S1 | 11: Why Good B2B Startups Fail, with James McCormick

Transcript

Please note: this was AI-generated and is not perfect.

Greg Kihlström: Welcome to the B2B Agility Podcast. Today, we’re going to talk about B2B startups and why companies that may have amazing ideas still fail to gain traction and ultimately don’t succeed. And just as importantly, what existing B2B startups and young companies can do differently to change their potential. To help me discuss this topic, I’d like to welcome James McCormick, CMO and Managing Growth Advisor at McCormick-i. James, welcome to the show. Thanks, Greg.

James McCormick: Thanks for having me. I appreciate it.

Greg Kihlström: Yeah, definitely. Looking forward to talking about this with you. Why don’t we get started with you giving a little background on yourself and what you’re currently doing?

James McCormick: Yeah, and kind of the topic really lines itself with, I guess, my kind of history of the last, I’m almost embarrassed to say, couple of decades where I’ve kind of worked a lot with technology startups, either being part of the management team, in product management or product marketing and marketing. Actually, I was at Forrester for a few decades, or a decade, should I say, running research and working and advising small tech companies, particularly the SaaS technology space and working with those leaders there. I guess I couldn’t help but kind of being an expert on, or at least having a strong view as to why these startup companies start, succeed, and fail. It’s a super interesting topic for me, and especially in my current role and running my consultancy now at McCormick-i, I advise a lot of technology buyers, vendors, and investors around this topic as well.

Greg Kihlström: Great, great. So we’re going to talk a bit more about why b2b startups do fail. But let’s maybe start with some definitions and things. So you know, from your perspective, what is success and failure from a b2b startup perspective? You know, what generally do startups set out to achieve that many don’t achieve?

James McCormick: Well, actually, that’s an interesting thing. If you don’t define success, how are you going to get there? I remember having a career advisor saying, what do you want to do? I said, well, I don’t know. Then how do you know? It’s a bit like that. It’s really in the eye of the founder and founders and the investors. What do they see as success? To be honest, it can vary wildly, should I say. Generally accepted, you’re thinking about market adoption. and particularly the speed of penetration of adoption, particularly in the startup world. How quickly can you penetrate a market whilst you’re burning through that? You’re generally running at a loss, so you’ve got to penetrate a market quickly so that you can find a route to profitability pretty quickly for the investors before that investor money burns out. That’s a top of mind. Obviously, revenue growth comes with that and being able to do that. And those two really point towards a viable, profitable roadmap. So if you’re an external person, kind of think you’re investing in a company for the next round of funding or for that acquisition or that float, is that, do you have a viable? That’s super successful. And then there’s kind of secondary or I would call secondary things like innovation. That’s, are you innovative? Do you have brand recognition? Do you have scalability? These are all success kind of metrics that we generally think about in some kind of way when it comes to what success looks like.

Greg Kihlström: Yeah, so given that, and yeah, I mean, it’s certainly a wide range. I mean, obviously, if a company runs out of money and can’t get funding, that’s a pretty short stop there. But as you mentioned, there’s a lot of different metrics and some some a little more qualitative than than others. But, you know, taking a step back, maybe how how many startups actually succeed and fail in the B2B space?

James McCormick: Well, it’s draconian or Darwinian. If you can already think about it, you have various kind of stats without one in 10 actually succeed, right?

Greg Kihlström: Yeah.

James McCormick: But there’s some more kind of solid, solid stats that, you know, within the 20% of these startups fail within the first two years, almost 50% don’t survive the five years, all the way up to coming on to 80% aren’t around in the 10 to 15-year period. This topic is one of the most, I guess, untalked about things when it comes to startups. It’s really quite draconian. The weird thing is when you look at founders, that startup company. get these serial startup folks, which I admire and love, but just because you’ve had one startup doesn’t mean necessarily that you’re going to have any greater chance of success or much greater chance of success as your next startup. Long story short, we aren’t as a let’s say a community at the moment, technology community, very good at startups at the moment. So that’s why this is a super interesting topic to even be thinking about.

Greg Kihlström: Yeah, yeah. And yeah, with so many different dimensions. And yeah, you can have a great idea, but the timing is wrong. Or you can have a great idea, but just can’t get the funding or some of these things. So we’re going to talk about this here. So I want to talk about you know, why startups fail in the B2B startups fail in the first place. So, you know, could you talk about some of the things that you’ve seen from both an internal as well as an operational perspective in your work now that a lot of B2B startups get wrong?

