Founder's Guide

Why I Love B2B over B2C

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The biggest technology companies in the world are typically consumer internet companies, like Amazon, Google, Apple, and Facebook, so it’s easy for new entrepreneurs to be attracted to B2C. Founders generally draw business ideas from their own experiences, so for younger founders who have never worked in bigger companies before, B2C ideas may be all they have.

Even having built and sold Twitch, which is definitely a consumer company, I wouldn’t recommend B2C if you can avoid it.

If I were starting from scratch (which I basically am right now) — I would start a B2B company (hence: Atrium). Here is why.

B2C is a gamble while B2B is (more) within your control.

In B2C, you have to ride a massive wave to become a success. This is more than just being good at building a company: you also have to be very lucky.

If you look at the biggest B2C successes, you’ll see every one rode a massive wave the founders didn’t predict at the beginning:

  • Google rode the early internet adoption wave that created a ballooning amount of information.
  • Facebook’s wave was mass adoption of the internet and the growing comfort that people had putting their real identities and connections online.
  • Uber came out as the killer app for the mobile world — just as everyone was getting a mobile phone for the first time.

However, there aren’t that many waves, so there won’t be that many killer apps.

It’s a power law distribution of outcomes, meaning that for the thousands consumer internet companies that start every year, 0 or 1 will probably break out. In B2C, the magnitude of your success is about that wave, which means it’s completely out of your hands.

B2B, however, is in your own control. The problems are known. You can just ask businesses what their problems are and make products to solve them.

Take Atrium – what do startups want from their lawyer? They have the same consistent requirements that I had when my startup had to work with legal. They want:

  • Faster work, because they hate when legal is a blocker
  • More transparency, because they often feel in-the-dark, unsure of how legal might affect a deal
  • Lower prices and more price-predictability (no explanation required)

Legal has had these issues for a long time and will keep having these issues until someone solves them. As a B2B customer, anything that moves the market in these directions is a desirable product.

B2B Customers know what they want, while B2C products are a shot in the dark

Consumers aren’t able to tell you what they’ll want, which makes B2C products a shot in the dark.  It’s not just straightforward problems and solutions – let’s look at some examples:

  • Snapchat’s Snapstreaks are not based on a problem; they’re entertainment.  How could you have gotten that idea from customer interviews? A customer would never have said, “I want to be notified of how many days in a row I’ve messaged my friends so I can try to keep the streak alive.”
  • Shoes and fashion are just a matter of taste, so how would you have known that Allbirds would work? What if people just find them ugly? There are trends and risk factors outside your control, so it’s hard to predict whether the market will take to a product. Ultimately, B2C fashion requires a leap of faith, which the founders literally say they took.

Even if you’re really good at spotting trends, there’s still much more variability in B2C than there is in B2B. You can take an educated guess, but you still need to get lucky. That’s because consumers make decisions based on factors outside of whether the product solves their problem. They don’t make purchases and use products purely through a rational calculation. Some of the biggest hits are brands built on fads or solve problems that you would never be able to guess a priori, while many practical products die a quick death.

The parameters for enterprises (B2B)  are much more straightforward. A B2B customer has two questions:

  • Does this solution actually solve my problem?
  • Is it an important enough solution that I will pay for it?

Of course, there may be corporate or political reasons they can’t buy your product, like your company is not on their preferred vendor list. But if the product works and promises to solve a real problem, it is almost certain that you will close some of your potential customers. Even better, if the product solves a big enough problem, they’ll actually work with you to get past the blockers.

In B2C, it is hard to know if things are working, while B2B has a clear execution path.

In B2C, it can be very hard to know if things are working well.

With the virality of trends and the fickleness of individual consumers, you could create a product that’s a massive hit one day and fizzles out the next. Do you want satisfied repeat customers or a broad spread of interest that proves current customers are telling their friends?

Ranidu Lankage at Polly discovered this firsthand. He grew to millions of users in a matter of months, but couldn’t retain them on the way to almost getting acqui-hired

It all depends on the product. And since each product is unique, what looks like traction to someone can look like your product fizzling out to someone else. You constantly have to muddle through guesses and assumptions, and even then it’s really hard to know that any success will sustain.

In B2B, you have a clear execution path. You don’t have to mess around with virality. There are known ways to execute on marketing, sales, and integration engineering, which is why lots of enterprise startups have the same team structures despite selling different products.

You can ask advice from people in the industry who have done it before. While you don’t want to copy their exact marketing or sales tactics, they can give you an idea of how to build and grow a team.

Companies have much more inertia, and they don’t quickly flip-flop from using one product to another. In B2B, it’s easy to know if your product is working. Your product is working if companies are buying it.

