B2B Commerce Optimization
When selling physical products or durable goods to businesses, there are some things companies can experiment with that depart from the typical D2C playbook. For example, one can actually get away with actions like charging more or taking weeks to ship products to a customer’s’ doorstep that can boost the long-term viability of the business and improve metrics like free cash flow (operating cash flow minus capital expenditures). There is a tradeoff here. I’m not arguing that you should run a shitty business with overpriced products that take too long to reach customers. Businesses (as buyers) are less price sensitive, but they need to know that the products they’re buying are reliable and durable. That comes across in brand and sales. In the context of delivery times, if you’re collecting payment from a customer and not delivering product for a few months, odds are that working capital is in a good situation. Businesses that pay careful attention to their cash conversion cycle are exciting to me. Read this post from Alex Taussig for more context. As customers, businesses typically have less of a Prime-style need to have things at their doorstep the next day, but do want transparency into the fulfillment and delivery supply chains, along with robust customer support.
Furthermore, there’s another angle to pursue if selling products one-off isn’t the way to go. When Rolls Royce felt like their jet engines were becoming low margin products, they started coupling the engines with services and maintenance on a per-usage basis, shifting to an “as-a-service” business model. As Ben Thompson says in this post, “The enabling factor for both Uber and Airbnb applying a services business model to physical goods is your smartphone and the Internet: it enables distribution and transactions costs to be zero, making it infinitely more convenient to simply rent the physical goods you need instead of acquiring them outright.”
As it pertains to asset utilization or rental businesses, there is some upside to selling to businesses over consumers. Rental businesses with consumers can get a little hairy, as you don’t want to turn into a debt collections company. These models are interesting and for people looking to learn more, I would point to public companies that lease industrial equipment or real estate investment trusts.
This post was part of a larger series I wrote at the end of 2018. You can check out the other ones here. If you’d like to get in touch, you can reach me at aashaysanghvi[at]gmail.com.