James McCormick: Well, you know, I, I kind of come from the, I’d say the outside in perspectives of, you know, from a product marketing, uh, kind of background way market background and even marketing background. So I kind of look at it. I’ve always had a little bit of a bias. I’ve always gone to the CEOs that I’ve worked with and for, and I’ve said, you need better product marketing. It’s just terrible. For a while, for me, it was just a gut. It was interesting. I looked at some of the data that there is out there on why most startups fail. Guess what? 34% of startup failures are due to poor product market fit. Now, operationally or functionally, it just really means you don’t have good product management practice. What is product management? It’s really understanding the market and understanding the products and understanding how that product fits that market or that customer and keeping those aligned and not only kind of tracking it. Now, operationally speaking, and this kind of aligns with what I’ve kind of known for, let me say, longer than I wish is that they’re just very bad at doing product management. It’s not appreciated. It’s a secondary kind of construct, secondary considerations that I say, but it is the biggest single reason for failure. The second biggest reason is marketing strategies. What does that mean? It’s essentially companies or these startups not really truly at the right kind of way, understanding who their customers are, where they are, and how to essentially connect with them. It’s interesting. A lot of these are outside-in things, understanding your customer. The third biggest reason is really the age-old things, skill shortage, especially in these high-skilled technology areas that we talk about. Those are the three biggest reasons. Operationally, having suboptimal operations are actually right down in the 9th or 10th reason for failure. Operationally, that’s not the reason. It’s just really not understanding the market and not understanding how that product fits with that market and how to reach the customers within that market. So yeah, it’s quite simple, right? This is not rocket science.

Greg Kihlström: Right, right. Well, and so to kind of build on probably all of those in some way, but to build on the marketing component and let’s say a company finds the right customer, What about the customer experience once they get those customers, you know, you mentioned product, product development, and that, that part not necessarily aligning. And, you know, there’s, there’s a lot of considerations, you know, getting a customer is one thing, I certainly know a lot about that, that piece of it. But keeping, keeping a customer is, you know, can be a whole whole other component here. So, you know, what are many B2B startups missing there?

James McCormick: Well, it’s kind of interesting. I think I’ll answer this in a way that kind of thinks of, I talk about your customer experience cycle that companies kind of go through. I don’t have stats on this, but I’ve seen it a lot where there’s companies that survive that seed capital phase and now into the kind of later investment phases and now can spend a bit of money on essentially customer support, product experience, and those kind of things. The ones that succeed succeed because they have this great customer experience, which is expressed through the support that they might get through the customer experience team, customer support team, professional services, and also the simple, easy-to-use product experience. They go through this euphoria phase where they have these great customers that are advocates that are standing up on stage and espousing them. Then they get to a certain size. When you get to the, let’s say, in terms of run rate, $75 million run rate, they almost get too big in terms of they’re obviously selling to more customers. Their processes for being and being surrounding and hugging their customers that are going through struggles are not scalable, right? In the past, they had one or two customers that were struggling. They would throw everybody at it. We’re working 24-7. But when you get to a certain level of customer, number of customers, your customer experience support that you have through customer support, customer experience teams, et cetera, just are not scaled. They’re kind of relying on that age-old, we’re just customer-focused, we’ll just throw everything at it. You can’t do that, right? You can’t do that to people that are in there. You need processes to really kind of support. So you start to kind of tumble there as well. And again, from a product experience perspective, what I find is that the product becomes, in terms of the experience that the customer, the user gets, because it’s a user experience, it becomes a little bit more fragmented as they try, expand beyond, say, browser to the app through two kind of other digital channels, et cetera. the actual in-app experience and the support they get within that fragment. You then go through this valley of disillusionment. The other areas where these companies get acquired, particularly by the big tech companies, is that they almost get… I’d say, and again, I don’t have too many stats, but the majority of companies that I’ve seen being acquired go through a massive dip in the customer expense. The existing customers really go through a little bit of a dip in terms of their happiness with the technology provider that had been provided. Then obviously, they come through the other side and there’s some great examples of then those processes being put in place to be able to scale that great customer experience, the restructuring of the products or the technology that has been or re-architecting it, and re-skinning it so you provide that great in-app experience again. But there is a definite kind of cyclicity that I kind of see out there in terms of that.

