Awarded the
“RodinStar” Post
of the week!!
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?
Ha!
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 needs 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 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 in 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.
I’m Vinit Bhansali, the founder and CEO of Buildkar.com — India’s largest B2B building materials website.
Note: I first posted this article on Medium. And then realized Rodinhooders would find it useful too.
Vinod Kumar Agarwal
Hi Vinit,
A big Thumbs Up the way you have summed B2B it up and All.
Your B2B in construction industry is right on spot. The Govt, the Banks the Housing Loan companies and the Regulator are all after the real estate pie share.
Of course in my personal belief getting payments in time are an issue, nevertheless it will grow big eventually once you have trusted B2B suppliers.
Best Wishes and Good Luck.
asha chaudhry
vinit,
i have exactly two words to say: thank you!
(this will be very helpful to others)
🙂
Amit Kumar Chattopadhyay
Thanks for a very useful article on what B2B is and what isn’t. Based on my experience of running profitable b2b services for last 15 years and now incubating a b2b e-commerce start-up (BazarA2Z.com) that is changing the way small business sells – please make a note of the following in addition to above
1. Repeat purchase should grow by leaps and bonds
2. Average Order Value (AOV) should grow continuously
3. Price and Quality are primary drivers of sales (as opposed to discount in B2C). So, be very careful on selecting sellers who can offer good price and quality (basically, focus on manufacturers/importers)
4. Buyer is far more knowledgeable than you – offer as much hard information in your catalog as possible if you want fast growth.
5. Your marketplace should offer automatic discount on higher volume
6. Negotiation is integral part of selling
7. Less and less return if you are handling sales of manufacturers’ products (manufacturers are more sensitive to product quality and brand reputation compared to distributors/wholesalers)
8. Manufacturer will be ready to lower prices if your b2b marketplace can grow sales
9. Unlike B2C, sales will not happen on its own (as has been pointed out). However, unlike B2C buyer will come back again and again for repeat sales if quality is maintained.
10. And finally, its the quality of buyers and sellers – that make or break you. Do not chase numbers – focus on quality. Even a handful of quality buyers can make you sell round the year.
Best Regards
Amit K Chatterjee
Founder – BazarA2Z : India’s 1st B2B Wholesale E-Commerce Marketplace
Shivi Aggarwal
Just one word – Awesome!
Vinay Chandrakant
Hi, great article. I run a payments startup myself and we focus to a large extent on B2B companies. To this end, we have some partnerships and bank alliances that allow us to provide B2B payments at rock-bottom prices. No question of 2% or 2.2% here. Due to the large amounts involved, we are able to provide bargain-basement prices.
And did I mention that we also offer integrated NEFT/RTGS payments with automatic reconciliation, and CUG corporate cards for your customers?
Can I connect with you to explain in greater detail?
VINAYAK GOSALE
By far the most comprehensive yet precise guide to an industry and simultaneously not at all a “boring” read unlike the B2B segment as Vinit puts it. Just the way I like it, Brutally honest yet enlightening and optimistic.
Rishi
+1 Great post. However, not sure I completely agree with B2B being low margin business.
Vinit B
Thanks. Appreciate it!
Vinit B
Actually, thank you for keeping this awesome community going.
Vinit B
Just putting my learning out there!
Thanks
Vinit B
Maybe I should have put in “lower margin”!
🙂
Vinit B
This will be absolutely helpful.
Please do let me know about your startup and your email address. I’ll send you a message.
Thanks
Vinit B
Thanks Vinod.
Working hard to get it right. It is tougher than it looks from the outside. And real estate is even tougher.
Vinit B
Thank you for your detailed response Amit.
Some of what you have mentioned we are already tracking (like repeat purchases should grow for sure, negotiation is key, discounts on higher volumes)
You have raised some very interesting insights that I would like to explore more – such as manufacturer will be better able to handle returns (we don’t offer returns unless the product reached damaged or we sent the wrong item). Also need to continue to improve seller quality. This is extremely difficult right now given out low burn rate, but we need to get smart about this for sure.
Again, I’m actually reading and re-reading your response and get the most benefit out of it. Thanks.
Vinay Chandrakant
We’re http://www.traknpay.com
Please send me an email at vinay.chandrakant@omniware.in and I’ll explain in greater detail.
Suhas Prabhu
Stupid question, but have you tried marketing through LinkedIn? You can filter based on the Job title and blast away!
asha chaudhry
hey vinit,
i’ve messed up your post a bit on the top. but by now, you’re probably used to that, aye??!!
keep rocking man!
Alok Rodinhood Kejriwal
I think this is course material for all the IIM’s, IIT’s and definitely the VCs who have lost their direction and are headed into a galaxy from which there is no coming back!
This is exceptional stuff
My (horrid) guess is that 90% of entrepreneurs today dont ask WHY are they starting what they are starting. Instead, they focus on WHAT, AND WHO
tanul
Loved the post Vinit! Specially “Work with the low margins, not against them”