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Which Is The Best Business Model For Your Startup – B2B Or B2C?

By Ken Sundheim
11 Comments

Choosing the right business to start is something that nobody can tell you except yourself. Seeking the advice of others is simply confusing and is a waste of time. Ask ten business owners what they think as to which business to start and you’ll probably end up with fifteen different ideas because answering the Golden Question of Entrepreneurship often proves difficult to even the most seasoned business professional.

The ten answers that I can guarantee you’re not going to get are of the businesses that those entrepreneurs are currently in.

The process of choosing which business to start is often done incorrectly and does not factor in the experience level of the younger entrepreneur or lay a foundation for the first-time business owner to grow both personally, professionally and fiscally.

The issue with many business plans is that, prior to inception, they fail to take into account certain variables that can determine whether a business has longevity, such as search engine marketing competition, the hassle and entrepreneur’s inherent ability to recruit and manage outside manufacturers as various globalization factors will flood a market.

With the advent of the web and the multifaceted programming features of WordPress, many younger entrepreneurs have the ability to go into business for themselves very easily and very cheaply, but very haphazardly. What may be a cost-effective business now could be a nightmare waiting to happen.

Despite factors such as a cost-effective start-up that should be considered major tailwinds, why do so many of these businesses end up becoming a hobby alongside a full-time job?

The reason these companies fail is simplistic. Many entrepreneurs don’t venture into industries that are truly needed by the market. Things such as social media, online vacation packages, online dating and video production are not a necessity for businesses or the consumer to purchase and often prove a lot harder to break into than the business plan formula claimed it to be.

Laying A Structured Foundation For The First Time Entrepreneur

To mitigate a failed start, I have attempted to lay down some industry and target market boundaries from which the entrepreneur can safely use to pick a business that has a fighting chance from the onset.

For one’s first business, I always suggest that they start a company that sells services to other businesses rather than directly to the consumer. There are a few reasons as to why entrepreneurs should venture into “B2B” (“Business to Business”) service based companies as opposed to any form of “B2C” (“Business to Consumer”) company, “B2B” product-oriented company or strictly a web-based B2B firm.

Prior to getting into the reasons why the first-time entrepreneur should play within these boundaries, let’s define and give examples in order to clarify the difference between a “B2B” service-based company, a “B2B” product or web-based company and, finally a “B2C” company.

We are going to leave out companies selling into municipalities or educational institutions due to long sales cycles that are very complex, hard to manage and even harder to profit from.

What Is “B2C”?

Defining the examples:

Examples of “B2C” product-based companies:

Looking Further Into “B2C” Product-Based Companies

Why do I recommend that the first time entrepreneur shy away from “B2C” product based companies?

For the seasoned entrepreneur with exceedingly strong fundamentals and monetary backing, there can be a lot of advantages in opening a “B2C” product-based company. If you look at companies and subsequent brands such as Abercrombie or Sephora, there is a lot of a money to be made in “B2C” product-based marketing if you hit a home run.

Though, the marketing, operations and other intricacies of these companies are well-above most seasoned entrepreneurs’ heads let alone the first-time start-up.

There are a few significant advantages that companies like Abercrombie enjoy and that falsely lure the first-time entrepreneur into starting a “B2C” product-based company. Two of these big advantages are that “B2C” product-based companies don’t have lengthy sales cycles like most “B2B” companies are likely to have, and that they can use their brand to justify significant pricing mark-ups.

However, just as there are many upsides to owning a successful “B2C” product-based company, there are even more deterrents to success for the first-time entrepreneur when opening one.

  1. It is very hard to be considered a player in the “B2C” product-based world without a physical store location. When buying everyday goods, the consumer is going to tend to purchase from companies with actual stores as opposed to those with just websites. Consumers want to see and feel before they buy; it’s half the fun of shopping.

    The entrepreneur can attempt to have a store such as Macy’s sell their fashion products for them, however, as someone somewhat familiar with the fashion industry, this is a very long sales cycle and to get space from the Big Players is exceedingly competitive and often comes with the price tag of having to attend costly trade shows.

