Modern tech startups tend to be stereotypically categorized as venture capital-driven social media companies. But while popular websites like Facebook and Twitter receive loads of attention, the sheer number of users they need to drive their businesses sets them apart from other startups. As a result, many entrepreneurs are steering clear of heavily hyped social media startups in favor of more traditional enterprises, such as business-to-business (B2B) sales.
Sure, it’s unlikely that any B2B company will grow to the point where Hollywood immortalizes its story like in The Social Network. Instead, B2B entrepreneurs establish dependable revenue streams by selling various technological services within the business community. While their business models aren’t as exciting as some of their Silicon Valley peers, successful B2B companies earn enough tangible profits to run self-sufficiently. For instance, in January 2013 Mike Marian and a partner founded Synapp.io, a company that helps other businesses optimize their email marketing. By summer Synapp.io was operating on its own revenue. “We’ve turned down three term sheets so far because we can support our team and our product without taking any money that we don’t feel is the right fit,” says Marian. “That is a huge advantage.”
Meanwhile, the biggest social media behemoths only generate a portion of their operating revenue from ad sales. The rest comes from venture capital investment as well as additional acquisitions, such as Facebook’s recent purchases of WhatsApp and Instagram. Ultimately, though, these sites’ user bases drive the bulk of their profit potential. Value is often judged by how many millions of users a service can draw in, which partly explains the $19 billion price Facebook paid for WhatsApp. B2B businesses, on the other hand, judge their performance based on traditional factors like costs and sales. “Sign up 10 or 100 customers, and you have a self-sustaining business,” says Dan Schipper, co-creator of a web browser-sharing tool that helps with customer service. To entrepreneurs like this, working on a small but reliable scale is more rewarding than catering to the whims of multi-millionaire angel investors and 1 billion “friends.”
- What makes B2B enterprises so attractive to entrepreneurs?
- What differentiates the business models of B2B and social media websites?