B2B or B2C Ventures: Which Has the Most Promise?
The act of doing business in today’s world has taken on many different shapes, but in recent years there’s been a significant uptick in the number of entrepreneurs adopting the venture studio model as a company building framework.
While the venture studio model may be losing its novelty status, it is by no means losing its reputation as a popular business choice for new entrepreneurs. However, even venture studios are subject to dynamic forces, which may result in either adverse or favorable outcomes depending on how these factors are dealt with.
Today, every preconceived notion of doing business is challenged by rising pressures from market changes, competition, and consumer demands. Doing business is no longer a simple matter of selling a product or service. The value extracted by each new business needs to extend far beyond that to capture and maintain market interest.
Coming up with a business idea that guarantees sustained value generation is the most challenging aspect when taking the plunge to start a new business. Selecting which business model to start with — business-to-business (B2B) or business-to-consumer (B2C) — is an essential first step when laying a structured foundation for the first-time founder.
Venture Studios: Knowing Which Business Model to Choose
When establishing a new business, always keep this in mind: the consumer is only looking for one thing — a solution to their problems.
The main difference between establishing a B2B or B2C business largely comes down to the types of psychological strategies required to market the offering.
Before selecting a business model, here are a few questions that new entrepreneurs should ask themselves:
- What persistent industry challenge currently exists or what problem is the prospect challenged with?
- Where is the prospect experiencing friction?
- What is the unique selling proposition of this offering and does it directly solve the prospect’s needs?
- What is the best channel to reach prospects and the best method to communicate the solution?
- What information and processes are required to get the prospect to decide to purchase the offering?
- How long are lead times and how easy is it to get the prospect to purchase the offering?
Having answers to these questions will provide a starting point for entrepreneurs to map out which business model will be better suited to market their offering.
Defining a B2B Venture
At its core, a B2B venture conducts business — selling products and services — to other organizations rather than to individual end-consumers. B2B ventures develop offerings that are considered core elements for other businesses to operate, grow, and profit. B2B ventures regularly sell their products or services (e.g SaaS models) directly to other companies through the use of a platform. This makes it simple to share data and updates with the business consumer.
There are many types of B2B ventures but some of the most common are web development, supply and procurement exchanges, and infomediaries. The rise of B2B solutions has redefined the relationship between businesses and suppliers and often involves transactions between manufacturers and wholesalers, or wholesalers and resellers/retailers.
B2B Message Targeting
The main goal of a B2B venture is to build trust and credibility with the intended target audience. For that reason, the core message of the venture will need to focus on highlighting how the offering will save the prospect time, money, and resources.
B2B Target Audience
- B2B prospects are logic-driven
- The needs of B2B prospects tend to be more complex
- The decision process for B2B purchases regularly involves a group of individuals and decision-makers
As a trillion-dollar industry, setting up a B2B venture has several advantages and while it may not always be the case, B2B ventures generally benefit from the following:
- A predictable and stable market
- Sustained customer loyalty as a result of repeat customers
- A streamlined business structure
- Larger order volume and higher profits
- Vast potential to scale and grow
- Better management of suppliers and customers
- Analytics and data-driven advantages
- Improved security with contractual agreements
Defining a B2C Venture
A B2C venture sells products and services directly to consumers who are the end-users of its offering.
In B2C markets, consumer behavior is the primary driver. Traditionally, B2C referred to companies that had a brick and mortar presence, however, with the growth of the internet in the 1990s, B2C ventures are transitioning into online retailers. Direct sellers are one of the most common examples of B2C selling directly to consumers. Another popular example includes online intermediaries which match sellers directly with buyers at a markup.
B2C Message Targeting
When it comes to building a relationship with the intended target audience, the main goal of B2C ventures is to create an impulse and urge consumers to purchase through the use of emotive branding. This is best exemplified by messaging that focuses on how the offering will solve certain problems and the benefits it brings to the end-user.
B2C Target Audience
- B2C prospects favor simple and easy messaging about the offering
- Focus is on triggering emotions and quick emotional purchase decisions
- Involves individuals or families or groups of similarly defined individuals
B2C ventures have the advantage of targeting and selling a product to a vast and varied market. Additional benefits include:
- Relatively easy to convert website visitors into customers
- Simple to set up online stores (e.g. e-commerce site)
- Small and mid-size businesses can grow quickly through this model
- Able to obtain more customer profile data
- Has a global reach
Differences Between B2B and B2C Ventures
The venture studio model accompanies young ventures until they either exit the venture or the venture is dismissed. In doing so, venture studios act as co-founders. Ultimately, the goal of any venture studio deciding on the direction of their portfolio is the same — both B2B and B2C models are selling to people. However, the principal difference between B2B and B2C is their intended customers.