  2. I have found that the marketing for “B2C” companies is very complex and often very expensive.Before even bringing their product to market, the successful “B2C” entrepreneur should be familiarized with the intricacies that make people open their wallet. Aside from the basic lists behind consumer buying that are readily found on the web, most drivers as to why Americans buy can be traced back to highly advanced persuasion tactics, pristine web design and sometimes costly celebrity endorsements.
  3. The consumer buys on repetition. This means that the first-time entrepreneur, literally must beat their brand and its advantages into the head of the consumer before they are going to see any traction or credit card receipts. Accomplishing this can take a very, very long time. The consumer moves quickly for no one and the ability to stay level-headed throughout this pre-selling process (if it even comes to fruition), can not only leave the entrepreneur frustrated, but it can leave them writing a resume as well.
  4. If the entrepreneur cannot afford a physical location that means that they have to gain the trust of the consumer to even a larger extent as people are very hesitant to give their credit cards to websites that they are not 100% familiar with. This is not always the case with the younger generation, however it is going to prove to be somewhat of a hurdle for anybody who is unfamiliar with Firefox.
  5. If the entrepreneur is selling a product, he or she is most likely going to incur start-up costs such as warehousing, shipments, design and other fees from manufacturers that I can vouch firsthand can quickly add up.
  6. Global competition is another headwind that “B2C” product-based companies have to contend with. Anybody, anywhere, at any age can manufacture competing t-shirts or could make and market the same exact custom skateboards. Because there is no human interaction needed with most B2C product sales, the competitive landscape immediately goes global. Another thing to remember is that when an industry goes global, the threat of losing money to intellectual-property theft skyrockets.

If the above didn’t deter you, here’s a good story for the “B2C” product-based aspiring entrepreneur:

In 2007, I got a call from a start-up company that sold yoga mats and the owners were looking to staff a sales representative. Based somewhere outside of Boston, the owners couldn’t afford a full-time sales representative nor could they afford my fees, therefore our conversation was not too lengthy.

However, about three months later and upon further review of the current competition in the industry, I determined that my search engine optimization skills would allow me to rank a website highly on Google for keyword phrases pertaining to “Yoga mats” and related phrases.

As quick as I was to pull the trigger on a new business back then, I was even quicker to pull the plug on this endeavor. It started when I began researching yoga mat manufacturers and quickly learned that to even have somebody produce a basic yoga mat, we needed to buy thousands of them… from China.

This was quite problematic for a few reasons. The first was that half of the manufacturers (particularly, the ones in the States) would not even speak to us because we didn’t have enough money to warrant them starting a new business relationship with. Second, we did not know where to keep these mats and, after shopping around, storage costs were very expensive.

Third, the storage companies charged exorbitant fees to ship the mats to the consumer. Finally, if we wanted to do custom yoga mats with custom art, we would have to manufacturer the mats ourselves because nobody wanted to print single mats for a new company.

Therefore, before the company was even off the ground, I was looking at a minimum fee of $20,000 in manufacturing, warehousing and upfront shipping costs as well as a warehouse full of unsold yoga mats and a website that ranked on the third page of Google.

Looking Further Into “B2C” Service-Based Companies

Examples of “B2C” product-based companies:

Why do I recommend that the first time entrepreneur shy away from “B2C” service-based companies?

  1. Many “B2C” service-based companies are dominated by the big names in the industry. For instance, if you want to open an online travel company, you are going to compete against Expedia and you are going to have to make quite a compelling case as to why the Smith family should trust you coordinating their Honolulu vacation regardless of the bells and whistles you claim that you can deliver.
  2. Many “B2C” service-based companies are too cyclical and thus advanced for the first time entrepreneur. When opening a first business, the entrepreneur wants to choose an industry that is in need regardless of economic conditions. Waiting for an industry to come back, then hoping to compete in it is not a solid business plan.
  3. Many “B2C” service-based companies must compete globally just like their “B2C” product-based counterparts. As a first time entrepreneur, you are going to want to avoid this at all costs. For all intents and purposes, the fewer players in the game, the better.
  4. If the first-time entrepreneur opens a “B2C” service-based company that is strictly web-based, the advertising costs are going to be astronomical. These days, Google advertising a.k.a. pay-per-click (better known as “PPC”) costs can quickly amount to five figure sums as single clicks can easily surpass $5 per visit to your website. This is not factoring in more advanced marketing costs such as your website’s bounce rate.

