

Why Companies Should Buy From Startups - outericky
http://blog.simplelegal.com/top-4-reasons-companies-should-buy-from-startups

======
callmeed
Top 4 Reasons Companies _Shouldn 't_ Buy from Startups:

1\. Startups have a high(er) chance of failure or pivoting into something you
didn't buy. ("Fail fast" is a popular mantra [a])

2\. If the startup does have an "all-star team" as you say, they're more
likely to get acqui-hired by Google/Facebook and the product subsequently
shut-down. (I've said before that this is a byproduct of the acqui-hire craze
and I still believe it).

3\. Many startups (especially those with all tech founders) seem to suck at
customer service. They tend to focus on automation and hacking their way to
avoiding any type of high-touch service (the exception seems to be companies
that make support tools). Do you prefer phone support from your software
vendors? Don't choose a startup.

4\. Their pricing doesn't fit your buying model. Many government and
educational institutions _must_ buy using a PO process. Large companies don't
want the "small team plan" for $29/month.

FYI I'm not posting this comment to be a prick–rather it's a thought exercise.
If you want companies to purchase from startups more often, stop trying to
convince them why they should and start addressing the reasons why they don't.

[a] [http://www.feld.com/wp/archives/2009/04/the-best-
entrepreneu...](http://www.feld.com/wp/archives/2009/04/the-best-
entrepreneurs-know-how-to-fail-fast.html)

~~~
lifeisstillgood
Counter-points

1\. Pivoting away from revenue is pretty stupid thing to do. If you are buying
from me, and so is Tom Dick and Harry, I am getting a strong market signal.

2\. The team is so good they might get acqui-hired and you are worried your
multinational company is now relying on them - well there is a solution to
stop another company acqui-hiring them....

3\. Customer service sucks most places. Some use it as a differentiator
(Rackspace), but a lot of the time customer service should be automated (lost
your password?). And "on-boarding" new customers by hand - this is gold that
some startups are learning about

4\. I will happily send you an invoice and set up a monthly billing run. It
just won't be for 29 dollars a month :-)

But yes - I agree with your main thrust - we should make it easy and simple to
get a yes turned into a paid invoice from a corporate budget holder.

~~~
callmeed
Regarding 3: I agree many CS functions should be automated (lost password is a
good example). However, for foreseeable future a lot of people want to talk to
a human. This is especially true for services that touch sensitive or mission-
critical data (money, infrastructure).

As an example: I love Stripe as much as anyone, but I find it extremely odd
that a company that touches up to 100% of another company's revenue doesn't
have a phone number on their support page [a]

Maybe I'm old-fashioned but I think there's more to it. At my company, at
least, great customer service has been a cornerstone for us and a reason
people refer us and don't leave us.

[a] [https://support.stripe.com/](https://support.stripe.com/)

~~~
vvvVVVvvv
You don't build customer trust with good salesmen, you do it when you fix the
issue they're having.

See Amazon.

~~~
Silhouette
_See Amazon._

Assuming that was meant to be an example of good customer service, it's an
ironic one. I'm increasingly voting with my wallet for local stores over
Amazon for any big name items. This is mainly because Amazon's unpredictable
pricing, including sometimes dramatically overpricing things for a while, is
turning me right off trusting them or assuming that they'll be cheaper the way
they almost always used to be.

Free delivery, we'll-call-you-back customer support, and a smartly automated
returns process are all great, but they are still vastly inferior to being
able to walk for two minutes from my home and buy what I want right now, and
being able to return it just as easily on the increasingly rare occasions
there is a defective disk in the box.

Between this kind of nonsense and a couple of years of getting Christmas wrong
for lots of people, I'm not sure how much longer Amazon specifically will be
able to rely on the good will they've built up over the years without a change
in course.

------
CJefferson
Point 2 - "A Startup's Only Mission is to Create Value for Your Company". And
there was me thinking a startup's only mission is to get noticed by some big
company, acqui-hired, and shut down at a moment's notice.

While I realise this is the most cynical comment I could write, it's also my
experience with far too many of the startups. This is particularly bad with
web startups as (a) it seems to happen more and (b) once the website is gone,
so is the product.

~~~
nwenzel
Post author here. I think that's more common in consumer startups without a
clear path to revenue and profitability. I know it happens in the B2B world as
well, but I don't believe anyone thinks 42Floors, Cratejoy, AirBnB, Square, or
Casetext are on their way to an acqui-hire. It's certainly not our plan.

Buying from startups is not without risk. But buying from large vendors also
carries risk. A diverse set of suppliers is a good thing.

