What Is B2B And Why Choose This Business Model For Your Startup?

Last week, in part one of the B2B versus B2C series, I explained there are several reasons as to why entrepreneurs should venture into “B2B” (“Business to Business”) service based companies as opposed to any form of “B2C” (“Business to Consumer”) company, “B2B” product-oriented company or strictly a web-based B2B firm. I outlined the disadvantages and advantages for the first-time entrepreneur in starting up a B2C product-based or service-based company.

This week I will explain further how a B2B product-based or service-based company can impact on the first-time entrepreneur.

You can check out part one of this series here:

What Is “B2B”?

  • “B2B” – means that you are selling a product or service to other businesses.

A few examples of “B2B” product based companies would be:

  • Ex1: Selling CRM Software “Customer relationship management” to organizations so they can keep track of their sales leads, manage their sales cycles and determine a cold-calling schedule.
  • Ex2: Selling office equipment to companies who wish to upgrade their existing furniture.
  • Ex3: Selling security and access control hardware and systems to building management companies, universities and municipalities.

Looking Further Into “B2B” Product-Based Companies

Why do I recommend that the first time entrepreneur shy away from “B2B” product based companies?

  1. Unless the entrepreneur is a broker, he or she would probably have to purchase and store these products. Doing so adds on to start-up costs and, moreover, it creates a liability from day one. Even if the first-time entrepreneur is a broker (a.k.a. “re-seller”), poor negotiation skills, a jaded market analysis and a very low budget all combine to add to the probability of failure.Most products tend to be commodities. Unless this product is something so cutting-edge (then, we don’t know if there is a market for it in the first place so stay away), then others are selling a very similar product, which makes it a commodity. In selling terms, selling a commodity is exceedingly difficult and it is very hard to differentiate from the competition.
  2. When selling a “B2B” product, the best ways to differentiate from the competition is offering better support for the product, having an ability to deliver the product quickly as well as having an ability to offer more options at a cheaper price than the other firms in the space. Many entrepreneurs can’t offer the above and ultimately will lose out to companies like Dell, Microsoft, Iron Mountain and Caterpillar.
  3. Product based companies are typically not as fast moving as service-based companies meaning that the entrepreneur cannot change their offering in accordance with the clients’ needs as quickly as they could with a “B2B” service-based company. Also, upon meeting a prospective client, the entrepreneur may see profitability in selling another solution into the company, but being able to offer a new product that quickly can prove to be quite taxing and quite expensive, especially when money is tied up elsewhere.

  4. My business plan at KAS Placement changed several times from inception, and the reason I had the flexibility to adapt to market needs is that I didn’t have to wait to rely on a manufacturer to produce for me in order to generate quick revenue.
  5. “B2B” service-based companies tend to be more agile than “B2B” product-based companies. Also, many entrepreneurs are quick thinkers and being bogged down and invested in one product is as exciting for the entrepreneur as buying a municipal bond let alone a mutual fund.

Looking Further Into “B2B” Service-Based Companies

A few examples of “B2B” service based companies would be:

  • Ex: Marketing consulting
  • Ex: “KPO” Knowledge Process Outsourcing
  • Ex: Translation services

Service-based companies are perfect for the first time entrepreneur because he or she can offer a wide range of ever-changing services. Upon opening his or her first business, the entrepreneur wants to be as agile as possible because the chances of them hitting the nail on the head the first-time are highly unlikely.

To give you an idea as to how companies and markets change for the first-time entrepreneur, when I first opened KAS Placement, I did technology and temp. staffing in conjunction with sales recruitment. Hypothetically, if KAS was a product-based company 2/3 of my inventory would be worthless.

I quickly learned that I was not effective at, nor was I interested in technology staffing and I found that there was too much competition in the temporary staffing segment. Within a year, I knew where to focus my efforts and because I was a service-based company, the transition was as seamless as changing a few words on my website.

Then, it would soon turn out that a lot of my clients also had the need for marketing personnel and I was quickly able to offer that to my suite of products.

All businesses must evolve with market demand and when a service-based company has to change, it’s a lot cheaper than when a product based company has to. The first-time entrepreneur has to realize that the VC company that backed them is not going to reinvest in a failed business owner.

