Imagine having the opportunity to sell into a company like Lyft in 2011. Imagine growing with them on their journey to becoming a publicly-traded company with an $11+ billion market cap.
Back then, in 2011, Lyft was a small Series-A startup called Zimride with under 50 employees.
Today, Lyft ($LYFT) has 5,000+ employees, operates dozens of offices around the globe, and went public on March 28, 2019.
Lyft is one of many companies that began as a small startup but quickly rose to a multibillion-dollar company.
According to Crunchbase data, 95,000+ companies have received funding (globally) from 2015-present, totaling $1.3+ trillion worth of funding. The total addressable market continues to grow and is ripe for selling to, but very few startups reach unicorn status. Only about 1% reach that honor.
How can you work with the winners?
My goal with this article is to help you find the next Lyft (no pun intended). But first, let’s look at what makes a startup unique.
At its core, a startup is a challenger. It is a disruptor.
“A startup is a company working to solve a problem where the solution is not obvious, and success is not guaranteed.”
– Neil Blumenthal, co-founder and co-CEO of Warby Parker
Startups are created to solve a business problem or a pain point, and that goal is conveyed in the company’s mission statement. These simple, yet powerful, statements are the North Star for forming a company.
For example, Lyft’s mission statement is, “improve people’s lives with the world’s best transportation.”
Typically this occurs through a funding round that helps foot the bill for things like payroll, research and development, and endless La Croixs (we’ll discuss the various stages of a funding round shortly).
Venture capitalists invest in startups because they believe in the founder(s) and their vision. Aside from being the founder’s No. 1 cheerleader, VCs are also in it for the returns (dollar bills, y’all).
This is a high-risk, high-reward endeavor. 90% of startups fail, according to Neil Patel, contributor, Forbes. That means a majority of their investments are write-offs. But the 5-10% that do succeed drive a majority of the returns for their firm.
VCs are always on the lookout for the next Lyft, so they strategically partner with founders who they believe will provide them with a 10X return.
Understanding the motivation for the founder(s) and investor(s) is very important. So, to recap:
Founders: Execute on their vision for solving a pain point they are passionate about and building a world-class team that’s passionate about solving this problem with them.
Investors: Help entrepreneurs execute on their mission while driving returns for their firm.
What Happens Once They Raise Funding?
Once a startup closes a new round of funding, it’s time to execute on its lofty vision. The founders are responsible for laying the groundwork for their expansion plan and will need to update their investors every step of the way in the form of monthly investor updates, quarterly board meetings, and so on.
While there are various metrics and KPIs they will be tracking, there’s one underlying theme — growth.
“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of ‘exit.’ The only essential thing is growth. Everything else we associate with startups follows from growth.”
– Paul Graham Venture Capitalist and Entrepreneur
Each round of funding is typically designed for a specific growth cycle. So let’s unpack what each funding round looks like (I promise this is all important).
Seed: This is the initial stage of funding, and is generally used to employ the founding team and begin market research and product development.
Series A: This is usually the first “institutional” round of funding. The company is past the MVP (minimum viable product) and is showing initial signs of success.
It’s no longer just an idea.
This funding generally gives the company a couple of years to further develop its products, team, and begin to tackle its GTM (go-to-market) strategy.
Series B: This is when a startup has developed a substantial user base and has proven to investors that it’s ready to scale on a larger level.
These funds are typically used to grow the company to meet its new demands and begin its scalable processes.
Series C: This stage is all about putting fuel on the fire. Generally, this means developing new products, expanding into new markets (internationally), and potentially even acquiring smaller companies.
Series D-E: This is considered late-stage growth. Typically, these are the last rounds before an IPO.
Now that you’re a startup expert let’s talk about how you can help them achieve their growth objectives.
Why Should You Sell Into Startups?
Since startups are focused on growth, they’re going to dedicate all of their time and resources on their core competencies, and they’ll outsource everything else.
