One business I had met with at a technology event asked my advice on whether they should pursue a commercial product. They were a relatively young company who had up until this point developed specialized products for larger companies in low volumes (single digit quantities), and had not released a product to the commercial marketplace on their own in high volume (hundreds, thousands, tens of thousands, etc.).
Answering their question made me consider the advantages and disadvantages of business-to-business (B2B) versus business-to-consumer (B2C). Let’s discuss B2B first, here are the advantages:
- In general customers are well funded
- Input and feedback received from a single (or a select few) stakeholder(s) or customer representative(s)
- Well defined boundaries and product specifications
Here are the disadvantages of a B2B customer:
- High risk in terms of diversification – if customer funding dries up or they decide to terminate the contract your business may lose a high percentage, or even all, of its revenue
- Leverage – A B2B customer often has more resources and longevity than the business providing the service, this may, and often does, put the customer in the driver’s seat leaving the product or service provider with little to no leverage should things go wrong
- May be difficult to attain new customers: A B2B customer can be difficult to obtain as they normally do business through established contacts and relationships.
Of course these are not absolutes and some businesses are run better than others, but in general, these are advantages and disadvantages I have found when comparing B2B to B2C businesses.
Now on to B2C advantages:
- Low diversification risk – If a customer doesn’t like your product or a relationship sours there are many more who will likely purchase your product – it’s just a matter of finding them and meeting a need/solving a problem.
- High Leverage – The business generally has more leverage when compared to the individual consumer. Of course this depends upon the size and reputation of the business, and new technologies such as social media are elevating the voice of the customer.
- Gaining new customers is easier: An individual, when compared to a business, is generally more likely to try a new product or service, especially if the cost and time commitment is low. In this instance the only gatekeeper is the consumer themselves. For this reason it is more common for individuals to start B2C businesses as the barriers to entry are lower (with exception to specialized technical fields which lend themselves to B2B).
The B2C disadvantages are as follows:
- Limited funding: When compared to businesses, individual consumers have a lower budget. This can more than be made up for in terms of sales volume.
- No single “voice of the customer”: This can be one of the largest challenges – there is not a single consumer voice to request feedback. Feedback will be many and varied, and often conflicting.
- Customer support: Customer support may be burdensome to an ill-equipped business. As with the voice of the customer disadvantage, the many voices may call upon you and your business to support the product.
All in all there is no wrong answer here, just a matter of preference. How do you want to operate your business? What do you want it to be when it grows up? Do you want to make many widgets and deal with the mass market consumer, or just a few specialized items that are sold to a select few?