-hired, and shut down at a moment's notice. While I realise this is the most cynical comment I could write, it's also my experience with far too many of the startups. This is particularly bad with web startups as (a) it seems to happen more and (b) once the website is gone, so is the product.

nwenzel 13y ago
Post author here. I think that's more common in consumer startups without a clear path to revenue and profitability. I know it happens in the B2B world as well, but I don't believe anyone thinks 42Floors, Cratejoy, AirBnB, Square, or Casetext are on their way to an acqui-hire. It's certainly not our plan. Buying from startups is not without risk. But buying from large vendors also carries risk. A diverse set of suppliers is a good thing.
- duiker101 13y ago
  On what basis are AirBnB and Square still classified as startups?
  - outericky 13y ago
    While "big" and successful, they are still young companies with startup ideals. Not simply legacy companies where every employee is long removed from the original drivers and mission. Just because AirBnB has a $1B+ valuation, doesn't mean it conducts business like IHG or Marriott. They still have startup values.
- CJefferson 13y ago
  Out of interest, at what point do you think a company stops being a startup? Picking the one company from that list I am most familiar with, AirBNB has been going since 2008. AirBNB are now the people acquiring and shutting down / changing other startups!
  - nwenzel 13y ago
    To classify a company as a "startup" I'd go with either Steve Blank's definition (An organization in search of a repeatable and scalable business model [0]) or Jacobellis v. State of Ohio (I know it when I see it [1]) Sure, AirBnB certainly appears to have hit the scaling part. But I bet they're still trying to find new models and new markets. Hilton, Marriott, Starwood and others dominate the corporate travel market. Dropbox appears to be moving towards photo sharing on the consumer side and config/settings sharing on the tech side. Startup, not startup. Probably irrelevant. I know that there's value in having companies who think like a startup as vendors. Procurement departments aren't structured to be allowed to think that way and I think that's bad for the companies they serve. [0] http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ... [1] https://casetext.com/case/jacobellis-v-state-of-ohio/paragraph/dae98ad0-1274-4172-b81e-cdc4e7e0e633#.UwTfeEJdUzE https://casetext.com/case/jacobellis-v-state-of-ohio/paragra...
    - grimlck 13y ago
      So is Google a startup then? They are definately trying new models and markets - Glass, self driving cars, robots, etc. How would AirBnB be any more of a startup than Google?
greenyoda 13y ago
Also, even if they sincerely try to do so, a startup may not have the resources to service a large enterprise. For example, a multinational company with offices around the world will require support that's available 24/7 (you can't ask customers in Asia to call you in the middle of their night). And the bandwidth requirements of a large company may swamp the startup's servers. But the biggest problem is stability: even if the startup's goal is to build a real business rather than being acquihired, most startups fail suddenly (e.g., due to cashflow problems and a lack of a bank credit line), and that would leave their customers scrambling to replace some critical part of their infrastructure. That's why established companies are reluctant to bet their business on a startup. Anyone who is considering starting a company that markets to other companies needs to think about these issues (which probably accounts for the predominance of startups that sell to consumers rather than businesses).
- voidlogic 13y ago
  If you are a startup offering 24/7 support, then staffing a 24/7 support desk needs to be part of your plan. It basically means cycling or dedicating two of your team members into the two 8 hour shifts that don't overlap with your primary operating hours. If you are getting a number of large enterprise signups, this should be easy to justify. These people could have useful roles (like QA) they are also performing.