Greg Kihlström: Yeah, and I’ve, I’ve seen similar to that I’ve done a bit of writing and research on that from an operational and even a company culture perspective. And there’s for those listening out there, there’s a framework called the competing values framework that is kind of is pretty interesting. You know, just very, we could probably do a whole show about it. But, you know, very briefly, for those less familiar with it, you know, at the top of this quadrant are collaboration and innovation. And at the bottom are, you know, processes and a real sales market driven culture. And so, you know, you see startups kind of start at the top there, they’re very collaborative, they’re team oriented, you know, it’s a family kind of setting. And they’re also super innovative, and, you know, kind of blue, blue sky, you know, sky’s the limit kind of thing. But as time goes in, kind of exactly what you’re saying, It’s almost like gravity sets in and they start realizing, well, okay, we want to be innovative and team oriented, but we’ve also got to sell product and have processes in place to scale. So I think it, it kind of mirrors what you’re saying, which is the successful companies, yeah, they go through those transitions, like, you know, Apple, just to use an example, probably everybody’s familiar with, definitely started out that same way, you know, innovative companies have found a way to kind of make all of that work? There’s no one way to answer that question, so to speak, but good, innovative, long-lasting companies find a way to balance those four things.

James McCormick: I agree. I think we might discuss a bit later on in our discussion, but there’s this balance between quality and innovation, or where you are trying to get right. Even I think no matter what size company you are, It’s almost like if you’re going to be innovative, you’ve been a bit disruptive and you’re disrupting things like experience, the products that you’re providing, but you can’t afford not to because if you don’t move with the market, move with the customer, you die. Of course, you’ve got to deliver quality so your customers can consume in that great customer experience. I think the real answer to success or one of the successes is Companies that can get that balance right and operationalize this balance between innovation and quality are the ones that ultimately kind of succeed. And I think that competing value discussion definitely kind of speaks to that.

Greg Kihlström: Along those lines, you know, as far as being able to be nimble and adapting, you know, there’s, there’s a lot of talk about, you know, pivoting, failing fast, all the all these terms that are kind of thrown around here. Certainly, I’ve seen some of that, I’m sure you’ve seen it done successfully. But, you know, are some of these overused or maybe misinterpreted? You know, how do you how do you look at this idea of pivoting, failing fast, you know, other those other things. And, you know, are maybe some of these B2B startups reading the wrong lessons from, you know, what they see from some of those Silicon Valley tropes?

James McCormick: Yeah, no, exactly. I mean, being allowed to fail is certainly something that’s, and failing and failing fast is certainly something I’ve bought into as somebody who’s been involved with agile implementations and certainly involved in experimentation technologies over the last however long. But it’s how you do it that really, it’s not what you do in this situation because you actually need to be able to pivot and you can actually see, I’ve dragged up some stats where firms that kind of pivot are, what, two to three times more likely to grow faster than those, right? So they have pivoted at least once or twice in their kind of startup kind of lifetime. But there’s a lot of failure out there when it comes to pivot and it’s like pivoting Pivoting right means when you get something wrong, what are your lessons from that and having systems in place to actually understand why things went wrong in the first place. Then most importantly, what you can do to actually, where do you need to pivot to? It’s not about just blindly doing something different just for the sake of it. Yes, of course, if things aren’t right, just doing something is better than nothing, but doing something in an informed sense and in terms of Learning from your failures and moving on and operationalizing that failure process is critical to success. Failing successfully and moving on is what you need to do, not just failing and then spending it because you can’t. you have to succeed pretty quickly at some point in that fail fast scenario, right?

Greg Kihlström: Yes, absolutely. You’ve touched on a bunch of these things already, I would imagine, but what are successful B2B startups doing differently then?

