Imagine you’re thinking of buying a tablet. What will make you decide whether to buy? What will make you decide which product to choose? Who do you have to consult with? How will you evaluate whether this is a good or a bad purchase? How long will you take to evaluate the options?
Now put yourself in the shoes of someone about to authorize the purchase of $2M of enterprise software. Ask yourself the same questions. Are the answers similar? If you ask the same questions, why are the answers so different?
B2C vs B2B Startups: What Are the Major Differences
Businesses don’t make decisions the way consumers do. They also don’t assess opportunities the way entrepreneurs do.
A founder may see ‘a tremendous opportunity’. A business stakeholder might agree with their assessment. However, at the end of the day, they may not be willing to engage, or to seriously consider the opportunity.
It’s easy to get caught on the outside when you don’t know the differences in how businesses and consumers make decisions.
To be able to gain traction inside mid- to large-sized companies, it’s important to understand the three key differences between B2B and B2C:
- Return on Investment (ROI)
- Client Relationships
- Decision-Making Process
Let’s see why:
1) Return on Investment (ROI) in B2C vs B2B
There are many reasons why businesses buy technology:
- To increase sales
- To cut production times
- To help retain top talent
- To cut costs
- To improve customer loyalty
- To increase market shares
When businesses agree to buy new technology, their decision is made in expectation of a certain return on their investment (ROI).
More sales means more revenue. Less time means lower costs and increased profitability. More loyalty means longer customer relationships, and increased revenue.
This type of arithmetic is happening all day, every day inside companies. Stakeholders are constantly looking for solutions to their biggest pains. They’re making investments on cost reduction, future profitability, time-saving, productivity, customer satisfaction, etc.
“The next time we do [ Task ], our team will be two times faster.” “By the end of the year, we’ll have saved 300 hours thanks to [ Product ].” “[ Product ] should help lift our conversion rate by at least 3%.”
To close sales in B2B, there needs to be at least the promise of a ROI. The new accounting software has to be fast and reliable. The new marketing automation platform has to increase revenue. The new helpdesk solution has to improve end user satisfaction.
There is no luxury in B2B. Stakeholders will often compare and evaluate products based on their expected ROI. It’s their native tongue.
Unlike consumers, businesses never buy technology simply to look good, for fun or for the user experience. Expectations of ROI are always built into the purchase of new technology.
Consumers love novelty; businesses just call it risk. – Ben Yoskovitz and Alistair Croll, Lean Analytics authors
2) Client Relationships in B2C and B2B Startups
There are often significantly fewer buyers in B2B than in B2C. Burning leads in B2C may not directly impact your growth when there are large numbers of potential customers in the market—but in B2B, a bad reputation or go-to-market strategy can quickly take a toll.
In B2B, entrepreneurs need to build deep relationships with a relatively small number of companies. The bigger the deal size, or the longer the sales cycle, the more critical it is to learn to build relationships. Relationship-building skills are critical to landing long-term agreements and growing existing relationships.
Trust and stability matter. To sign long-term deals, clients must believe that your company will be around for the next two to five years.
Early on, you’ll most likely validate your product with the same companies that you end up working with later. Your company can’t change product overnight. Transition must be planned for fear of alienating prospects. Disappearing when your product hypotheses don’t pan out is self-defeating. It’s important to bring prospects along in your journey.
The relationship leading to and from a sale is much more important in B2B. Starting off providing services, for example, can be an effective way to build the necessary relationships.
3) Decision-Making Processes for B2C and B2B Startups
If selling to consumers is like linear algebra, selling to businesses is like multi-order differential equations. – Unknown
For large purchases, consumers sometimes consult with family, friends, colleagues, or other people in their networks, but most purchases will generally involve few people.
For B2B purchases, it’s not unusual for the direct or indirect approval of five or more stakeholders to be required. According to CEB (Gartner), the average number of stakeholders involved in a B2B purchase in 2017 was 6.8, up from 5.4 in 2014.
These stakeholders can play different roles (i.e. economic buyer, technical buyer, end user, etc). They may be the actual deciders, or they may simply influence the purchase decision.
