Startup founders face different challenges depending on their audience. Here's what you need to know if you are considering a run with an enterprise startup rather than the traditional consumer path.
The path you take to market with your startup will be defined and shaped by a series of choices you'll make for your company along the way. The first decision you'll make, consciously or subconsciously, is whether you want to target the consumer market or the enterprise.
While typically comprising tools and services that operate behind-the-scenes, the enterprise is at the forefront of the global startup conversation. Whether you've made a play at a consumer startup before, or you're as green as they come, there are some specific distinctions you need to be aware of if you plan to set out to found the next great enterprise startup.
Here are the top five differences founders face in founding an enterprise-focused startup instead of a consumer company.
One key difference between consumer and enterprise startups is the way in which each goes about acquiring users and increasing adoption of its product. For consumer startups, Y Combinator's Aaron Harris said that the main way a product spreads is primarily by word of mouth interactions.
This type of growth is most often perpetuated by viral marketing techniques, relying heavily on social media. For enterprise companies, who are often actually selling a paid product, they must focus on driving adoption through sales.
"One key difference is that a CEO of a consumer company really needs to understand customer acquisition through marketing channels vs. the CEO of an enterprise company who really needs to understand how acquire customers through an enterprise sales force," said Todd Chaffee, a general partner at Institutional Venture Partners.
For a first-time enterprise startup founder it helps if you have experience selling, particularly selling contracts as it will better position you to build a strong sales strategy.
Increasingly, however, word of mouth is playing a bigger role in enterprise companies as well, Harris said. A prime example would be how the messaging app Slack is spreading so quickly among enterprise users without a large sales presence.
While solid security is a necessary ingredient of any successful startup, an enterprise startup has to take a more rigorous and detailed approach to its security strategy. Enterprise customers want to know, beyond a shadow of a doubt, that their data is safe within your application.
Doug Dooley, of Venrock, compared the cloud storage product Box with Dropbox. Dropbox is a consumer product and Box is enterprise-focused. While both offer excellent security features, Box offers more granular security features to appeal to businesses.
Additionally, there are regulations and compliance issues that you will need to think through before you even begin to build your product. Credit card information and medical records are just two examples of data that requires separate compliance with outside organizations.
Consumer startups are known for explosive, viral growth. But, according to Chaffee, they are often on less stable ground than enterprise-focused startups.
For startups that are building a B2B product, you are more than likely going to be charging people for it. In general, if you are charging for your product you'll grow more slowly than something that is free. But, the enterprise buying cycle can also slow your growth.
"Enterprise sales and implementation cycles can also dramatically change how a business is run," said Alex Oppenheimer of New Enterprise Associates. "Enterprises often go through extensive evaluations before choosing a product solution, which sometimes can take more than a year."
One word that all enterprise startups should strive to be known as is "reliable." Maintaining your product has to become your number one focus. As an enterprise founder, Harris said that you have to consider things like downtime in a different way than you would as the founder of a consumer startup.
"Consumers will be okay if Twitter crashes 10 times a day like they used to," Harris said. "If you have a mission critical piece of enterprise software, that thing cannot go down."
Consumer users deserve a quality experience as well, but enterprise startups have to pride themselves on their stability. You're starting to see that in marketing copy and how companies are talking about themselves — they're talking about their uptime.
When building your team, as an enterprise founder, it's a good idea to have someone on your team with experience building an enterprise startup or working for a legacy enterprise company. While not a requirement, by any means, it can give you broader insight into enterprise trends.
"You sure will be able to solve a lot of problems, a lot faster, if you have some context of what's been tried and what doesn't work," Dooley said.
For any startup, the team is the most important piece of the puzzle, and that starts with the founders. Proving yourself, and your co-founder if applicable, as smart and adaptable will better your chances of raising capital and maintaining traction.