James McCormick: Well, I like to think of it and this comes to the way that I structure some of my engagements with some of these startups. I think about that in terms of their entire go-to-market strategy in terms of the product market fit and the pricing methodology and essentially how they go to market their channel bits. When you come to the market bit, what I find is understanding the market and understanding who your ideal customer is, the successful companies not only do their homework, because at some point, most of these startups the founder or somebody else really gets to understand the market and the problems that they’re solving, the customers that they are feeding. What happens is that they stick on their original idea of their market. Not only should you have an insights-driven approach to understanding a market, in other words, do your research, you have to continually do that. You need to operationalize that understanding of that market and understand how it’s actually kind of how that’s actually changing. And so getting back to this concept of product marketing, you need a strong product marketing. And when it comes to the product bit, which is the second part of the go-to-market thing, discussion is really, again, we talked about it, right? This balance between quality and innovation. We tend to find that the more mature organizations, the more mature technology providers, they lack innovation, focus on quality. With startups, it’s almost the other way around. They focus on innovation but drop the quality to a lot. You’re dropping customer experience. Getting that product innovation balance right is super important and successful companies do that right. Pricing, keep it simple, keep it easy to understand transparency, have a tiered product-led growth approach like freemium trial, silver gold things. successful B2B SaaS companies do that almost bar none. They’re very good at their pricing and their entry, bringing their customers in a way that shows them value almost before they pay for that value. And of course, the channel bit, which is always, that’s the sales bit. The thing where that’s successful that really distinguishes those successful companies from the rest is actually their partner channel, the indirect markets, bringing in the right service providers, the right technology partners, et cetera, to help them scale and penetrate that market or accelerate penetration into that market. They get it right. Direct, there is some differences there, but they’re slightly more nuanced. Again, this is about an ATAR discussion, Greg. Those are some of the things that these successful companies are getting right.

Greg Kihlström: Yeah, yeah, we’re hitting the highlights here. But yeah, definitely. Well, and, you know, so as we’ve already talked about, I mean, there’s, there’s a lot of benefits to being a startup, you know, there’s, there’s the ability to be more agile and approaches. And, you know, there’s not all of the technical and operational and even culture debt that a lot of very large organizations have, you know, what are some of the lessons here, though, that a B2B startup could learn from more mature companies and maybe even vice versa? What could more mature companies learn from successful startups?

James McCormick: Yes, it’s interesting. In terms of what mature companies can learn, it’s almost like what have they forgotten is really the question, because at some point, a mature company, I guess, was a startup at some point. Some of the common areas where you see mature companies falling over and which startups do better is looking after customers, putting the human into the customer experience and supporting them. Actually, a lot of my work over the years has been actually interviewing customers for their perceptions around their supplier and the experiences that they’re getting. You find the stats, I’ve done a number of these studies, show that startups do much better when it comes to customer satisfaction because essentially mature companies They get, for some reason, either their processes are slightly broken, they’ve taken, they’re almost too big to put the human back into that customer support person that picks up the phone to that lonely user that’s got this critical issue or that senior decision maker who’s got her career on the line. They are there for them and they typically do very well. I think if large companies or mature companies could maintain that, they would also be in a much better position. Actually, what is the one reason, and I’ll answer this rhetorical question, the biggest reason why customers stay with their B2B companies? I’ve run a number of surveys over a 10-year period on this thing. The biggest reason is vision and passion. If you’re a supplier of technology, you have an inspiring vision as to where you’re going with your technology and the problems that it solves, and you show passion in there, you’re more likely than not for your customers to stick with you. What you find is startups have that vision and passion, and that burns brighter than the more mature companies. As a mature technology provider, you should find some way of bringing that back in order to remain successful.

Greg Kihlström: Yeah, yeah, that’s great. What about, you know, startups, you know, they have they have the vision, they have the passion, they don’t always have the resources that a larger organization has. And so, you know, they, I mean, any organization, you know, even very large enterprises have to be careful about what they prioritize. But if you’re a startup, you know, you’ve got limited resources, limited people to do the work and things. How do you look at this and how do you guide successful startups to figure out how to prioritize things?

James McCormick: Yes, and this leads into the discussion about failure. You can fail as long as you’re not failing too often and you fail right. It’s learning. Startups, you only have one or two goes at getting things right. When you think about your biggest cost as a startup, it’s infrastructure, It’s product development and it’s your sales teams. These like high-cost items, you better make sure that you’re building the right products on top of the right technology and selling it to the right customer. The biggest thing you can do to optimize that and get it right is to make sure, and again, understand your market, understand the problems that you’re trying to solve and the priorities of those problems to your customers and the value that you give to them and market to them. If you focus on the product marketing, understanding your marketing, and guiding your sales teams and your product teams to those markets, then you will prioritize your major costs more effectively, more efficiently. Those are the two musts in order to get that right.

