by Adii Pienaar, Founder of WooThemes
We started a business at the beginning of a recession. And then we used that very fact as a competitive advantage that enabled us to grow the business far beyond our means.
The details of that competitive advantage look like this:
- Average cost of a custom WordPress-powered website: $3000; or
- Buy one of our products, which start at $70.
No brainer, right? Let me explain…
We sell products that are mostly aimed at SME’s. Sometimes we sell directly to the SME; other times we sell to a designer, developer, or agency who implements our products for the SME. The bulk of our products are, however, aimed at businesses in general.
This makes WooThemes mostly a B2B company, which means we sacrifice the potential bigger B2C market and all of the “prestige” that comes with the territory (that same “prestige” that tempts so many startups to pursue the B2C Holy Grail instead of the relatively easier B2B route).
Businesses are much less price sensitive than consumers, which is something we experienced when we started the company. We were in the middle of a recession, yet we reached our first $1M USD in revenue within 13 months. Yes, we were essentially selling the same benefits as a B2C for a much lower price ($70 versus $3000), but it wasn’t without its counter-sacrifices either.
To this day, we believe that our products allow others to make money or run their businesses. This very fact makes them less price sensitive and ultimately makes our job in selling (and increasing Customer Lifetime Value) much, much easier.
Here’s an example:
A freelance, independent developer buys our products for the sole purpose of using them as part of a project for a client. They spend $500 with us on various products and, along with their implementation time, they charge their client $2500.
My bet is that even in tough times, that developer won’t stop spending money with us because our products form part of the foundation he uses to earn money again. Without our products, his income dries up.
Similarly, the developer’s client is a SME that needs a website, which is their primary lead generator for new customers. They might retrench redundant staff or stop offering staff perks, but they can’t compromise on having a website. No website means no new customers.
Our customers are dependent on us and our products. They’re happy to spend $1 on something that will generate $5 in revenue. That’s easy math for any customer to understand. I’m reminded of an old Chinese Proverb:
Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.
I know that B2C is the trendy and sexy choice right now, but that puts you squarely into the “groupthink trap”. A B2C startup (which I can imagine can be a heck of a lot of fun) is hard, and monetizing it is even harder. The revenue levers and value proposition are just much harder to figure out compared to B2B.
Personally I’d much rather have a small, $1M per year B2B business than take the gamble on a $1B per year B2C business.
Add value, and make sure you’re helping others to make money. It’s the easy business model. :)
Adii Pienaar is an entrepreneur, husband and very new father, based in South Africa; the combination of these roles results in an epic & challenging journey. Unlike the bios of most “serial” entrepreneurs, Adii is (at the time of this going to press) a one-hit wonder with his role as co-founder & CEO of WooThemes. That status isn’t for a lack of trying either; it’s just that the other attempts lost more money than they made…