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?
- 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.
- 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.
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.
- 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.
“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.