Incubating B2Bs for the internet arena

Diane Snedaker, founder of Ketchum Interactive talks about B2B incubation.

Dianne Snedaker believes that moving business-to-business processes onto the Internet is the quiet opportunity that will dwarf the business-to-consumer industry that gave the Internet its first surge of recognition and power.

B2B lacks some of the downside of its consumer-oriented predecessor - high marketing costs and uncertain demand - while giving entrepreneurs better opportunities to provide products and services that businesses will pay for because they bring efficiency to their operations.

Snedaker is the former president of Ketchum Advertising, where she created a Web design and strategy business called Ketchum Interactive.

In January, she joined four other Silicon Valley denizens in founding Wingspring, a business incubator for B2B startups. Companies in the Pleasanton, Calif., incubator include electronic marketplace Partini Inc. and data integration hub RedKnife Inc.

Snedaker sat down with eWeek Department Editor John S. McCright to discuss what it takes to make a successful B2B company.

eWeek: Why found a company for B2B startups when B2C was all the rage?

Snedaker: B2B is sort of the unsexy part of the economy, but it's important, and there are still many options out there. It's hard to reach your market [as a B2C]. The cost of reaching your customers through direct marketing and the telephone is enormous.

In B2B, there are a lot of opportunities for the long term to revolutionize business and how businesses communicate.

eWeek: How do you choose whom to incubate?

Snedaker: We have three ways.

The first way is the partners or another person postulates an idea.

The second type is collaboratively created, where we look at an industry and we recognize that the basic business hasn't changed for 30 or 40 years. We know the industry is in need of improvement; we're not capable of developing the exact [solutions], so we collaborate with market experts.

Lastly is the case where business plans come to us through [venture capitalists].

eWeek: What is the ideal number of people starting a B2B company?

Snedaker: It will stay two or three for a few weeks, but pretty quickly, we like within four or five months to be up around 30 people.

Then you start having mass - and it makes a difference. We anticipate them sticking with us until they have 40 or more employees, after they have a product, [and] they have clients on board.

Within our incubator, there is a state-of-the-art tech center, which helps our startups design, create, engineer and build Web businesses and monitor them on a 24-by-7 basis. It's that monitoring that is so important. No enterprise customer will put up with downtime. It's not only a loss of business, it's a loss of credibility.

eWeek: What's a good outsourcing mix for a company when it gets started?

Snedaker: You always keep in-house your focal point and outsource things that are less essential, like accounting or [human resources]. And forming collaborations on things like engineering if it makes sense, and you can keep control over quality. The key thing is not losing who you are and how fast things happen and how they happen.

eWeek: What other types of potholes do startups face?

Snedaker: Pothole No. 1 is that you're developing something over here, and there may be no need. Then you say, "Hey, that is real interesting, I've got to do this today," and [you're] being too flexible. Pothole No. 2 is not being flexible enough.

A third is not getting customers involved early enough.

Another giant pothole is technology. There are so many people selling so many things it is hard to know what to outsource and what to build.

Fifth is staffing. It's easy for entrepreneurs to think they can do everything themselves.

eWeek: Do you have an IPO [initial public offering] schedule?

Snedaker: To some degrees, we do. The goals we keep in front of them is smart business, recurring revenues, sustaining business. Too many businesses have been created for the IPO instead of for the long term. If you create a business for the long term, it will get to the IPO, and it doesn't work the other way.

eWeek: What defines a good B2B?

Snedaker: We are looking for category killers or category makers. It has to be in a very, very large industry so it is not about one company doing their own business on the Web, but how a collection of companies can get together to do their business on the Web.

eWeek: What are the smart B2B ideas out there?

Snedaker: Interestingly, we rejected the notion of just B2B exchanges. We didn't think it was enough just to connect buyers and sellers; it goes down to the lowest common denominator.

That said, certainly, there is room for marketplaces that bring together buyers and sellers that go beyond the raw transaction.

The collaboration, the mistakes that happen, the delivery timelines, the imperfection of existing systems—there are so many related issues that lead to inefficiencies in terms of leaving money on the table, and spending money unnecessarily and not having people do the right things, and on and on. That's where the Internet can dramatically improve business.