B2B2C too? Too Much!
For some time now, I have come across a growing number of companies arguing that their value proposition includes a relevant B2B2C element.
The argument usually goes in this direction: “I am the SaaS such or such, I have a technological platform with which I directly serve my clients, but speaking with other companies in the sector they have asked me if I would be willing to license my software for their own clients». And either they are seriously considering it or they are already putting it into practice. In any case, the clear objective of these types of comments is to show that the company still has large prospects, plenty opportunities to diversify its business model, expand markets and grow rapidly.
Big mistake. When I hear these types of arguments, what I think is that “the numbers don’t add up”: the company has failed to execute on its vision of disrupting an industry and make the operation viable (or enough return for the expectations of a venture capital business) and a discreet «Plan B» is being considered that is not as scary as an open pivot.
Why? Well, because we all know that the market is not an eventual stroll through a quiet park, but rather a continuous struggle for survival in a fierce jungle. And competition can come from anywhere: not to mention the situations in which there are new entrants from another foreign market, competition occurs both from providers of your same service (horizontal competition) and from other companies in your same value chain that, in their plans to expand their business, decide to expand their reach by using analogous skills and take you out of the market (vertical competition). We are seeing it first-hand in eCommerce with the dominating power of Amazon making clones of the most successful products within its market (a historical continuation of supermarket “white label” products), alternative stores’ efforts to control logistics chains outside of traditional distributors, and the new wave of “direct-to-consumer” brands struggling to establish an open channel with their audiences.
Let’s be clear: a direct relationship with your end customer is the most valuable business asset any company can have. It is the connection to the flow of capital that your company needs to exist, around which you should build as many palisades as you can because everyone is going to try to mediate that relationship. And it is in this context that you have to understand a potential B2B2C relationship: they do not want to be disintermediated by your usual cloud service, but they also do not have the capacity to offer an alternative service to yours, at least in the short term, and for that reason explore the option of using you as a technological partner to complete their portfolio of services and increase their income without giving up pre-eminence in the market, once again they are the ones who have the master key to the treasury: customer confidence in their brand.
Of course I am simplifying a lot, and in reality it is a question of a spectrum of specific cases, ranging from apifying or technological embedding in absolute white label (again, dear fellow programmers, a sign of weakness and not of strength), to the pure commercial reference in its channel that sends you the leads directly, producing the registration in our own cloud with unblemished respect for our brand image. And passing through intermediate stages such as “powered by” or “in partnership with”… where the needle is located within this continuous dial will depend on many factors, the main one being how much competitive pressure your interlocutor is suffering due to his part. If that pressure is high and they need your service to differentiate themselves, maintain their customer base, and even survive, you have much more bargaining power because you are the lesser of two evils. But do not doubt that it will be in his priorities to mend that partial dependence on you as soon as possible, as it should be in yours to disintermediate him and become the guarantor of that direct relationship with the final clients. Think in terms of co-opetition: collaboration and competition, always together.
A direct relationship with your end customer is the most valuable business asset any company can have.
These types of situations do not have to be the fault of entrepreneurs, of course. Sometimes it is a service that is too marginal to generate a change in leadership, or a market with such dynamics that it gives rise to monopolistic conditions that are difficult to alter. In any case, I feel deep admiration for anyone who decides to take on this hard path full of troubles called entrepreneurship. All of them, without exception and regardless of whether or not they achieve their dreams, are heroes that our society frequently does not give the recognition they deserve. That’s why it saddens me when I see founders so completely focused on creating value that they forget the other, equally crucial side of the coin: capturing that value. Having it stay in the boundaries of your fortress and not in someone else’s.
Sure, you may think of your B2B2C strategy as a “Trojan horse” to enter the market and then expand your position of strength, but the opposite is usually the case. The reality is that if you go down that route you may be able to achieve an economically viable company, but rarely will you build a brand that redefines the rules of the game in your corner of the world.
Initially published in Spanish at the Escuela Abierta of Startups’ Oasis.
