Five recommendations from YC to B2B startups

. It is dangerous to raise funds and increase adoption before refining your product.

There are three questions you
can ask to determine if your product is truly great. There could be any number of questions, but they boil down to these three:

1 How disappointed would you be if this product were to disappear tomorrow?

There are two options: “Very disappointing” or “Slightly disappointing.”
As an indicator, if more than 40% of people don’t say “Very disappointing,” it can’t be said to be a good enough product.

2. How often do you expect your customers to use your product? And how often do they actually use it?

Customers who are not using the service as expected are at high risk of canceling, so it is necessary to analyze their frequency of use and take appropriate action.

3. Are you growing organically, not bought with money?

For example, there are two indicators:
・Are there a certain number of inbound leads? → If the inbound response team is insufficient, it is evidence that there are too many. Conversely, if there are only about five per month, it is insufficient.
・Are more than 20% of outbound sales negotiations resulting in contracts?

Once you feel that you have achieved a overseas data certain level of PMF, you tend to forget the question, “Is the product good enough?”, but it is a question that should be asked of all members every year. And it would be good to set up notable indicators that can be measured in the company, including the above.

②Many B2B Startups are under pricing

100% of B2B startups are pricing their products too low.
Here’s a concrete example: A startup of analytical tools by three MIT graduates. In the spirit of open source, they offered their tools for free at first. They raised $100,000 from YC, but one day their funds ran out and they had no choice but to charge customers.

“We will charge $10 per month. Sorry.” They sent a passionate apology email to all their customers. Then, one of their customers replied: “Your tools are too cheap. I don’t want to put our important data on such a cheap tool. It’s not a price for peoplewho are serious about running a company.”
However, they still didn’t have the courage to raise the price, so they continued to offer the tools at the same price for a while. Until they hired a sales advisor.
The sales advisor looked at their tool and said, “You sell it to us for $120,000 a year ($10,000 a month). If you can’t do that by the next meeting, I’m quitting.”
As a result, after the meeting, the price settled at $180,000 a year. 150 times the original price.

Price is also a good test to see if a consider the importance and structure of inside sales to grow your b2b business product is good or bad. If the product is really good, customers will be upset if it disappears, so they will pay a slightly higher price.
One test is to “try raising the price by 30%.” Try it on existing customers, and as long as they don’t blink twice, it’s okay to raise the price.
The important thing is to “keep doing it.”
Don’t worry. From what YC has seen, most B2B startups are underpricing.

③Companies can rarely serve all B2B customers well

Even if we say B2B, the customers are extremely diverse. There are startups with less than 50 employees, mid-sized startups with 50-100 employees, mid-sized companies with 200 employees, large startups, listed companies, etc. It is not possible to create a product that meets the needs of all customers, so it is necessary to narrow down the segment.

The important thing at that time is to “not use the words SMB or startup”. In your own words, verbalize who is an easy customer for you. An easy customer is a customer who is delighted with the MVP level even without a product.

I don’t quite understand the specific example given here.

④Early sales should not be delegated

Don’t hire a VP of sales until sales becomes boring.

The founder himself sells the product. He gives a product demo. While repeating this 100 or 200 times, he continues to ask the first question, “Is the product good enough?” and continues to brush up on the product. At some point, the product will be good enough that the demo will become boring. It will just be a repetitive task (= there will come a point where the product is so good that it will sell without trial and error). Only when this happens should you hire a VP of sales.

If you hire a VP of sales and create a sales team earlier, and the team is assembled, but sales are slower than expected, it’s not the fault of the sales team. It’s because the product wasn’t good enough.

⑤Plan to reach default alive

Many startups raise funds from outside sources. However, if you think critically and fundamentally about whether or not you really need to raise funds from outside sources, there are probably many cases where this is not necessarily the case. When ARR reaches $5-10 million, you should aim to be “default alive.” What is “default alive”?

If you don’t know the term, you should read Paul Graham’s blog. Once you reach a certain level of revenue as described above, you should start thinking about “when will you be able to turn a profit.” Some entrepreneurs may say, “Why do I need to think about that when I can raise funds from VCs?” Many people don’t

B2B startups go into fundraising

know about the “Fatal Pinch.” A “Fatal Pinch” refers to a situation where you have raised a lot of money and hired many people, but the growth rate is not fast enough (less than 10% per month), so there is not enough runway left for the next “experiment,” and as a result, you cannot raise funds in the next round.

On the other hand, by minimizing adoption and charging enough to support CAC without underpricing, the state of “not needing to raise funds” is called “default alive”. Paradoxically, fundraising can be achieved when there is no need to raise funds.

A lot of  mode once every 12 months and brag about valuations and numbers, but really what you should be brag about is being profitable and breaking even. Valuation is just a vanity metric that means nothing.

From 2021 to 2023, investments may be cut a little and growth may slow down a little. That’s OK. That’s not a problem at all. What’s important is whether we can create a product that customers will use for decades.

Thoughts and observations

It may be important to imagine what will happen if you raise the price. For example, if you raise the price by 1.5 times, in terms of sales, if you can get more than 2/3 of the contracts you had before, your sales will not decrease. This will reduce the number of customers, sales negotiations, and leads you , so you should nee fewer personnel (IS, FS, CS).

CS in terms of motivation, organization

Even if you raise the price, it will be limit to “customers with a strong need” who will purchase, so there are benefits for, and the amount of work they will put in after the contract. However, as the price increases, the hurdles and difficulty of renewal will increase proportionately. If you can reduce the number of people, the ARR per person and the ARR per CS person will increase, so valuation will increase accordingly. As a result, you can raise funds with less dilution, or you can raise more funds with the same dilution.

Sales really be more than

When written like this, it seems like there are central african leads quite a few benefits. However, the big point of contention is, “Will  2/3 of what they were before (when the price is increase by 1.5 times)?” If

I’ve heard the phrase “pricing is an eternal theme,” but now that I think about it, I understand what it means a little better. Pricing affects not only sales, but also recruitment and procurement.

Don’t hire a VP of Sales until sales get boring” is interesting. Fukushima-san of Layer X also said “Let’s interview 100 companies first”, but I feel that the phase where the CEO sells in the early stages and receives a lot of feedback on the product and reflects it, rather than just selling, is very important.

Three questions

– “Is the product good enough?” is an eternal theme. Of the three questions Anu rais, the first two (① How sad would you be if it disappear tomorrow?  How much are you using it?) are from a CS perspective, or the phase after the contract is sign and the product is actually touched. The third, “How much inbound traffic is there. What is the success rate of sales negotiations?” is the marketing and sales phase. Of course, these have some commonalities, but I think it’s better to think of them separately. The former is the true value of the product and the quality of its delivery to customers by CS. The latter is the quality of the product concept and how it is sold.