Exploring the Tech Startup Space
Chapter 2
Chapter 2
The Different Types of Tech Startups: B2B and B2C Companies
In order for a startup to become successful, it must establish itself as a leader within a particular market or industry.

What markets do startups serve?

Each startup serves a particular market – a group of people with the desire and ability to buy a specific product/service. In other words, the group of people who both want and can afford what a startup is selling.

Most startups can be segmented into the two following very broad markets, though some companies serve more than one market:

B2C – Business to Consumer

A consumer is any individual who purchases products and services for personal use.

Business to consumer, or B2C companies, sell goods directly to individuals. Some of the most popular brands worldwide, including Disney, McDonald's, and Nike, are B2C companies.

Many consumer brands further define their market according to demographics – market segments that share similar traits. Your demographic information consists of the personal information you mark down every time you visit a doctor’s office or take an online survey.

Demographics are frequently defined according to:

  • Age
  • Gender
  • Marital Status
  • Income
  • Education
  • Occupation
  • Geographic Area
  • Race

EXAMPLE

According to a 2015 survey by Pew Research, the most frequent users of on-demand ride-hailing services are college-educated white, black, and latino men and women, between the ages of 18 – 49, with an annual income over $75,000, in urban and suburban areas.

demographics

These insights could help on-demand ride-hailing companies like Uber and Lyft acquire more customers by targeting specific demographics outside their main user-base. For example, Uber could create an Facebook ad campaign targeted at adults over 50 years old in suburban areas. It could alternatively help these companies double down on their existing core user base (e.g. offering a promotion to frequent riders in metropolitan areas).

B2B – Business to Business/Enterprise

B2B startups, also referred to as enterprise startups, are companies that sell a product or service to another company, rather than (or in addition to) individual consumers. Essentially, B2B companies are businesses built to support other businesses.

Some B2B companies manufacture a component of a final product and sell it to distributors, who then, in turn, sell it to consumers. For example, Intel sells processors to Apple for use in the Macbook Pro.

Other B2B startups sell directly to businesses, such as Flexport, a startup that helps companies with freight forwarding and shipping goods, or Salesforce, a software platform that gives other businesses insight into their sales efforts.

B2B startups often classify the companies they sell to according to company size when deciding which portion of the market to serve.

Company size is a relevant distinction because selling to very large companies often requires a longer sales cycle, a more sophisticated product, and dedicated customer support. In addition, companies of different sizes often have different needs.

Some startups serve companies of every size, whereas others serve a portion of the market.

Many organizations classify businesses according to company size differently. Here are some broad guidelines that most companies will agree on:

  • SMB (Small and Medium Businesses) 0 to 100 employees
  • Mid-market 100 to 1,000 employees
  • Enterprise: 1,000 or more employees

Pop Quiz:

Two Truths

Answers Below:

logos

In order for a startup to become successful, it must establish itself as a leader within a particular industry, often referred to as “establishing market-share”, or “achieving market domination.”

A newly founded startup must carefully select its target market and demographic to ensure it has a fair shot at establishing market-share. Often, founders will evaluate startup ideas based on the opportunities available within a given market.

If there are a plethora of existing competitors within a specific industry, the market is referred to as over-saturated.

While it is not impossible to penetrate an over-saturated market, it may be more difficult as compared to entering into an industry with few competitors.

Generally, in order for a startup to succeed within an over-saturated market, it must focus on a specific niche (a very narrowly focused portion of a demographic), solve a relevant problem for its users, and add value beyond what its competitors offer.

EXAMPLE

There are a wide array of sources that cover the daily news: major news channels (CNN, NBC, etc.), well-established newspapers (N.Y. Times, WSJ, etc.), and an avalanche of online news sites churning out content (Huffington Post, Buzzfeed, etc.).

In 2013, Danielle Weisberg and Carly Zakin surveyed the industry and decided that people didn’t need another source of news – they needed an easier way to consume it.

Weisenberg and Zakin quit their day jobs and co-founded theSkimm, a daily email newsletter that boils down all of yesterday’s news into a 10 minute read, targeted at millennials who want to stay informed but operate on a tight schedule.

By specifically targeting millennials (their niche), offering giveaways to incentivize readers to share theSkimm with friends (value-added), and helping users stay informed (solving a relevant problem), theSkimm has acquired more digital subscribers than the New York Times.

Some relevant factors to consider when analyzing a startup’s potential to establish market-share include:

  • Total market size: all of the people that could possibly be interested in buying a product/service
  • Growth potential: how much a market is expected to grow within a certain period of time (Note: some markets may actually stay stagnant or even fall in size)
  • Number of Competitors: Other companies selling a similar product/service to the same customer base that a product serves
  • Company Strengths: any intellectual property, patents, or specialized technology unique to a business that gives it an edge over the competition