Two keys to building a massive SMB startup
Late last year, I wrote about SMB being the “third market” for VCs. Lots of VCs fund consumer startups. Lots fund enterprise startups. Very few truly target startups serving the small business market. Why?
The challenge and opportunity for startups targeting SMB is customer acquisition: there are 30 million small businesses in the US alone; 60M in the English-speaking World. Moreover, SMB is an evergreen market – more and more businesses start each year, more than replacing those that die. So, lots of customers, but historically they have been hard and costly to reach.
As such, VCs tend to be skeptical about a startup’s ability to acquire customers profitably. This concern has two vectors: customer acquisition cost & customer lifetime value. This last point is related to churn – the rate at which your customers cancel their accounts. Enterprise startups keep their customers for many years. And each customer is worth a lot. SMB startups keep customers for a much shorter period of time. And each customer is worth relatively little.