Why B2B start-ups shine

By Eric Lai, Computerworld |  Business, DEMOfall '09, startup

Sexy consumer start-ups traditionally grab the headlines at the semi-annual Demo conferences. This year was no exception, with excitement centering around Micello's "Google Maps inside a building" and Emo Labs "invisible speakers."

But some of the fledgling companies at DemoFall 09 didn't seem fully hatched.

Take Lunchster and its Web app for automatically scheduling lunch meetings. USA Today reporter Ed Baig was "a little baffled" by it, while Microsoft director of business development Don Dodge wondered about Lunchster's potential business model.

Or take dotSyntax LLC, which showed off a Twitter client for its IM app, Digsby. One Demo attendee wrote that he was "baffled looking for the innovation."

Some see the premature launches as the result of "Release early, release often" agile development models favored by some Web companies combined with a lack of resources in today's tough funding environment.

"You may have a big vision, but sometimes you need to chew it off in steps," said Chris Shipley, the longtime executive producer of Demo, who is retiring after running the show for 13 years.

But that tactic can leave start-ups struggling to distinguish themselves in a crowded market, said Venetia Kontogouris, a managing director with venture capital firm Trident Capital.

"If you're a small firm, how do you cut through the worldwide clutter?" she asked.

Finding success in niches

Business-to-business start-ups, by contrast, tend to target more obscure niches and problems.

Keen Systems Inc., for instance, launched a turnkey e-commerce Web store for independent commercial printing companies at Demo.

Vitaly M. Golomb, CEO of the San Francisco start-up, is a former turnaround executive of commercial printing companies. He said the opportunity is sizable: a $162-billion-a-year industry in the U.S. composed of 36,000 businesses. Most of them either have built expensive-to-operate custom Web storefronts, or they continue to do some work, such as process graphics files and bills, in a laborious, non-integrated fashion, he said.

Targeting a niche allows B2B start-ups to operate in low-pressure stealth mode for longer periods, giving them time to perfect their product before hitting the market.

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