~~~
CJefferson
Out of interest, at what point do you think a company stops being a startup?

Picking the one company from that list I am most familiar with, AirBNB has
been going since 2008. AirBNB are now the people acquiring and shutting down /
changing other startups!

~~~
nwenzel
To classify a company as a "startup" I'd go with either Steve Blank's
definition (An organization in search of a repeatable and scalable business
model [0]) or Jacobellis v. State of Ohio (I know it when I see it [1])

Sure, AirBnB certainly appears to have hit the scaling part. But I bet they're
still trying to find new models and new markets. Hilton, Marriott, Starwood
and others dominate the corporate travel market. Dropbox appears to be moving
towards photo sharing on the consumer side and config/settings sharing on the
tech side.

Startup, not startup. Probably irrelevant. I know that there's value in having
companies who think like a startup as vendors. Procurement departments aren't
structured to be allowed to think that way and I think that's bad for the
companies they serve.

[0] [http://steveblank.com/2010/01/25/whats-a-startup-first-
princ...](http://steveblank.com/2010/01/25/whats-a-startup-first-principles/)

[1] [https://casetext.com/case/jacobellis-v-state-of-
ohio/paragra...](https://casetext.com/case/jacobellis-v-state-of-
ohio/paragraph/dae98ad0-1274-4172-b81e-cdc4e7e0e633#.UwTfeEJdUzE)

~~~
grimlck
So is Google a startup then? They are definately trying new models and markets
- Glass, self driving cars, robots, etc.

How would AirBnB be any more of a startup than Google?

------
steven2012
I think over the last year or two, the culture of Silicon Valley startups is
to leave their customers high and dry when they basically get tired of running
a startup and get acqu-hired, or when they pivot because they don't make
enough money.

It's this lack of true conviction in what they are working on, and the culture
of chasing the juiciest, low-hanging fruit to enrich themselves rather than
serve their customers that would make me never, ever purchase from a startup
until they are much bigger. This idea of "fail fast and fuck over your current
customers" is probably the thing that would most endanger the startup culture
of Silicon Valley at this point, if this keeps happening at the rate that it
has been.

~~~
nwenzel
Post author here. Absolutely agree that any company transition, whether an
acqui-hire or divestiture or acquisition or shutdown or product version
sunset, that hurts customers is a a horrible thing. That said, the acqui-hires
and shutdowns get a lot more of the press than the companies that serve their
customers quietly.

Customers are investors. They invest their time, people, and budget into your
product. That's true whether you're the newest NoSQL database to hit the
market or Oracle.

When you sell to a customer, you're making them a promise.

~~~
Silhouette
_When you sell to a customer, you 're making them a promise._

Unfortunately, it is a promise that has no value. With the kinds of exit we're
talking about, the promise is readily broken, and with little or no adverse
consequences for the start-up.

Meanwhile, there may be strong incentives for a small business to pivot away
to a different strategy or to take a lucrative exit, even at the expensive of
existing customers. This situation is magnified dramatically as soon as any
serious outside investment is involved.

You said it yourself, right at the end, if you just consider something you
wrote from the other side of the fence:

 _Large vendors succeed by executing to a known plan._

Large organisations _in general_ like executing to known plans, and relying on
a start-up almost inevitably brings a much higher risk of having to change
those plans than relying on more stable, established suppliers.

And while small organisations might be more nimble when it comes to changing
plans, stability in the supply chain is possibly even more valuable in that
context, because you have limited resources. Integrating with any external
dependency takes work, and if you're going to do it, you really only want to
do it once and then not worry about it.

The kind of lean, MVP-producing, pivot-happy, investor-funded, five-minute-old
B2B tech startups we often discuss on HN are the antithesis of that stability.
The really good ones offer enough advantage over doing things another way that
using them is still justified, but most simply don't and it's hardly
surprising that a lot of potential customers shy away from them and head for
more stable ground even if it comes at a somewhat higher price.