That gives you a tremendous opportunity to insert yourself and help that startup achieve its growth objectives by minimizing time spent on non-core competencies.
For instance, if you’re selling into a cloud security startup, it will likely focus on developing its core security products, but it will need to outsource tools like HR software, email marketing tools, and so forth.
“We use a number of platforms in our department, and we need them all to do our jobs effectively. If we didn’t have PerimeterX, we’d have to worry about bot-defense ourselves. If we didn’t have Sentry, we’d have to worry about aggregating runtime exceptions ourselves. And so on.”
– Robert Conrad, Head of Engineering, Crunchbase
While selling to startups is an evergreen opportunity, it’s important to understand the risks as well.
Here are just a few of the risks you’ll run into:
Pivots: According to a study by EPFL University, 73% of startups must pivot to another market over time as their initial market did not provide the fertile ground for the product or service the founders had hoped for.
This can be difficult for a customer success manager to manage. So be aware that goals and KPIs may drastically change.
Security/Compliance: Early-stage startups are likely not going to be SOC certified. Or they won’t have the same business insurance as Fortune 500 companies (at least at the early stage).
Be aware that it might not check all the boxes from a compliance/security standpoint.
Churn: The startup could get acquired or go out of business at any time. Do your diligence before locking them into a multiyear agreement.
New Points of Contact: Employee attrition is twice as high at a startup than a large company. If your champion leaves, make sure you have relationships with other points-of-contact and a well-grounded use case.
Now You’re Ready To Start Selling
It all starts with finding the right startups to sell to. And to do that, you need to understand where the startup is from a growth perspective.
Instead of asking, “Who should I be prospecting into?” you should instead ask yourself, “What stage startups would benefit from my solutions?”
If you sell an HR platform with a subscription that starts at 50 seats, you should scratch any seed-stage startups off your list.
Are they trying to expand internationally?
Are they looking to roll out a new product?
Begin with a search for accounts (not leads). You can use Crunchbase, ZoomInfo, or any other database which tracks startups. Sort by last funding date, amount, and series to come up with a list of startups that are preparing for hyper-growth.
Additional growth signals to look out for:
- Recent leadership hires
- Website traffic increases
- App downloads (if they have a mobile app)
- Intent surges
- Office expansion
Reaching out to these startups
Once you’re ready to reach out, look for mutual relationships or any connections you have with the founder(s), investors, or board members (in that order).
In terms of your outbound messaging, everything should relate back to their mission statement as well as their OKR’s (objectives and key results).
Cast a wide net, and prospect into the entire team, not just C-suite and directors. Most startups have a flat organizational structure, and many are tasked with wearing multiple hats, so don’t assume anything.
Reference how you’ve helped other startups in a similar space scale. They are more likely to talk to you if you’ve helped other companies at their stage execute similar goals in a timely fashion.
Take a fresh approach with startups
Unlike big corporations, startups have smaller buyer teams. That means less red tape, faster decisions, and a speedy approval process. Most buyers are tech-savvy and open to trying new tools. And they usually aren’t afraid to try new solutions. Lastly, they are not set in their ways in terms of processes and buying timelines.
They are tackling a new problem and looking for a partnership to help them tackle this for the first time. This means you can guide them on the process of buying a new tool.
Remember, it’s growth at all costs for startups. Stay focused on how your company can help them achieve this. You’ll love being able to tackle these growth problems with them.
With that being said, stop using your standard pitch decks. Align your pitch to how you can help them achieve their company vision in the long term and their departmental OKRs in the short term.
Be sure to offer growth-friendly plans in the form of tiered pricing models (usage or rolling seats) to accommodate their future growth.
How to Talk to Startups and Entrepreneurs
To get a closer look into the mind of who you’re going to be selling to, I sat down with leaders at Crunchbase (a Series C startup) to better understand their needs.
Let’s see what these buyers had to say:
How do you evaluate a tool once you’ve identified a need for it?
“1. Conduct initial research online and within the contact network on that particular tool and other solutions.