Aoyagi 13y ago

Isn't the modern thing to do buying the startup themselves?

callmeed 13y ago

Top 4 Reasons Companies Shouldn't Buy from Startups: 1. Startups have a high(er) chance of failure or pivoting into something you didn't buy. ("Fail fast" is a popular mantra [a]) 2. If the startup does have an "all-star team" as you say, they're more likely to get acqui-hired by Google/Facebook and the product subsequently shut-down. (I've said before that this is a byproduct of the acqui-hire craze and I still believe it). 3. Many startups (especially those with all tech founders) seem to suck at customer service. They tend to focus on automation and hacking their way to avoiding any type of high-touch service (the exception seems to be companies that make support tools). Do you prefer phone support from your software vendors? Don't choose a startup. 4. Their pricing doesn't fit your buying model. Many government and educational institutions must buy using a PO process. Large companies don't want the "small team plan" for $29/month. FYI I'm not posting this comment to be a prick–rather it's a thought exercise. If you want companies to purchase from startups more often, stop trying to convince them why they should and start addressing the reasons why they don't. [a] http://www.feld.com/wp/archives/2009/04/the-best-entrepreneurs-know-how-to-fail-fast.html http://www.feld.com/wp/archives/2009/04/the-best-entrepreneu...

lifeisstillgood 13y ago
Counter-points 1. Pivoting away from revenue is pretty stupid thing to do. If you are buying from me, and so is Tom Dick and Harry, I am getting a strong market signal. 2. The team is so good they might get acqui-hired and you are worried your multinational company is now relying on them - well there is a solution to stop another company acqui-hiring them.... 3. Customer service sucks most places. Some use it as a differentiator (Rackspace), but a lot of the time customer service should be automated (lost your password?). And "on-boarding" new customers by hand - this is gold that some startups are learning about 4. I will happily send you an invoice and set up a monthly billing run. It just won't be for 29 dollars a month :-) But yes - I agree with your main thrust - we should make it easy and simple to get a yes turned into a paid invoice from a corporate budget holder.
- deleted 13y ago
  [deleted]

sz4kerto 13y ago

"Large vendors can't follow an idea just to see where it leads. Startup vendors bring innovation to you so you can succeed." Well, large vendors are exactly the ones who can just follow an idea an see where it leads. Startups need to focus. See Google, see Microsoft Research, see IBM, etc. It's another story why they don't do it enough and why the results often do not reach production, but the statement is definitely false.

nwenzel 13y ago
Agree that large vendors "can" but don't alway "do." Not sure Google is the typical large company though. Microsoft Research is a great example though. As is Walmart Labs and any other division built on the Skunkworks model. Though, IBM is selling off what were core assets because they don't deliver the growth and margins that Wall St require. It's either a great move to move towards the future, or a sign that they aren't able to serve customer's needs. Kudos to their leadership for seeing it no matter which one it turns out to be. I'd love to hear Clayton Christensen's thoughts on IBM's recent moves.

bdunbar 13y ago

I work at a startup. But I've got mixed feelings about this. My last gig was at a mid-sized manufacturer. We bought a reasonably expensive product from a startup. We bought installation, and support. Worked for me: I didn't have to think about it much, except as a bit of hardware in a rack. 18 months later they folded. The day _after_ that I got a call from my boss: 'you now own X'. Go forth and support. It was a constant PITA from that point until we got rid of it, two years later. And it really soured the company on 'startups'.

steven2012 13y ago

I think over the last year or two, the culture of Silicon Valley startups is to leave their customers high and dry when they basically get tired of running a startup and get acqu-hired, or when they pivot because they don't make enough money. It's this lack of true conviction in what they are working on, and the culture of chasing the juiciest, low-hanging fruit to enrich themselves rather than serve their customers that would make me never, ever purchase from a startup until they are much bigger. This idea of "fail fast and fuck over your current customers" is probably the thing that would most endanger the startup culture of Silicon Valley at this point, if this keeps happening at the rate that it has been.

