Many new entrepreneurs, especially those located in Silicon Valley / Bay Area, are drawn to the allure of consumer focused startups. It’s easier for entrepreneurs (particularly ones with little business experience) to imagine using consumer products and they are typically simpler to design. In addition, consumer focused Minimum Viable Products (Eric Ries’ The Lean Startup) can be enough to draw widespread attention from target customers and news feeds like TechCrunch or PandoDaily.
Enterprise focused startups are a tremendous opportunity because 1. there are fewer competitors and 2. most enterprise customers are already paying for a legacy product that is likely not web-based (SaaS). According to Jim Goetz of Sequoia Capital, “Enterprise remains an ‘enormous opportunity’ because companies are spending about $500 billion a year with legacy enterprise companies and those budgets are ripe for the plucking.”
Consumer based startups may go from zero users to 100 million users virtually overnight only to fizzle out when interest wanes. Most never figure out how to make money and have a tough time raising funds. Enterprise startups, on the other hand, take longer to get going but have a clearer growth trajectory with real revenue. Most venture capital firms prefer to back enterprise startups because there is a more manageable growth trajectory and usually a more lucrative exit.