Mum, Why the F*** Did I Launch a B2B Marketplace?

Those of you who have been following me for a while now, along with my mum, know that I’ve become o̶b̶s̶e̶s̶s̶e̶d̶ ̶w̶i̶t̶h̶ fascinated by B2B marketplaces. Why? Because with all of the innovation we’ve seen in the B2C space, not much has yet to filter down into B2B. There are many challenges which B2B marketplaces need to overcome, I’ve ranted about this while in lockdown with my mum, and also written about it in a previous post.

So what are the key things B2B marketplaces need to do to succeed? We partnered up with our friends at Hokodo, who interviewed over 20 different B2B marketplaces and got to the following 3 components. For the full deep dive, check out this link. For a TLDR, read on:

1. Change the behaviour of a professional buyer
2. Overcome the complexities of the B2B trade
3. Mitigating platform bypass

Let’s dive into it:

1. Changing the behaviour of a professional buyer 🛒

When it comes to B2B transactions, much of the purchasing behaviour tends to be old school and based on established relationships. There is a huge trust component involved and most buyers are reluctant to try out a new platform/work with suppliers they don’t know. Getting buyers to change their behaviour can be a huge challenge.

So how do we get around that? Here are a couple of quick hacks:

• Instead of trying to disintermediate existing commercial relationships, try and facilitate them. Faire, a wholesale marketplace is a great example of this, they incentivised buyers to bring their existing suppliers onto the platform and waived the transaction fee on those transactions. Buyer referrals are now their strongest supplier acquisition channel.
• Start by providing access to “surplus” supply or excess demand. Graindex, a marketplace for grains, for instance, started by capturing farmers’ marginal sales whilst the core still went to established buyers. From there, they were able to gradually upsell and capture a larger share of wallet.
• Changing buyers behaviour is easier in certain industries than in others. This is especially the case in industries where there is an existing broker/middleman that is already intermediating transactions and making a big cut out of it or in industries where buyers are systematically taken advantage of by large suppliers or vice versa. For instance, in the metals or chemicals industry, suppliers sell on a daily basis and have a deep understanding of market prices and arbitrage opportunities. Buyers, by contrast, interact on a less frequent basis, have limited overview on what prices should be and often end up getting ripped off. If you’re thinking about building a B2B marketplace, it’s worth taking these dynamics into account.
• There are loads more, but I’ll save that for another blog ;)

2. Overcoming the complexities of the B2B trade 🤯

Since most B2B transactions tend to involve higher average order values, the transactions themselves tend to be much more complex. They might involve different payment terms, have a heavy logistics and aftersales component, intricate workflows and so on.

Here are the hacks:

• Make sure you spend time with your buyers and suppliers to understand their workflow before you start building. Sounds obvious, but trust me a lot of people don’t do it ;)
• Build something (usually SaaS) which makes it 10x easier for them to transact. Rekki, a marketplace connecting restaurants to their suppliers, built a super easy to use, Whatsapp-style interface which made it significantly easier for restaurants to communicate with their suppliers. cargo.one transformed a complicated, multi-step booking process for air cargo into easy, couple of clicks transaction (scroll down here for a view on how they’ve done it).
• Take on a managed marketplace approach e.g. do some of the logistics or vetting of the supply base to reduce some of the administrative burden usually involved with a trade.

3. Mitigating platform bypass 🛍

This is something which happens in all marketplaces but is especially prevalent in B2B since buyers have a tendency to fall back on their established supplier base. On top of that, since the average order values are so high there is a reluctance to pay high take rates, increasing the likelihood that they will move off-platform.

Most of the solutions I’ve mentioned above (e.g. building SaaS, offering services, facilitating existing relationships) are a great way to avoid leakage, but here are a couple of others:

• Monetisation: if there is an existing broker you are disintermediating, charge a lower take rate than they do (undercut the middleman). If there is no existing broker, think about charging a SaaS or a combination of both. Make it economically advantageous for users to interact on your platform as opposed to off-platform.
• Offer additional services, whether that’s insurance (check out Hokodo), faster payments, data or logistics amongst others.

To get the whole down low, check out the fully-fledged blog @Hokodo. Big up to the Hokodo team for leading the bulk of this research. Stay tuned for more to come!

We are excited to have backed cargo.one, OnTruck, Merxu, Metalshub, Laserhub and an undisclosed company who are digitizing B2B transactions and helping us learn as we go. Here’s a little pic of some of us brainstorming on the future of B2B marketplaces. If you’re building one and keen to join us, Louis Coppey, Ricardo Sequerra Amram and I are all ears.

And if your mum is also sick of hearing you rant about B2B Marketplaces, we’re here for her! help@b2bmarketplacemums.com