Is Being “Lean” Different for B2B Startups?

by Paul Lenehan

The lean movement is characterized by fast, hypothesis-driven, data-driven iteration, capital efficiency, and proving the concept before building scale. The success stories for this model are typically B2C startups like IMVU and Dropbox. Meanwhile, B2B startups like Rentjuice appearing to make fewer pivots than their B2C peers and in many cases require large amounts of capital. Why is this the case and can they still be considered lean? 

Fewer, More Powerful Customers: Dropbox and IMVU built their business with thousands of individual users, while B2B startups like Aquion and Rentjuice launch with a much small number of key customers. For example, if Aquion focuses on the utility market for batteries, they may only have capacity to serve one customer in their first several years of operation. While this is the most dramatic example, B2B startups often have a limited ability to conduct statistically significant A/B tests on the user base. More importantly, fewer customers means that each one has a greater ability to influence the direction of the platform, since losing even 1 customer by pivoting can mean a significant hit to short-term revenues.

Structurally, B2B sales cycle is longer and more involved with each customer, limiting the early learning from rapid acquisition and attrition of customers. Instead, lean B2B companies pivot prior to launch by building using the sales cycle to their advantage and building customer relationships early. Fewer post-launch pivots may be necessary due to greater understanding prior to launch. It may also be more difficult to pivot post-launch, due to the relationships and loyalty to early customers who may be alienated. 

Mutual Lock-In: Many B2B products like Rentjuice and Salesforce require customers to invest time in data migration and learning the software to realize the benefits. The lock-in builds value for the startup by creating a recurring revenue stream, but also can become a liability. Even small changes to the interface or features could confuse or alienate customers who have invested time in the product and may even rely on it for their income. Any platform that owns a significant amount of data that is core to your life (like Facebook or Google) must make pivots carefully. The difference is that most B2C companies accumulate data over time with limited initial investment by users. In addition, B2B customers have a service or sales person to call, so fielding complaints or questions from pivots can become costly.

Upfront Costs and Economies of Scale: Industries like biotech and cleantech require massive up-front investment of capital, making it difficult to consider them lean. For example, Nanosolar raised $447 million before selling a product and needed  build scale to be competitive in the price-driven solar industry. While capital efficiency may not be possible, pre-launch pivots are even more essential since post-launch pivots may be very costly. Focusing early hypotheses on both the science and customer-application minimizes the risk of launching a product that fails in the market. 

So, how can B2B startups be lean? 

  • Talk to customers early to pivot before the product launches
  • Choose early customers carefully
  • Be prepared for difficult conversations when pivoting after launch


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