Should I Pursue B2C or B2B?
A friend of mine is running a start-up in the Silver industry. She provides a SaaS platform that allows family members to care for their elders (e.g.: parents, grand parents, etc.). The company received innovation prizes and grants; additionally, it is in discussion with other companies to leverage that platform but she brought up a good question "I want to scale the business faster, should I still pursue B2B route or pivot to B2C?"
In order to answer that question, we need to understand the opportunities and challenges that each model can bring and they really do affect the speed of growth, sales, burn-rate, strategy and operations of the business. Most products and services can be sold to either end consumer or businesses but that is the only common area between them. The way you make money, sell, and structure your business Vision-Path are very different and you may have to take into consideration your own capabilities to see what is realistic to do or understand it, so you can plan ahead.
In my career, I worked in both B2B and B2C companies. For instance, at Google, I was the AdWords Product Specialist and AdWords is basically a B2B product. Companies sign-up for AdWords so they can advertise their services and products to other businesses. Some people may consider AdWords as a non-B2B business model because of the self-service nature of the platform and the lack of high-touch services for most of those business clients, but I can tell you that if you spend enough, Google will provide high touch care to the business clients (that team is call Direct Sales and those clients who spend a lot are invited for special events, free consulting work and early beta testing). You can already understand that there is a different treatment for different tiers of business clients. In B2C for instance, when you go to the super market such as Costco, it does not matter if you spend $5 or $1000 and you will have to stay in the line for the cashier; there is definitely different tiers of services even within B2C, but most consumer experiences in the B2C are homogenous.
For B2C experience, I'd like to bring my experience working at Anheuser-Busch InBev in Canada (Labatt). They are the beer company that owns Budweiser, Bud Light, Stella Artois and a lot more other brands. They basically own close to 50% of the beer market share on Earth. They are a CPG (Consumer Product Goods) machine and they have operations, processes, know-how to market to the mass market B2C. On the surface, both Google and the beer company have HR, Marketing, and other different departments but the way they organize themselves are very divergent. The way how they put together their organization structure, strategy, values and visions are totally different given the differences of B2B and B2C markets respectively.
I remember that when I was creating my own start-up, Mibelo, a QR code based mobile shopping platform in 2011, I also faced similar challenge if I should go for B2B or change my business model to cater for B2C. In my case, it was still clearer that I should look for B2B since I'm selling a platform so other businesses can use it versus starting selling things on my platform to show case the technology and reach B2C model.
For my friend, her product can be signed up by the family members as a B2C model or she can sell licenses directly to big companies in the Silver industry space and they care for that end point with the consumers. At the end, the goal is to make money and generate value to customers. From that perspective, B2C and B2B have their own pros and cons and depending on your context and immediate needs, one model is better than other.
I'm going to summarize the differences of B2C and B2B.
|Sales Cycle||Very long - more than 6-10 months||Below 6 months (except for real estate)|
|Decision Making Process||Complex with Multiple Stakeholders||1 or 2 people (e.g.: husband and wife)|
|Volume||Small Quantity||High Quantity|
|Average Transaction||Very Big||Very Low|
|Selling Solution or Product||Solution||Product|
|Price Transparency||Very Low||Very High|
|Importance of Thought Leadership||Very High||Low|
|B2B Platform Conferences||A must||Not required at all|
|Long Term Reputation Requirement||Very High||Not as relevant|
|Marketing Outreach||Specific Groups||Mass Marketing|
|Operations||Customized service support||Cookie-Cutter service support / self-service|
|Scale Support||Required||More local support|
Using only the first 4 items: Sales Cycle, Decision Making Process, Volume, and Average Transaction, we can reason that the teams required to deal with those different clients required different skillsets, people, processes and resources.
Because the Sales Cycle for B2B are longer than B2C, there will be no revenue coming from a potential client until the contract is signed, but in order to keep the company lights on, salaries and other overhead costs must be paid on a monthly basis, so there is a gap of adjusting for those long term sales cycles and it has to be considered. On the B2C side, one of the quickest sales cycle is to sell products to end consumer online; the revenue comes almost immediately and there is no term pay as what happens usually with B2B. The sales cycle impacts the financial needs and planning greatly from one to the other.
Decision Making Process
In B2B world, there are multiple stakeholders to approve the purchase of a product or services. Usually, it requires a technical and business champions, the blessing of a senior executive and approval of the investment from the finance team. For each of those people, we need to fine tune the sales pitch. For the technical people, we need to show how superior the product or solution is; for business people, we need to show how reputable the brand is; for the senior executive, we need to make sure they are buying something that they can tell to their peers proudly and finally, we may have to offer some sales term that may affect the margins or the cashflow. In the B2C world, beyond the methods of payment, we only have to convince the end-consumer in trying out our products and service. That's usually the mistake that a lot of professionals do in bringing their personal B2C experience and applying into the B2B world.
For start-ups, we can start with a nuclear small team to start pitching the B2B sales; however, for B2C mass market, unless digital types of retails or business, we need sales and support people to handle requests. Imagine a restaurant, we need servers, cookers and a lot of people to keep the business running since there is a difference of volume of the clients. That requires different operations to run different volume of work. That impacts on the processes and tools required to provide services for different markets.
The most common co-relation is that the lower the volume, the higher the average transaction; the opposite is also true, the higher the volume, the lower the average transaction value.
Based on these criteria and differences, we can evaluate better what we really can provide to the market. Ideally, we should model these differences before deciding to pivot from B2B to B2C or vice-versa. It is important to understand how it impacts the revenue model, cost structure and time. Finally, it is important the entrepreneur or the senior executive to ask candidly if they have the right processes, resources and people to executive.