The following is one of the 4 types of scalable Internet startups, we have identified based on the complexity of their customer relationship. You can find the other types here.
 

If you have feedback, send us an email at feedback@startupcompass.co

 


Startup Type 2 – The Integrator
 
Integrator startups have a semi-automated customer acquisition strategy. They generate leads with marketing but typically need inside sales reps to close the deal. Their customers are usually small and medium sized enterprises. Of all the types they have the highest “problem/solution” certainty and look to monetize a high percentage of their users early. Their products are often focused on making existing business processes more effective by repurposing innovations from consumer internet. Integrator startups should make sure they are tackling large existing markets. If they decide to target a new market it is recommended they change their customer development approach to that of the Challenger (Type 3) until the market matures. While marketing is the key driver of customer acquisition the price or complexity of the product is usually high enough that some human interaction with a sales or customer service rep is required.
 
Example Integrator Companies:
 
HubSpot, Marketo Xignite, PBWorks, Zendesk, Uservoice, GetSatisfaction, Flowtown, Kiss Metrics, Mixpanel, DimDim, Kontangent, Zoho, etc.

Startup Genome Summary:

Avg Months to Move Through Marmer Stages

Primary Service Providers Hired Type of Founding Team that is Most Successful Market size Estimation (Efficiency & Scale Stages)
16 Sales, Business Development, PR Balanced Team $7B

Primary Motivation Market Type Avg. Team Size (Scale Stage) Avg. Funds Raised (Scale Stage) Avg. User Growth in Last Month Percentage of User Base is Paid
Build a Great Product Existing Market (Cheaper) 11 $700,000 11% 20%

Markets:
Ecommerce, Social Media Automation, Business Automation, Human Resources Management
 

Common Revenue Streams:

Potential:

Integrators thrive on commoditizing expensive software with low cost of ownership and delivering it to the masses.

Key Risk & Challenges:
Integrators are able to get early validation about whether the product would be useful or not, but the challenge lies in cost efficiently acquiring a large customer base. Usually profitability is achieved through cost reduction and an efficient sales process rather than increasing the revenue per customer. Integrators have to be cautious about increasing their price across a threshold that forces them to behave more like Challengers (Type 3). A major challenge is finding the right metrics to align the engineering, marketing and sales team to create an efficient sales process.
 

Market Entrance:
Integrator startups most frequently attack existing markets by providing a product that is cheaper than the alternatives. Entering a new market is usually ill advised as they need to be able to create a high volume of leads with low costs in order for their economics to work.


Competitive Advantage:

Founding Team Expertise:
Business heavy and balanced founding teams perform better than technology heavy teams.
 

Founding Team Motivations:


Support Network:

Customer Development Process:
Initial customer development should focus on understanding the internal workflow of the companies. The founding team typically has deep domain expertise and they often experienced the problem they are solving inside a company they worked for and decided to build a product that would solve the same problem for others.

Customer Acquisition Strategy:
For most of the beginning of the startups life the customer development process is very qualitative due the importance of in person selling. The founder generally relies on his rolodex to close the first few deals. As the company acquires a critical mass of customers and starts to automate more of the sales process the customer development process becomes more quantitative. Marketing and Sales needs to be a core competency because with Integrator startups the best product often isn’t the one that wins.

Very detailed quantitative models of the sales process greatly increase Integrators’ chances of success, because it affords a deep understanding about how to reduce customer acquisition cost and scale the company. Key metrics for cost reduction are cost per lead, time of sales cycle, and labor costs per deal. The primary customer acquisition channels are SEO, SEM, PR, Social Marketing, direct sales and channel sales. Many entrepreneurs under estimate the cost of customer acquisition in these channels.

Investment:
Integrator startups need the least capital of all types.

Common Pitfalls:
It’s very important that the founders understand the economics of Saas. It’s easy for Saas businesses to get into difficult cash positions because they typically get revenue on a monthly basis, which minimizes free cash flow and makes it difficult to estimate the lifetime value of the customer. If they don’t properly take into account churn or accurately measure lifetime value, Integrators may unknowingly lose money on every customer they acquire.

Once Integrators have some traction they typically have trouble changing direction without starting over, as it’s hard to move down the market towards lower costs, lower revenue and a simpler self service product. All the more reason they need to be on top of the economics of their customer acquisition strategy so they don’t box themselves into a position that would require a very large pivot.

Key Drivers of Success:
The success of Integrator startups is driven primarily by the marketing team’s ability to generate high quality leads. One of the most effective ways to do this is by building a strong presence on the web through educational content, which drives inbound traffic and streamlines the sales process. Integrators often don’t internalize this and have a tendency to over staff their inside sales force, because they are ultimately needed for deals to close and revenue to hit the bank.

Developmental Stages:

The developmental stages outline the key milestones that startups move through. Our initial data and observations show that how fast startups move through these stages is a good indicator of their success. However, startups that jump over stages typically suffer a slow death or a confined to becoming a small business with limited growth.

1. Discovery

This is the first stage of the startup. Many startups either spend too much time in this stage writing lengthy business plans and too little time getting feedback on their vision and testing their product with customers.

Customer Development Goals:
a) Idea
b) Hypotheses
c) Problem/Solution Fit

Team:
Team Size: 2-5 People
Team Skills:

Financials:
Capital Raised: 25-100k
Burn Rate: 5-25k/Months

Time in this stage: 3-6 months

2. Validation

Customer Development Goals:
a) Earlyvangelists
b) Early Adopters w/ Strategic Reference Accounts

Team:
Team Size: 2-10 People
Team Skills:

Financials:
Capital Raised: 100k-1.5M
Burn Rate: 25k -100k / Month

Time in this stage: 6-12 Months

3. Efficiency
Customer Development Goals:
  a) Develop Marketing/Educational Material speaking to mainstream market
  b) Improve Sales Calls and Pricing Plan
  c)  Find Repeatable/Scalable Customer Acquisition Channels
  d) Saturate Customer Acquisition Channels

Team:
Team Size: 8-40 People
Team Skills:

Financials:
Capital Raised: 1.5M- 7M
Burn Rate: 150k-750k

Time in this stage: 12-18 Months

4. Scale
Integrator startups that reach the scale stage are likely to maintain a small team size.

Customer Development Goals:
a) Automate Sales Funnel

 

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