Everyone wants to B2B. It is the flavour of the season with investors, with the media and with entrepreneurs who jumped from Uber-of-x in 2014 to foodtech in 2015 and want to B2B in 2016. Heck, even I’m running a B2B startup that has ecommerce in it.
It going to be great, right?
Here are things about B2B in general and B2B in India specifically:
B2B is unexciting
- No twitter endorsements by a top supermodel or cricket player!
- No teenagers gushing over your products.
- No old men complaining that your B2B products make the younger generation lazy.
- No discussions with classmates on your latest B2B purchase and who got a better deal.
- No social sharing (Any takers for this FB status: Yay! Look at the 100 kgs of industrial strength grease remover for my shop floor that I just ordered).
But this is ok, after all, most manufacturing, construction, trading, brokerage and consulting businesses are unexciting.
Don’t complain if procurement for these unexciting businesses is also unexciting.
B2B is not sexy
Most industrial products are designed to be in market for years and last years as well. I know someone who still requires floppy disks to operate their CNC machine (ok, extreme example. But you get the idea)
The only thing longer than the purchase/procurement cycles of B2B products is the usage cycle.
Companies do not like changes in their processes.
Change means they need to re-train. They need to stop production during upgrades. Lost productivity. Potential downtime.
You have to get ’em, put ’em away. You lose ’em, yuck.
B2B is not quick
B2B products and services don’t sell themselves. (Even SaaS Inside Sales)
The sales process requires calls, emails, reminders, follow-ups, proposals, approvals, negotiations, payment cycles, post-sales support.
They take time and serious attention from your team.
It’s not you. It’s them (the enterprise customers). Their processes cannot handle a quick add-to-cart+checkout functionality. Sure some of them have started to buy stationery and IT equipment online, but what about the large pot of B2B gold at the end of the rainbow?
Three words for you: Slow and Steady.
B2B is neither CoD nor Card
Very few payments can be CoD as the govt. of India dislikes businesses paying businesses large amounts in cash. Even when you can collect cash, you need the customer’s PAN details, etc. Basically, a pain.
Business credit cards are super rare in India and often limited to senior managers using them for work travel related expenses or spends within preset amounts.
When they do happen <wink, wink> B2B payments are mostly by with Cheque, or NEFT/RTGS. Both are highly manual and time intensive payment instruments. You may setup a recurring phone bill payment, but let me see you try setting up a recurring payment for your monthly steel purchases for your factory producing widgets.
B2B is low margin
This one is my favourite. I am absolutely enthralled with the look on the face of investors when they finally realize that B2B doesn’t have the B2C gross margins of 50% or 75%.
Wait for the look.
- They will try to fight it.
- They will tell you that you are wrong.
- They will tell that your competitors will do a better job.
- They will re-run your numbers and overwork their analysts.
- And then, then, they will learn. B2B is not for the faint of heart or for the “quick marketing splash” type of business models.
What the hell do we then do with B2B?
We can’t social media the hell out of it. We cannot have it on the front page of Times of India for inorganic traffic growth. We cannot TVC it. All the wonderful B2C strategies you spent millions learning over the last few years fall flat.
Here are some strategies that may help:
Work with the low margins, not against them
B2B products are a volume game.
Do you like 25% of 1 million of 5% of 1 billion?
Ensure your cost structures and burn rates are designed with this in mind. As a startup, survive till the volumes start to work in your favour. Don’t rush to grab margins on day 1 or 2 or 3.
If you are burning tens of lakhs a month on ATL marketing, you will have only a small bump in transactions to show for it.
If you are starting off with hundreds of people in your team, your burn is going to be a significant part/multiple of your revenues.
If you are quickly expanding into multiple geographies, your customer service will fall apart.
You cannot bulldoze your way to profitability in this industry.
Unsexy doesn’t mean unprofitable
Most recent grads looking for their first job usually sort by the coolness of the startup, not by the long term learning opportunities in their field. Don’t think or act like a fresher.
Having been in the construction materials industry, I’ve seen bricks manufacturers make more per month than many established retailers.
Sounds extreme, but this is true of many unsexy industries.
Look to cross-sell affiliate products. Your customers will thank you for it and your sales will be stronger as a result.
Talk. Talk. Talk.
Learn to speak with your customers or learn to perish.
Automate the hell out of quotation processes, negotiations, product discovery, logistics and QC. But whatever you do, continue to have a dialogue with your customers.
Customer references aren’t as easy as entering your UBER referral code, but the value generated over a conversation with B2B customers is manifold.
Let professionals handle payments
B2B payments are not for the faint of heart.
There is an old marwari saying, “If you start giving credit to a good customer, you lose your money and spoil the customer”.
Work hard to cultivate customers who can pay on time and without reminders. For those customers who still want credit, do me a favour and do not take on the credit risk on your balance sheet. You think you can handle it. You cannot.
Look at great companies such as CapitalFloat or LoanZen to help you in this process. They have the right processes in place and the appetite to underwrite customer credit.
The Indian legal system makes it absolutely impossible to get money out of someone who does not want to pay. If the
SBI cannot get Mallya to pay, you are definitely not going to do better.
Patience you must have, my young padawan
Finally, understand that the Indian B2B landscape is improving. Not as rapidly as you or I would like, but improving nonetheless.
If you are a B2B marketplace or tech enabled startup, don’t go out and burn it all away in a big splash. Temper your expectations and work hard to ensure your investors look at B2B with correctly coloured glasses.
Who am I to give you this gyan?
Actually, I’m nobody.
I learnt to survive in this industry the hard way. I run a B2B ecommerce startup that broke-even from its 2nd month.
Like you, I’m working my butt off to ensure I can build a stable, profit-making behemoth in an industry that is scared of ecommerce and so hates it*
I’m an entrepreneur who wants to share what little knowledge I’ve picked up and hope you will share with me too.
[Vinit Bhansali is the founder and CEO of Buildkar.com — India’s largest building materials website.]