Greg Kihlström: Yeah, yeah. So last topic I wanted to talk about, you know, we touched on a little bit throughout, you know, just talking here, but I wanted to talk a little bit more about the work that you do specifically with companies. And like I said, you’ve had a chance to talk a little bit about it, but how would you define your overall approach to working with organizations? And, you know, while every organization and company is different, you know, where do you like to start in order to get an understanding of where some of the maybe, you know, greatest challenges or greatest opportunities

James McCormick: Yes, that’s a good thought. I think about it in terms of two ways and I approach it in two ways when I have a new customer or client that I’m dealing with. I look at the organization from an inside-out perspective. Look at their go-to-market. We’ve talked about it already, their market, their product, their pricing, their channel. Look at where the weaker points are and the stronger points are and then essentially tackle where the problem might be. And quite often, I’ll be honest with you, quite often, the understanding of the market is about 18 months old. And so we kind of start there, right? So then you look at pricing, et cetera. Then the other way is the kind of inside-out perspective. Think about it from a customer life cycle, a customer experience life cycle perspective. And just understand how they get to discover the brand. So think about the category that they’re in. Are you putting yourself in the right, as a vendor, putting yourself in the right category? your brand awareness, look at how they explore and engage through to how they buy, their user support, and then ultimately retain those customers. There’s different functions and different areas across that entire lifecycle that need to be looked at and their weak points. Again, I look at those weak points and where the opportunities are and we highlight them. A full inside-out and outside-in perspective is what I’d like to take. Yes.

Greg Kihlström: So last thing here, you know, since I started in my career, there’s been certainly a lot of trends, fads, as well as some, you know, really meaningful changes in the industry. I mean, I remember, you know, when I first started out, it, it wasn’t even a foregone conclusion that a company would have a website, or, you know, at least a functioning website or something like that. So, you know, lots of lots of change over the over the past couple decades. And, you know, do you see a lot of b2b startups these days chasing things like AI certainly top of everybody’s mind, or perhaps other things even, but chasing things like AI in order to get funding, but maybe without a clear AI strategy. And what do you advise companies headed down that path to do?

James McCormick: Yeah, I mean, there’s a lot of these, I think you call them tropes, or just these general things that can mean everything and nothing at the same time. I remember when cloud came along, right? What the hell was cloud? how many years later we know what it is. AI is the same thing. It’s obviously super important, but I think you got to get back to basics. Whatever you do, whatever new concept or whatever new investment, whatever new focus that you think about needs to be thought about in terms of three things. One is value to your customer. What value can it bring? Then two and three already, how can you Boost your operations, reduce your costs, increase your revenue. Essentially, I put those two things or three things together. In terms of customer value, let’s get quite specific on AI. The value that I’ve seen, especially over the last five years, is things like using supervised machine learning to improve personalization and experimentation, unsupervised for better fraud detection. computer vision for measuring creative standards or imagery, images, or large language models for generative activities for content applications. Understanding what AI, what value can provide your customers very quickly is very important for your business. It’s not just AI, it’s what type of AI doing what, you need to get to there. In terms of boosting operations and reducing costs, well, things like how can you use different types of AI to acquire data for you or to reduce time to onboarding your customers. Think about it in those ways, and there’s some really great examples out there at the moment that you should look at. Be quite specific on these things, whether it’s AI, cloud, or whatever else comes your way. Get very quickly to the nub of the value it can provide your customers and your business. That’s great. That’s great.

Greg Kihlström: Well, James, thanks so much for joining the show. One last question before we wrap up here. You’ve given a lot of great insights and advice already, but what’s one recommendation you’d have for B2B marketers to stay agile and be successful in the months and years ahead?

James McCormick: Well, my old man, my dad, bless his soul, ran a large construction company, and he always just said, James, just keep it simple. People process technology. Get the right people. Be a good leader. manage them, inspire them, and then make processes that are simple for them to understand and enable them and speed things up. And then get the technology to help them deliver the value that you need. So just keep it simple. And really, it starts with people.

Greg Kihlström: Yeah, that’s great. Love it. Well, again, I’d like to thank James McCormick, CMO and Managing Growth Advisor at McCormick Eye for joining the show. You can learn more about James and McCormick Eye by following the links in the show notes. Thanks again for listening to the B2B Agility podcast. If you enjoyed the show, please take a minute to subscribe and leave us a rating so that others can find the show more easily. You can access more episodes of the show at www.b2bagility.com. That’s b2bagility.com. While you’re there, check out my series of best-selling Agile brand guides covering a wide variety of marketing technology topics, or you can search for Greg Killstrom on Amazon. Until next time, stay focused and stay agile.