nwenzel 13y ago
Post author here. Absolutely agree that any company transition, whether an acqui-hire or divestiture or acquisition or shutdown or product version sunset, that hurts customers is a a horrible thing. That said, the acqui-hires and shutdowns get a lot more of the press than the companies that serve their customers quietly. Customers are investors. They invest their time, people, and budget into your product. That's true whether you're the newest NoSQL database to hit the market or Oracle. When you sell to a customer, you're making them a promise.
- Silhouette 13y ago
  When you sell to a customer, you're making them a promise. Unfortunately, it is a promise that has no value. With the kinds of exit we're talking about, the promise is readily broken, and with little or no adverse consequences for the start-up. Meanwhile, there may be strong incentives for a small business to pivot away to a different strategy or to take a lucrative exit, even at the expensive of existing customers. This situation is magnified dramatically as soon as any serious outside investment is involved. You said it yourself, right at the end, if you just consider something you wrote from the other side of the fence: Large vendors succeed by executing to a known plan. Large organisations in general like executing to known plans, and relying on a start-up almost inevitably brings a much higher risk of having to change those plans than relying on more stable, established suppliers. And while small organisations might be more nimble when it comes to changing plans, stability in the supply chain is possibly even more valuable in that context, because you have limited resources. Integrating with any external dependency takes work, and if you're going to do it, you really only want to do it once and then not worry about it. The kind of lean, MVP-producing, pivot-happy, investor-funded, five-minute-old B2B tech startups we often discuss on HN are the antithesis of that stability. The really good ones offer enough advantage over doing things another way that using them is still justified, but most simply don't and it's hardly surprising that a lot of potential customers shy away from them and head for more stable ground even if it comes at a somewhat higher price.

beat 13y ago

The flip side of this, and more interesting to me, is "How B2B startups can find customers willing to buy from them." Look at the list of objections to buying from your startup, and have straightforward and honest answers to address those objections.

nwenzel 13y ago
Great idea for a post! http://saastr.com/ http://saastr.com/ is a great source for startups in the SaaS space, but more so for growing in general than specifically addressing your point. Though, I think you summarize it pretty well. Straightforward and honest answers to address objections.
- beat 13y ago
  Yeah, I love SaaStr and read it regularly! And I'd love to see a SaaStr post on directly addressing customer objections about buying from startups, for startups trying to sell to cautious SMBs and especially enterprise. I've certainly rolled this concern right into my own startup. It is more or less a monitoring tool, and provided as SaaS, so if the startup should go out of business for some reason, the customers would no longer have service, but they'd no longer be paying for it either - they'd be no worse off than they were before they started using my product.

vinceguidry 13y ago

This is some pretty brazen bullshit. If switching away from their service after they fold or get aqui-hired will cost any more than 0 dollars and 0 hours, and you still go with a startup, you are begging, not asking, for that bullet in the foot you're going to get.

nwenzel 13y ago

Post author here: I appreciate all the comments. Even the negative comments because it's important to know all reasons for opposition. I'll point you to another HN story today, ZenPayroll raises $20M [0]. They're not on a path to acqui-hire, they're not trying to pivot away from something you rely on, they have fantastic support (but more importantly a product that's so clear and easy to use you don't really need support). We (SimpleLegal) are ZenPayroll customers and love it. They are the exact reason your company should seek out startups as vendors. [0] https://news.ycombinator.com/item?id=7264844 https://news.ycombinator.com/item?id=7264844

EpicEng 13y ago
That's one example, but more often than not, startups fail. I'm not betting some portion of my business on a, what, 1 in 10 chance that they'll succeed? The value proposition would have to outweigh the possible downside.

georgemcbay 13y ago

I'm fine with the idea of buying from startups, but when it comes to *aaS services from startups that suddenly become useless if the company folds, I've seen way too many articles with the title: "The Future of XYZ" where the gist is "The Future of XYZ... doesn't exist".

RandallBrown 13y ago

My girlfriend is a medical assistant at a new internal medicine clinic. They are trying to do what is called "direct primary care" where you pay a monthly fee to see your doctor rather than getting hit with huge bills when you have something go wrong. The thing about direct primary care is that there is no easy way for a small health clinic to do the billing. Existing systems like Epic are very much stuck in the old way of doing things. So a startup approaches my girlfriend and the doctor at a conference with a solution to direct primary care billing. They decided to give it a try. She says it's been fantastic. They've asked for features and had them implemented in days. They can just call up the CEO on the phone and ask for help if they need it (obviously that won't scale well, but for now it's awesome). Try doing any of that with a solution from an established company.