By nature, B2B start-ups tend to follow one of the golden rules of entrepreneurship: solve a problem; do not chase an idea. This, of course, stems from the fact that B2B companies often deliver products and services that solve existing industry problems.
But if you have a solution to an industry problem, how do you know whether that will translate into a viable B2B business?
For Linda Darragh, executive director of the Levy Institute for Entrepreneurial Practice at the Kellogg School, the short answer is: it comes down to a comprehensive process of testing, researching, iterating, and refining an idea.
Pinpointing a Pain Point
In 2012, Kellogg School student and budding entrepreneur Mathew Elenjickal approached Darragh with perhaps the perfect case study for that process.
Elenjickal, who had previously spent seven years at supply chain leader i2 Technologies (now jda.), had identified a pain point that had plagued the logistics and transportation management industry for decades: shippers and freight brokers did not have an efficient, real-time method for tracking trucks that were transporting their loads.
In the age of GPS devices and smartphones, that might come as a surprise. But while trucking companies had access to location data, they did not have a good way to cull that information and communicate it to shippers and freight brokers. To know their trucks’ exact locations, shippers or brokers had to call, email, or fax the trucking companies directly—a tedious process. Alternatively, they could monitor the location of trucks through the Electronic Data Interchange, a notoriously slow system that was only capable of transmitting location information hours after the fact.
“If you come into B2B not knowing the industry, not having a network, it is going to be harder.”
The nature of the trucking and shipping industry only complicated things further. The market was enormous and fragmented, with half a million trucking companies in the United States—many of them small, family-owned shops—along with more than 10,000 freight brokerage companies. How could any single company create a tracking system that all players would simultaneously adopt?
It was a weighty problem. The only way that Elenjickal could begin to solve it, Darragh told him, was if he got out of the building and talked to potential customers in order to get feedback—a lot of it. In the B2B space, that feedback tends to come from one-on-one interviews with people in the industry, rather than through digital channels.
The difficulties of collecting this feedback are compounded if an entrepreneur is not intimately familiar with the industry. “In Matt’s case, he worked in the industry, so he knew the players already,” Darragh says. “Through networking, he was able to indicate that there was another group maybe you should talk to. But if you come into B2B not knowing the industry, not having a network, it is going to be harder.”
“This is the whole testing idea,” Darragh says, reflecting on that early conversation with Elenjickal. “You don’t spend time and money on engineers at this point. You say, ‘Here’s a possible solution,’ and you storyboard it. And then you start talking to shippers and the truckers and ask them, ‘What do you think about this?’ You listen to them and see whether they are interested. And you just keep iterating.”
The Evolution of an Idea
Elenjickal’s first idea was to work with a GPS manufacturer to create a small tracking device and install it in trucks nationwide. He also planned to develop software that would monitor the devices on behalf of shipping companies.
But while proposing this idea to investors, Elenjickal was faced with a series of questions that he could not answer. For example, how would he convince every trucking company in the nation to buy his GPS device, especially if they were already using another device? Even if he gave the device away for free, how would he ensure that the companies would use them? And how could he afford the start-up costs associated with buying devices for the three million trucks operating in the United States?
Elenjickal went back to the drawing board, and came up with a better idea: create a cloud-based platform that harvests tracking data from the nation’s largest GPS manufacturers—such as Omnitracs, Qualcomm, or PeopleNet—and delivers it to the shipping companies. He reasoned that most trucking companies were, or soon would be, working with these manufacturers, given pending legislation mandating that all trucks carry GPS devices by 2016. Moreover, Elenjickal envisioned that his platform would integrate with the shippers’ existing communications systems, eliminating the need to purchase or learn new software.
The opportunity, he estimated, was “in the billions.”
Iteration through Conversation
Elenjickal, with help from Darragh and others in his network, started sharing his business idea—which he branded under the name “FourKites”—with leaders in the transportation management industry.
One of those leaders was Ron Konezny, the founder of PeopleNet, who was so taken by Elenjickal’s concept that he gave FourKites access to his company’s portal in order to build and test its integration capabilities. That paved the way for piloting the platform with several other top companies, including Caterpillar Inc., Command Transportation, and National Freight Industries.
Another conversation fundamentally changed FourKites’ market strategy. Urged by one of his mentors in the Pritzker Group LaunchU program, Elenjickal met with Doug Waggoner, CEO of Echo Global Logistics, a leading freight brokerage company. Until that point, Elenjickal had avoided freight brokers, assuming they would be FourKites’ primary competition since they acted as middlemen between shippers and truckers. To Elenjickal’s surprise, during his meeting with Waggoner, the CEO expressed interest in becoming a FourKites customer.
“What I realized was, these guys have the same pain point as the shippers,” Elenjickal says. “They could be early adopters. That meeting essentially opened up a new customer segment.”
This is precisely why it is so important for entrepreneurs to continually seek feedback, adds Darragh. “By going through this process, and talking to these intermediaries, he realized that he had value for them,” she says. “Some of the stakeholders that he thought were barriers were really proponents in the end.”
Acquire Customers, Mitigate Risk
Today, Elenjickal is in the final stages of FourKites’ launch. He is wrapping up the platform’s pilot phase, securing funding from investors (he has currently secured over $1 million) and getting his sales strategy off the ground.
For that last to-do, Elenjickal has adopted a simple, yet effective, approach: he lets customers try FourKites free for a month, accessing its data through their own system or FourKites’ optional user interface and app. Then, if they like the platform, they only pay by the transaction—a certain amount per truckload.
The goal is to acquire more customers, faster. “If you look at the enterprise companies out there, the sales cycle is too long,” Elenjickal explains. “You get into customers’ doors and then you’re negotiating the license, the service, and everything. This is purely transactional. And so far, we haven’t had a customer that doesn’t like it.”
Because FourKites’ platform is inherently sticky, its customers are likely to generate recurring revenue in the long term. That is key to the success of any start-up and the beauty of the B2B model, says Darragh. “It’s not only about first-time use, but multiple uses,” she says. “How do you increase the conversion rates and how do you make sure you create long-term value for the customer.”
After undergoing an exhaustive process of talking to customers, investigating this problem, and refining his idea, Elenjickal feels confident in the prospects of his company. Darragh underscores that point, explaining that the more time you spend on testing a business concept, the more you mitigate the risk involved in launching a new venture.
“Everyone says, ‘I have to get it on the market fast,’” she says. “But if you want to take the risk out of it, take your time. Don’t worry about the first-mover advantage. If you really build something of true value, then you will beat out the rest of the competition.”