Why B2B Is Easier Than B2C
“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.”
Why are B2B companies thought of as superior to consumer? Businesses are the ideal customer, and they’ll give you lots of money to solve their problem(s).
Most of my early career experience has been in the consumer tech space.
In sophomore year, I was part of a venture that can be best described as mobile on-demand tutoring with knowledgeable tutors.
Along with my brother, and two good friends we envisioned a mobile app that offered near instant picture, video, and text based tutoring.
The early prototype involved Twilio API integration, in order to create an SMS based chat app. The use case tested for was difficult homework questions.
Last year, I was a Public Policy Fellow at Twitter (in their DC office), which involved working on the government relations and lobbying side of the platform.
However—I’m making the move to the enterprise this summer, as I’ll be joining the sales team at Cockroach Labs, through the 2019 Bowery Capital Sales Fellowship.
As I’ve immersed myself in the space, I’ve confronted one particular notion fairly often—B2B is seen as having a higher chance of success than B2C.
Why is that?
Here is a quick breakdown that I’ve been able to glean from the many sources I’ve talked to and read about:
- Straightforward Value Proposition
- Consumers are fickle. They don’t really know what they want, and even when they do, they sometimes end up not using your product. Most popular products for consumers don’t add tangible value to their lives, they’re just usually some repurposed social network and/or messaging app.
- On the other hand, business owners are constantly running around with a long list of problems and their hair on fire. If you offer them a solution that will save them money, or make them more money—they will take it and use it, and happily pay you for it.
- Easier to Monetize
- This relates to the last point from the first reason. Business owners are already used to spending money, in order to make more money. If they can’t live without your product, then their price sensitivity is very very low.
- An enterprise product could feasibly be profitable in a few short months, given a killer go to market strategy and understanding of their ideal customer.
- Consumers are notoriously cheap. This very principle has led to the current ad-driven monetization model that powers most consumer products. This also means that consumers are just plain used to products being free.
- Less Users Needed to Make Money
- If you’re a consumer product, in order to generate 1 million a year in revenue, you’d need at least 100,000 users with a LTV (lifetime value) of $10 in order to do so.
- With standard conversion rates, and optimization problems, that means you need probably at least 500,000 people to even try your app. Forget about worrying about how many people use your app and fall off (churn/retention), and then how well you’re monetizing each individual user.
- In B2B, depending on your product, you could achieve 1 million a year in revenue with less than 100 customers. And given the contractual nature of your customers, you’d also be much more confident in your financials trending upwards on a long term basis, versus consumer (a hot new app could dwindle your user base to zero).
This isn’t to say that B2B doesn’t come with its own set of challenges.
Despite the clear rationale for starting a B2B company, (for now) I still have serious interest in the consumer space.
Let’s see if there’s a way to marry the two, or if I can be convinced to move away from my ultimate dream.