The other day I heard a great entrepreneurial panel discussion, including Mahendra Vora, the founder of Intelliseek (sold to Nielsen) and now a Cincinnati-based venture capitalist. He was advising the entrepreneurs in the room to make sure their startups were building “pain killers, and not vitamins” for their clients, in order to get their attention and build a sizable business of scale. I thought that was very sound advice, worth detailing into an educational post on the difference between “vitamins” and “pain killers”.
I like to think of vitamins as “nice to have, and not need to have”. Often times these are “features or functionalities”, and not major platforms. And, just like in a drug store, preventive vitamins are optional whether or not you use them, and if you do, it is priced at a major discount to the expensive pain-killing prescriptions behind the counter that you have today, to make your immediate health problem disappear.
As an example of a vitamin-type business, I recently met a B2B e-commerce company that could help their clients more easily load SKU-level product information into their websites and e-commerce platforms (e.g., Magento) via an API feed with their vendors. I said that doesn’t feel like a real business, but more of a feature that Magento should be improving within their own e-commerce platform, which many retail clients were already using as their core technology solution. If there is really a client need for easier data load, they are most likely already complaining about it to Magento, who should have added the fix to their future product development calendar (hence, removing the need for your business down the road).
On the flip side, pain killers are typically helping their clients to materially drive more revenue or materially lower current costs out of their business. And, even better, they are doing so with established line item budgets, not requiring new budgets to be created, which can take time and slow down your sales closing process. What client is not going to react favorably to “how would you like to lower your current costs by 33%, and not have to spend a single penny more than you are already spending today”?
As an example of a pain killer-type business, I recently met a B2B healthcare payments company that was helping to lower doctors offices’ bad debts expense from 40% to 5% by helping them to collect funds upfront at the time services are delivered, instead of 30 days later with an invoice in the mail. In a $100BN segment of the industry, that is a $35BN problem they are solving, moving those previously-lost dollars directly back into the hands of the doctors. What doctor’s office isn’t going to want to install a technology product that can help them increase their annual revenue collections by 35%, by simply changing their billing process from deferred to upfront collections?
We all need to take a critical look at our businesses, from the perspectives of our clients. If you were in their shoes, not yours, is it something they really need today, helping them solve big pain points with established budgets. If so, proceed full steam ahead. If not, you could have a long haul in front of you, for a low revenue potential business, and most likely need to make a pivot into a bigger market opportunity direction.
This article was originally published on RedRocket VC, a consulting and financial advisory firm with expertise in serving the start-up, digital and venture community.
Image credit: CC by Steven Depolo