B2B better than B2C for first generation entrepreneurs

I have a feeling that for starting businesses without immense capital at one’s disposal, it may be smarter to start a B2B business. Building a B2C business involves building a brand among many, un-named customers, mostly spread across geographies – and that means huge investments. Whereas a B2B business may start off with some good contacts among companies built over time and building your brand equity amongst this smaller controlled group. Brand (meaning credibility, not mere brand name awareness) will have to be built up diligently in whatever type of business you start, but in a B2B business it might be a tad simpler.

Another factor going in favour of starting a B2B business is the higher and more demonstrable value that can be added to a Business than to a retail consumer’s life. If you are able to provide some product or service to a company, which can improve the company’s bottom-line, then this is the simplest sale. Proving value addition to lives of thousands or millions of customers is a relatively tougher task since there is no visible P&L which you can impact, unless you have a super-duper product like Facebook or Google Search or iphone or Maggi Noodles.

Once you have started a B2B business, you add value to your business clients (companies) and claim a share of the value added to their bottom-line as your revenues. Ask your happy clients to recommend you to a few more such clients. Make your presence felt in business conferences and events. Identify serious distributors in other cities and take your product to more cities. Or if the sale is not distributor-led, identify a critical mass of potential clients in other cities and start supplying. Similar, if you have a B2B Service business, open offices in other cities once there is the above critical mass of business.

The above way of growing is the third factor going for the B2B type of business – you can grow incrementally after having proven marginal profitability at each juncture. In B2C business, the brand-building expense might be so much that you are forced to acquire thousands or millions of customers and hence are forced to go ballistic in your geographical expansion and in setting up multiple channels.

Examples of smart B2B businesses launched in the last 10-20 years are : Mobile Value Added Service companies like Onmobile, Corporate Law firms like Nishith Desai Associates, Indian Investment Banks like Ambit, Avendus, etc; Education solutions like Educomp (selling to schools rather than to students), Cognizant. Some good efforts at building B2C businesses should also be mentioned here, though as observed above, this is a tough and long journey – Flipkart, Future Group companies like Big Bazaar, Pantaloon, Realty companies like Lodha and Unitech.

Finally, there are others who straddle both types of businesses and have a portfolio, but most of them have started with the B2B parts and used the cash-flows from them to fund their B2C parts – be it Reliance Group, Kotak Bank, and of late, Birla Group, L&T.

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