    Even further, this is not factoring in your conversion rate that essentially tells you how many clicks it takes to make a sale. Therefore, you could be paying up to $60 in advertising costs just to make a single sale of $130. The web is no longer a cheap place to advertise and more and more “B2C” service-based companies have turned to television because simply advertising on the web shows little to no ROI.

    Another thing to remember is that when it comes to “B2C” service-based companies, you can assure yourself that the top 10 ranked on Google will be competitors for life.

  5. The first time entrepreneur will often make the mistake of marketing towards a consumer that is fun and hip, but has no money. For instance, coaching entrepreneurs and job seekers is fun, but entrepreneurs and job seekers, by definition, typically don’t have excess funds to spend.

Next week, in part two of the series, I will discuss B2B product-based and service-based companies.

Click here to read part two of this series.

Ken Sundheim

About Ken Sundheim

At age 25, Ken Sundheim started KAS Placement Recruitment and Staffing from a studio apartment in New York. With no industry experience nor contacts, Ken learned the staffing business out of a book. KAS Placement now has two offices and is currently nominated as America's Most Promising Companies in 2012 by Forbes Magazine. Ken has previously contributed to NYTimes.com, WSJ.com, USAToday.com, Forbes and many more. You can read more at kensundheim.com.

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11 Comments

  • I like the B2B Model because it seems more profitable. You act like the wholesaler selling to other companies. It’s basically easier to do because you get to bypass consumers-issues. But that’s my own opinion actually – thanks for sharing!

  • B2B makes so much more sense for a first-time entrepreneur in that businesses are used to spending money for their business. In my opinion it’s a lot easier to convince a business owner to purchase your product (especially an online one) than a consumer.

  • B2C is quite challenging especially on the marketing part. That makes it more likeable to me.

  • Both are tough in their own sense. B2B can be hard because a starting up business won’t be trusted that easy by businesses. On the otherhand, B2C can be tough because of the larger competition just like what you said. I guess both has their strengths and weaknesses and it is up to you to decide on which thing is worth doing. :)

  • Okay ! The choice may be different from one to other person but i like B2B because you will find a market without hassles and yes wordpress for business is best idea to market the products and cost very less:)

  • B2B model can be very profitable and easier to manage but it’s not so easy to persuade other businesses to buy from you, so it’s up to the entrepreneur and his/her skills to choose a B2B or a B2C model

  • Hi Everyone,

    Thanks for reading; your points are well taken. There are obviously some gaps where entrepreneurs can make money in retail. Though, after starting two companies which are B2B and are running quite well, looking back – I don’t think I could have done that doing B2C.

    Just feel that it takes more of a level of maturity and understanding of business. It’s not a correct or incorrect statement, just an opinion and observation.

    Thanks again,

    Ken

  • Till recently i was concentrating my thoughts on a B2B idea, then i suddenly switched my thoughts to B2C and after a couple of weeks im now doubting the B2C idea that i have and theres a very high chance that i will drop the idea and look into B2B again.

    As already mentioned, both have their challenges, but i think especially in B2C that people are so used to getting a lot for free that as a first time entrepreneur i might be kidding myself if i think i could take on the challenge of a B2C startup.

  • Really nice article. I have tried B2C and faced the same challeneges. Essentially B2C requires an ecosystem of venture capitalists who pump a lot of money. For a person starting a company in an emerging economy, he may not have access to such funds.

    If you do not have funds and you are doing a B2C business, you have to wait for your customers to come. It is very disheartening and boring. Atleast one can go to different business and keep on talking to them and atleast move towards a goal.

    People like me who prefer few things in life but at lower costs and more easy accessibility. A handful of B2C companies can do that.There is no limit to the number of B2B companies that are required.

  • Colin Kee

    HI I think you have a typography error:
    Examples of “B2C” product-based companies:
    (I think it should be service, as you were mentioning dating, travel and financial)

    Cheers

  • I like B2B model because it’s good for entrepreneur, which make it’s more interesting.

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