------
RandallBrown
My girlfriend is a medical assistant at a new internal medicine clinic. They
are trying to do what is called "direct primary care" where you pay a monthly
fee to see your doctor rather than getting hit with huge bills when you have
something go wrong.

The thing about direct primary care is that there is no easy way for a small
health clinic to do the billing. Existing systems like Epic are very much
stuck in the old way of doing things.

So a startup approaches my girlfriend and the doctor at a conference with a
solution to direct primary care billing. They decided to give it a try. She
says it's been fantastic. They've asked for features and had them implemented
in days. They can just call up the CEO on the phone and ask for help if they
need it (obviously that won't scale well, but for now it's awesome).

Try doing any of that with a solution from an established company.

------
bdunbar
I work at a startup. But I've got mixed feelings about this.

My last gig was at a mid-sized manufacturer. We bought a reasonably expensive
product from a startup. We bought installation, and support.

Worked for me: I didn't have to think about it much, except as a bit of
hardware in a rack.

18 months later they folded. The day _after_ that I got a call from my boss:
'you now own X'. Go forth and support.

It was a constant PITA from that point until we got rid of it, two years
later.

And it really soured the company on 'startups'.

------
Aoyagi
Isn't the modern thing to do buying the startup themselves?

------
vinceguidry
This is some pretty brazen bullshit. If switching away from their service
after they fold or get aqui-hired will cost any more than 0 dollars and 0
hours, and you _still_ go with a startup, you are begging, not asking, for
that bullet in the foot you're going to get.

------
nwenzel
Post author here: I appreciate all the comments. Even the negative comments
because it's important to know all reasons for opposition. I'll point you to
another HN story today, ZenPayroll raises $20M [0].

They're not on a path to acqui-hire, they're not trying to pivot away from
something you rely on, they have fantastic support (but more importantly a
product that's so clear and easy to use you don't really need support).

We (SimpleLegal) are ZenPayroll customers and love it. They are the exact
reason your company should seek out startups as vendors.

[0]
[https://news.ycombinator.com/item?id=7264844](https://news.ycombinator.com/item?id=7264844)

~~~
EpicEng
That's one example, but more often than not, startups fail. I'm not betting
some portion of my business on a, what, 1 in 10 chance that they'll succeed?
The value proposition would have to outweigh the possible downside.

------
beat
The flip side of this, and more interesting to me, is "How B2B startups can
find customers willing to buy from them." Look at the list of objections to
buying from your startup, and have straightforward and honest answers to
address those objections.

~~~
nwenzel
Great idea for a post! [http://saastr.com/](http://saastr.com/) is a great
source for startups in the SaaS space, but more so for growing in general than
specifically addressing your point.

Though, I think you summarize it pretty well. Straightforward and honest
answers to address objections.

~~~
beat
Yeah, I love SaaStr and read it regularly! And I'd love to see a SaaStr post
on directly addressing customer objections about buying from startups, for
startups trying to sell to cautious SMBs and especially enterprise.

I've certainly rolled this concern right into my own startup. It is more or
less a monitoring tool, and provided as SaaS, so if the startup should go out
of business for some reason, the customers would no longer have service, but
they'd no longer be paying for it either - they'd be no worse off than they
were before they started using my product.

------
sz4kerto
"Large vendors can't follow an idea just to see where it leads. Startup
vendors bring innovation to you so you can succeed."

Well, large vendors are exactly the ones who can just follow an idea an see
where it leads. Startups need to focus. See Google, see Microsoft Research,
see IBM, etc. It's another story why they don't do it enough and why the
results often do not reach production, but the statement is definitely false.

~~~
nwenzel
Agree that large vendors "can" but don't alway "do." Not sure Google is the
typical large company though. Microsoft Research is a great example though. As
is Walmart Labs and any other division built on the Skunkworks model.

Though, IBM is selling off what were core assets because they don't deliver
the growth and margins that Wall St require. It's either a great move to move
towards the future, or a sign that they aren't able to serve customer's needs.
Kudos to their leadership for seeing it no matter which one it turns out to
be. I'd love to hear Clayton Christensen's thoughts on IBM's recent moves.

------
georgemcbay
I'm fine with the idea of buying from startups, but when it comes to *aaS
services from startups that suddenly become useless if the company folds, I've
seen way too many articles with the title:

"The Future of XYZ"

where the gist is "The Future of XYZ... doesn't exist".

