Explore two paths to product-market fit in B2B SaaS—targeting large or small customers first—and understand the trade-offs of each approach.

Excitement is in the air. You have just founded a new company, and you and your co-founders set to work. What do you need to do?

Forget the company registration and the setup of your website.

Start working on your product immediately because that will earn you money.

Founders should spend 99% of their time on product questions, focusing on finding product-market fit as quickly as possible.

But what does product-market fit mean? Product-market fit means that your product solves a real problem for a clearly defined group of users — so effectively that they are willing to pay for it, continue using it, and recommend it to others.

Now the difficulty is not just to build a product that solves a real problem, but find the clearly defined group of users that will pay for your product. You can have an excellent product that doesn’t resonate in the market because you are talking to the wrong group of users.

From my experience as Founder & CEO of Yonder, a B2B SaaS company, let’s look at two possible ways to find product-market fit.

Option 1: Serve larger B2B customers first

This is what we did at Yonder. We had solid knowledge in the documentation software sector from our professional experience at Swiss International Air Lines. So it felt natural to target customers similar in size to Swiss International Air Lines, and that’s how we found our first customers.

A few months after launching Yonder, COVID-19 struck, and our sales pipeline in the aviation sector was eradicated within a split second. We decided to venture into different verticals, successfully finding customers in the critical infrastructure sector. And guess what: Those customers were also larger B2B customers.

The advantage of targeting larger B2B customers is mainly the larger average deal size: You need fewer customers to make a living. Furthermore, larger B2B customers tend to be more sticky and have longer contract durations, as they have to go through lengthy procurement exercises before awarding a contract.

On the downside, sales cycles will be much longer, and the buyer universe is smaller: There aren’t that many larger B2B customers in your market. Furthermore, larger B2B customers will have many functional and non-functional requirements you will need to meet before closing your first deal.

Option 2: Serve smaller B2B customers first

At Yonder, we only gained our first smaller B2B customers in a second phase — when we expanded our marketing function.

That’s the main advantage of targeting smaller B2B customers: There are many of them, and targeting them through a largely automated marketing function is easy. Also, sales cycles are typically shorter than with larger B2B customers. Last but not least, the functional and non-functional requirements will often be lower for smaller B2B customers than for larger B2B customers.

On the disadvantages side, you will need many smaller B2B customers to make a living. Therefore, you must automate onboarding, billing, and interaction much earlier if you serve smaller B2B customers. Smaller B2B customers will also churn much easier than larger B2B customers, by simply not renewing when their renewal comes due.

Conclusion

If I could start all over, would I target customers the same way we did it? Probably, yes. Solving the pains larger B2B customers have with electronic documentation and then transferring the value to smaller B2B customers is a good strategy. However, I would strengthen the marketing function much earlier than we did: You can’t just target smaller B2B customers, but also larger B2B customers with an effective marketing machine.

Is our way the only way? By all means, no. Some of our competitors follow the same approach as we do, while some other competitors first focus on smaller B2B customers before taking on larger B2B customers.

As usual in entrepreneurship, there isn’t black or white: Entrepreneurs must find the specific way that works for their product and their clients. There is no shortcut to product-market fit.