2. Identify a connection to the vendor company if possible (e.g. execs/board members/investors), then contact the company for product demo(s).
3. Get product demosfor alternative solutions to compare pricing, features, pros/cons.
4. Reach out to network contacts at similar companies to get their input on how they solved a similar need at their company, and get customer testimonials and positives/negatives about their selected solution.
5. Conduct an RFP process and negotiate contract terms among the front-runners.
6. Select the preferred tool and build a business case for the investment based on costs/benefits.”
– Marcus Lo, Head of Finance, Crunchbase
When working with a salesperson to learn more before a potential solution, what do you find is the most helpful (form of communication, the cadence of follow-up, etc.)?
“Case studies, documentation, and working through our specific use cases, help the most from a resource standpoint.
From a cadence/communication standpoint, checking weekly keeps me accountable to the steps I need to take in order to keep the process moving.
Email check-ins work for the most part, especially with lower-price point tools. Higher-price point tools take more communication and time, so I do think getting on Zoom calls for major milestone check-ins is helpful.
Summarizing what we talked about on calls and sending over resources in email helps, so I have something to reference.”
– Emma Lloyd, Marketing Operations Manager, Crunchbase
What have you found least helpful when working with a salesperson?
“I’ve had someone get annoyed with me and question my priorities. We were working with a vendor, and one of the sales managers was on the call. He began explaining to me that I didn’t understand the value this could bring when in reality, I did, but just couldn’t get buy-in from cross-functional stakeholders. That isn’t helpful, and it makes me want to not go with a particular vendor.
“I want a vendor to be a partner to me, not make me feel like I’m not doing my job.”
– Emma Lloyd, Marketing Operations Manager, Crunchbase
How has the buying process changed from a Series A company to a Series C company?
“Series A is very focused on pricing and finding a tool that can scale with you as you grow the team or company.
Early on, you are more willing to do more manual work because the scale allows it, but the bigger you get and the more money you can spend, you want to optimize for scalability, systems that integrate with each other — and that the pricing progresses in a reasonable way.
Series A companies usually don’t require a lot of approvals to purchase stuff, but bigger companies may have approval processes or more contract revisions.”
– Victoria Buben, Head of People, Crunchbase
What recommendations would you give to sales professionals looking to sell into startups?
“Demonstrate that desire to collaborate with the customer. Show that you understand and empathize with the customer and that you are working to help them solve their specific business needs. Part of that means understanding their growth cycle and potentially being open to offering pricing that allows you to grow together.
A startup may be small now, but they may grow to be 3x or 5x that size in a few years, so trying to get the most $ upfront may be short-sighted.”
– Marcus Lo, Head of Finance and Operations, Crunchbase
Go Find Your Unicorn
With so many startups out there, it can seem like trying to find a needle in a haystack. Just remember, Lyft isn’t the only success story. Here are four other B2B startups that reached the Billion dollar status.
- Founded in 2010
- Raised seed in 2010
- Raised Series D in 2016
- Total funding raised: $147.9 million
- IPO’d in 2019 at a valuation of $7.8 billion
- Founded in 2011
- Raised seed in 2013
- Raised Series E in 2018
- Total funding raised: $280.5 million
- Acquired by Google in 2019 for $2.6 billion
- Founded in 2013
- Raised seed in 2013
- Raised Series F in 2019
- Total funding raised: $1.1 billion
- Latest Valuation: $10 billion
- Founded in 2010
- Raised Series B in 2012
- Raised Series G in 2019
- Total funding raised: $340 million
- Latest Valuation: $1 billion
When you work with startups by helping them achieve growth, you become a trusted partner.
And if you’re lucky — and savvy in choosing the startup you’re selling to — you can join them in their journey to become the next billion-dollar unicorn.
So, dig in, and go find the next Lyft (your driver has arrived).
P. S. – If you want to find newly funded companies on the rise, check out my series, “The Monthly Rundown: Startups to Watch.”