Here are some additional reasons that the young entrepreneur should choose his or her business within the “B2B” service-based realm:

  • Companies have money. Companies tend to have more money to spend than the average consumer. Ask the consumer to spend $5,000 of their own money and you may see them faint. However, ask that same person to spend $5,000 of their company’s money and they will be more than happy to do so.
  • Competitors’ marketing is not as strong. It is important to discuss how to implement and monetize sound marketing strategies while exploiting the weaknesses in your current or prospective industry. Though, when it comes to many “B2C” companies, their marketing is so sound and formulaic that their techniques and secrets would probably take an entire series of articles to explain. Therefore, all the entrepreneur can really hope to be is “average”.
  • While these marketing strategies may be considered “average” in some industries, the same marketing implementations can prove dominant in other businesses.

  • Pricing flexibility. In “B2B” service-based industries, the entrepreneur has complete pricing flexibility and can, upon entering the market, compete strictly on cost until he or she gains proper name recognition in the industry. Then all the entrepreneur has to do to increase prices is convey their new costs to the next company that calls.

Ken Sundheim

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About Ken Sundheim

At age 25, Ken Sundheim started KAS Placement Recruitment and Staffing from a studio apartment in New York. With no industry experience nor contacts, Ken learned the staffing business out of a book. KAS Placement now has two offices and is currently nominated as America's Most Promising Companies in 2012 by Forbes Magazine. Ken has previously contributed to NYTimes.com, WSJ.com, USAToday.com, Forbes and many more. You can read more at kensundheim.com.

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  • Great post…like it as it is highly informative.

    I am just aware of few thing about this but you gave me very depth knowledge concern to this. No I get all clear.

    So thanks a lot for sharing you truely and effective knowledge with us.

  • Thanks for your post Ken,

    Some time ago I actually also wrote a post about BTB and BTC that you can find at: http://hpshappyhomebusiness.blogspot.com/2011/08/what-are-characteristics-of-your.html where I write about the implications
    specifically for Affiliate Marketers.

    ‘Your posts has a lot of
    interesting complementing info’.

  • Great post Ken, there are a ton of opportunities in business-to-business situations. It’s great to have a few clients that are small businesses willing to have you do work for them. It keeps the money rolling in every month for sure! You’re also right about the fact that companies have money. Many businesses tend to spend huge amounts of dollars for things such as advertising, or consulting services. Anyways, thanks for sharing!

  • Good information and from reading your article, I have to agree. I think it will be hard for any one to try and provide products to a business but a service however, will be much easier. I myself have decided to provide a service to businesses for the very reasons you listed. They have more money than consumers and I believe that if you provide a good service at a good price, you will get clients.

  • I had a small b2b service a couple of years ago which got amazing attention! Should have persevered and carried it on as Im still getting calls asking for the service to this day. Having kids was my downfall though!

    • Raj Jain

      Hello Marlimba, can you tell me what B2B business were you into?

  • Ok… ask Yaro, I hardly ever read articles from other blogs (I just watch videos hehehe), not to even mention leaving comments on other blogs!

    But this post, Ken, and the previous one you did, is just pure brilliance!

    Thanks for being so clear about the different kinds of businesses the new entrepreneur needs to consider.

    This is GOLD! But only for those who “understand”…

    Gideon Shalwick

  • B2B can be more risky but it is definitely worth it if you play your cards right and make good decisions. You have to be more selective in your choices because the implications are more profound that B2C purchases.

  • Wonderful post with useful information. Where is the previous post before this?

  • Yes agreed, B2C is something you shd look at when starting up. B2B is something for more experienced players.

  • Great post Ken, there are a ton of opportunities in business-to-business situations. It’s great to have a few clients that are small businesses willing to have you do work for them. It keeps the money rolling in every month for sure! You’re also right about the fact that companies have money. Many businesses tend to spend huge amounts of dollars for things such as advertising, or consulting services. Anyways, thanks for sharing!

  • Thanks so much, I really also do appriciate your clarity, with also the clear distinction between Products & Services.

    I do believe that your post can actually Inspire me to add more Service Elements, and Layer’s of Value to the Services I am currently already offering. For example by making Improvements to the FAQ -, the Great Links -, and the info about Speaking & Delivering Presentations that you can discover on the Upcomming Events Page.

  • I’ve just folded my B2C company because my business partner couldn’t handle the volume. I wish I had never gone down the route of B2C. It is simply too challenging for a small startup with little to no capital. Before I was running B2C and it would take less customers to make the same amount of profit meaning more return for less work.

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