One benefit of the economic depression, just starting to reveal itself, is that some startups are able to skip the early adopters and insinuate themselves with traditional enterprises they had first assumed would take longer to develop as customers.
A handful of startup CEOs I know are scrambling to implement and service big customers who signed on unexpectedly in Q1 ‘09 after shorter than anticipated sales cycles. It would appear that, to bigger enterprises looking to streamline efforts and costs, startups with innovative new solutions are starting to look less like upstarts from the bleeding edge and more like low cost providers.
One CEO, of a b2b company (client), has been travelling nonstop to the Midwest, New York, and London, and is now scheduling trips to China. Although his venture is less than two years old and represents a bold, new way of executing a key business function in the industry his venture serves, he has in recent weeks found it easier to schedule meetings with executives at large enterprises. Indeed, Fortune 500 companies are now often first seeking him out. After discussing this with him by phone last week, I followed up by mail to ask if he could explain the phenomenon. He wrote back as follows:
“The way to look at this is that in times of difficulty companies will purchase products and services that are critical in the production and revenue generating aspects of their businesses. For emerging companies to succeed in this climate, they need access to the key decision makers in an organization to understand how they are prioritizing expenditures and where they have identified needs for more efficient methodologies.”
This CEO is in an enviable position: he and his co-founder have 35+ years combined experience in the industry their venture serves, and their contacts include senior executives they worked for before deciding, two years ago, to start their own company and greenlight their own initiatives. Door opening may yet be incrementally more difficult for younger entrepreneurs, or entrepreneurs tackling new markets in which they did not cut their teeth.
Another company (client) is in a space that stands to benefit as newspapers die. The founder and CEO of this company discerns that advertising spending is migrating, not only to online publishers, but to other traditional (non-print) broadcast media. "In fact," the founder and CEO of this company tells me, "advertisers are interviewing [publishers in a particular broadcast media space] to see who is doing more to become interactive."
He continues, “The current market is searching for enablers, and [Newco] is one. We are definitely better off in the current economy.” But, he is quick to add, his ability to realize more of the opportunities depends on having “the required financing in place.” His angel investors continue to support the company, as they forsee that revenues will match expenditures by the summer; but this founder and CEO also knows he will need significant additional capital, not to generate profit, but to scale a company of a size adequate to the opportunities.
Not all startups are mapping trends the same way. Another CEO of another b2b company (client), in the space of data capture and analysis in a retail industry, agrees that the depression has helped his venture. In response to mail from me, he writes, unequivocally:
“[We] would not have grown as fast nor realized the wide spread receptivity to our solution without the current economic downturn. One of the reasons our competitors, who have been in business for several years before we emerged, have not grown fast is that having a [measurement and analytics] product or service was a nice to have and not a need to have. “
“The economic climate forced [industry] operators to look at every aspect of their business. And the ease of use and comprehensive feature portfolio we offer has made it easier for operators to move forward with a service like ours. “
In subsequent exchanges, however, he clarified that the heightened awareness of his company’s service did not necessarily translate into a shorter sales cycle. In fact, he perceives that his sales cycle has lengthened. How could this be, I asked? His reply:
“The biggest reason the sales cycle has extended is that [industry] operators have historically been very apprehensive about implementing technology. Therefore, despite the fact that, in theory, implementing a program which will save them big money makes sense, they need to see conclusive financial results from the program in their financial statements. Most technology products and services which have been marketed to the [name redacted] industry historically have not delivered the financial results they claimed to. Unfortunately, this precedent forces us to conduct more analysis and leave the system in longer to deliver these results.”
So the good news: the depression is opening more doors for startups. The more sobering realities: while potential customers are now eager to listen, they are yet cautious about expending funds, and may want new solutions to deliver savings first. Funding implementations, especially at faster rates, is tough, as all emerging companies now face new uncertainties about the price of capital, if not also its availability as needed.