Iterating in B2C is hard, while B2B has clear follow-up steps.

In B2C, even if you do figure out one product, developing a second act is really hard.

Look at Google, the poster child for successful second acts. It started with search, and then they added:

  • Gmail
  • Chrome
  • Android

Those are all successful second acts . . . but the first product, search, is still their biggest moneymaker by far. It’s super rare for a company to create a second act that gets as much or more traction than the original. Google is essentially still running based on that initial first product.

Twitch had success with live video and chat. We rode a big wave, but we struggled with creating a second follow-up act. It’s incredibly tough to parlay success into the lasting ability to develop and iterate new products.

In B2B, you can just ask the customer what to follow up with. You can ask customers for their feature requests, then you implement them and charge them for it.

You can ask them what other problems they have in related areas and integrate a suite of solutions.

As an added benefit, if B2B customers buy your product for something, they’ll generally pay more if you make it simpler or more effective.

They make decisions based on how much value their business gets from your solution, and they have teams that define their pain points, so they’re more than happy to articulate them directly to you if it means you’ll build a solution.

B2B Customers will actually pay for your products.

B2C is way harder to monetize unless you’re at massive scale because no one wants to pay.

When asked how much people would pay for Facebook, it’s a fraction of what Facebook actually makes from ad revenue. Consumers are price sensitive, so you often need other models that rely on some other element, like data, to make sufficient money off consumers.

In B2B you can just charge a price and the company will pay if the product is worth that much to them. Then, over time you can improve it and charge more. Also, it turns out that most everyone in B2B is charging too little.

Unlike consumers, businesses make decisions based on cost-benefit analyses. If the marginal benefit of your product is greater than their marginal cost to think about it, pay for it and implement it, then they will buy (although don’t underestimate the cost of “thinking about it”, aka whether its important enough for them to give a shit).

B2C puts you on the fast-track to burnout

In my experience developing consumer products is mostly just guessing at random ideas, trying them out, and mostly failing. The process feels largely outside your own control (unless you happen to get lucky early).

In any complex system of consumer behavior, you mostly don’t understand initially what’s driving growth. Even Facebook doesn’t understand what their users want. Sure, they might understand what drives a specific type of clicks, but I don’t think they fully understand why their users do what they do — they mostly split test features and see what optimizes usage.

This is evidenced by Facebook’s continual changes to the newsfeed, and the rotating door of content types (opengraph items, video, live streams, etc) that keep getting pushed and then pulled from it.

With B2B, it’s easier to know what to try. There’s a straightforward path to iterate. You can just ask the customers “What do you want? What are the features you’d want in a solution?”

In my experience as an entrepreneur, it’s really stressful to run out of ideas on what to do.

If you have a list of ideas to try, it isn’t stressful even when that list is pretty difficult.

Uncertainty, not difficulty, leads to burnout. Generally I find B2B has less uncertainty over the product roadmap.

To succeed in B2C, solve your own problem

The common thread between all the reasons above is that success in B2C depends on many factors out of your control. B2B is driven less by trends and more by practicality.

Despite all that, you can still have a wildly successful B2C company — and there are two big things you can do to improve your chances:

  1. Solve your own problem.
  2. Build something for which you’re an expert in the market.

In developing a new menstrual product, Lauren and Erika at Flex were building the product they wanted and solving a problem they knew others had.

How did we know Twitch would work in the consumer space? The short answer is we didn’t, but we had a better shot since we were solving our own problem.

When Starcraft 2 came out, it was the only content my cofounder Emmett actually wanted to watch on Justin.tv. In order to discover how to get more of that content on our site, he went and talked to the existing gaming video creators on other sites, and asked how we could support them better.

Eventually we built enough features that they wanted to come over. It turns out watching video game content was a much bigger wave than we’d ever guessed, and the rest is history.

Conclusion: Only go B2C if you mean it

The biggest wins on the internet have been consumer companies, and that is likely to continue to be the case.

However, having built and sold a consumer company, I just think it’s a lot more painful, prone to luck, and harder to grow compared with B2B.

If you have a great idea that you’re passionate about, and you’ve either established early traction or want to try and do it, go for it.

. . . but if it doesn’t work, think about how you could apply the same concept to an organization — or solve a new problem in the B2B space.

Photo Credit: Carl Carell

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Justin Kan is an internet entrepreneur and investor known for founding various companies, including Twitch--a video game streaming platform (acquired by Amazon for $970mm). He served as Partner at Y Combinator, where he impacted over 900 companies and funded more than 130. Currently, Justin serves as CEO of Atrium, where he's building technology to revolutionize the $450bn legal industry.

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