It’s important to understand that in B2B, products generally need to meet the needs and expectations of a group of buyers in order to gain adoption.
These buyers often have different—sometimes conflicting—needs, motivations, and worldviews. It’s vital to build positionings, sales collaterals, and product marketing content that appeals to different stakeholders.
Although there are other differences between B2C and B2B startups–funding, service level, cash, etc–the above three are the main differences between B2C and B2B startups that entrepreneurs need to be aware of.
So, Why Aren’t There More Enterprise or B2B Startups?
Enterprise is a major opportunity. Yet, for a lot of entrepreneurs, enterprise is scary.
It looks like a big mess of departments, business units, projects, functional groups, intradepartmental policies, corporate rules, politics and many other things that startup founders may have never been exposed to.
That complexity turns off many entrepreneurs. They choose to start up in B2C because of their personal interests or because it feels easier to scratch their own itch and build a product they can use than build a solution an enterprise customer will use.
The Challenges B2B Startups Are Facing
Unless founders have prior experience working in the enterprise, starting up will force them to get out of their comfort zone to face the following challenges:
- Acquiring the Industry Context: Domain expertise is often required to target the enterprise. If you don’t know how companies do business, what matters to them, what they fear, how they perceive themselves or what their yearly schedule looks like, it won’t be easy.
- Building a Relevant Professional Network: You might have a good early adopter network, but if it doesn’t connect you to the enterprise market, you’ll have to re-mix it. Early on, connections are the best way to get through the door.
- Estimating the Return on Investment (ROI): Cost justification is a critical part of selling in B2B. You need an ROI to make a sale, but if you don’t have clients you can’t calculate the ROI… It’s a fine line you’ll need to walk.
- Raising Sufficient Capital: As entrepreneur and investor Jason Lemkin explains: “$750k gets you very far along, post MVP, in a consumer start-up. In the enterprise, it gets you almost nowhere. A prototype, yes. Customers? Maybe not. A sales team? No way. Demand gen marketing? Fuggedaboutit. It’s $2M to get anywhere.”
- Reducing the Enterprise Risk: A big part of selling to the enterprise is being able to understand the customer’s perception of risk (migration, change, costs, etc.). If you’ve never worked in the enterprise, you’ll have difficulty imagining the complexity going into purchasing new technology.
- Understanding the “Whole Product”: In enterprise, the bar is much higher for the product. There are a lot of things that must be put in place just to be considered a valid vendor. To sell, you need to understand the minimum feature set.
These challenges can overwhelm the most experienced entrepreneurs. It’s critical for founders to be humble about what they know and don’t know.
Targeting the enterprise won’t be easy, but it doesn’t have to be scary. To succeed, you must be ready to get out of your comfort zone.
B2B or B2C: Which Is Right for You?
B2B opportunities tend to attract different kinds of entrepreneurs than consumer startups.
To know which is right for you, ask yourself, do I prefer…
- A. Building relationships with hundreds of users.
B. Acquiring millions of users.
- A. Solving a customer’s pain.
B. Creating a market need.
- A. Selling big.
B. Selling fast.
- A. Improving your product with feedback from a small group of users.
B. Improving your product with feedback from a large pool of users.
- A. Becoming a thought leader in your clients’ industry.
B. Letting your clients be the experts.
- A. Hiring salespeople.
B. Hiring marketing staff.
- A. Investing in demos, data sheets, case studies, whitepapers, lunches, conferences, etc.
B. Investing in your website, search engine optimization and search engine marketing.
- A. Working on the return on investment of your product.
B. Working on the user experience of your product.
These questions can help clarify your interests.
There are a lot of reasons why more and more founders are gravitating towards B2B in recent years. Nowadays, many of the best startup opportunities are in B2B.
More on B2C vs B2B Startups
- Do You Have the Profile of a B2B Entrepreneur?
- The Best Technology Business to Start in 2023 is B2B
- 21 Lessons B2B Startup Founders Need to Learn to Make Their Business Successful
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