While there are many similarities between B2B and B2C ventures, some differences are less obvious.
Although it can be argued that B2B and B2C are vastly different frameworks, the venture studio model, renowned for its business acceleration tactics, aims to build an efficient sales process aligned with marketing efforts and excellent customer service that both venture types require.
How to Select Which Business Model to Pursue
Understanding the main differences between B2B and B2C business models means that venture studios and entrepreneurs can make the right decisions for which business framework to pursue.
B2B consumers specifically name the lack of speed in interactions with their suppliers as the number one pain point, claiming that it’s twice as important as the number two pain point which is price.
Customers are willing to find answers themselves. Currently, 67% of customers prefer self-service over speaking to a company representative. This is supported by 91% of customers preferring to use an online knowledge base if it were available and tailored to their needs. In addition, 86% of consumers prefer using self-service tools for reordering rather than talking to a sales representative. This has resulted in more organizations turning to AI solutions, like chatbots, to facilitate interactions. In 2019, 25% of all customer interactions were automated through AI and machine learning. With 90% of companies now planning to deploy AI within 3 years, this number is expected to grow to 40% by 2023.
Aside from the general useability and enhanced customer experience, 59% of consumers consider brand purpose when making a purchase. Consumers are more likely to trust and purchase a product or service from purpose-driven brands.
Conducting thorough market research will help both venture studios and entrepreneurs decide which business model will be best suited to meet their goals and serve the needs of their customers as a solution that is superior to what is already available in the market.
Gauging the Market for Sustainable Business Success
There is no clear answer when it comes to deciding which industries are better suited for B2B or B2C models, however, a few general assumptions can be made. Technology is ever-evolving which is resulting in several new trends emerging across various industries. There are endless use case examples where each business model, B2B or B2C, can be incorporated. However, the ones listed below provide a few cases for each:
- Financial technology (FinTech)
- Information technologies and information security
- Business automation and services
- Manufacturing and construction
- Digital marketing
- Biotech and pharma
The global B2B market is worth 1.5 to 1.7 times the value of the B2C market. The difference in the market size is partially due to Average Order Values (AOV). The top three reasons why B2B buyers chose a particular vendor over others is the vendor’s knowledge of the solution and business landscape (69%), the vendor’s knowledge of the buyer’s company and needs (65%), and the vendor’s ability to provide content that made it easier to build a business case for the purchase (62%).
B2B organizations recognize that account-based go-to-market and digital-first strategies are the way to expand the customer pipeline and grow revenue. Top eCommerce investments for B2B companies include the Internet of Things (48%), third-party online marketplaces (48%), AI technology (47%), personalization (44%), and integration with social commerce platforms (44%).
- Ecommerce (Direct sellers and online intermediaries)
- Advertising-based models
- Community-based models
- Product-focused software-based models (e.g Microsoft)
As previously mentioned, there is a considerable push among organizations and consumers to go digital. Consumers now expect personalized marketing experiences after a year and a half of shopping online. Around 57% of consumers are willing to share their information in exchange for personalized offers.
Investing in the consumer's experience (CX) has the potential to double corporate revenue within 36 months. Investing in a good customer experience results in around 86% of buyers being willing to pay more. From a business perspective, organizations are following this trend closely and increasingly investing in the customer experience to improve cross-selling and up-selling opportunities (42%), improve customer retention (33%), and improve customer satisfaction (32%).
The Role of the Next Decade for Business
In the first six months of 2021 technology startups raised nearly $300bn globally, almost as much as in the whole of 2020. This indicates that both B2B and B2C business models are going in the direction of digital-first. However, transformation is a continuous cycle. It’s never entirely complete, and organizations will need to continually evolve to meet customers’ changing expectations.
While many startups find that a B2B model works best at the start of their venture-building journey, this is certainly not the case for all. It’s an essential part of the process to weigh all the pros and cons of each business model and align the outcome of this exercise with the goals of the intended business idea. In addition, the types of relationships entrepreneurs can form with prospects, the infrastructure already in place, and a current assessment of the market will aid in deciding which business model framework will work best.
When confronted with the difficult choice of who to target, the right answer will come down to what a startup thinks it can uniquely position with the current market forces at play.
Business Content Specialist at Next Big Thing AG