Prior to starting a business, the aspiring entrepreneur must decide what kind of entity they wish to begin. Leave VC dreams to the jaded, and months of useless planning up to the coaches. An entrepreneur can cut his or her options right in half by choosing whether to do a B2B or B2C sales/marketing-based organization.
If the entrepreneur wants to make it to owning a beach house, a couple BMWs, and a diversified portfolio, here is what the small business owner needs to know regarding the two business styles:
B2B vs. B2C: What is the Difference Between the Two?
B2B Marketing, by definition, is the marketing or advertising of a product or service from one business to another businesses. More casually and broadly speaking, you can also call “B2B” any sales or marketing geared toward municipalities or government.
Example: Software sales to hedge funds or to the food packaging services industry
B2C Marketing, by definition, is the marketing or advertising of a product or service by a business directly to the consumer.
Example: Retail clothing sales, or a subscription-based website that ranks colleges and sells tips on applying and gaining acceptance to various high-end universities (targeting the website’s visitors before the website’s advertisers)
What are the Pros and Cons of Each?
B2B Marketing- and Advertising-Based Companies:
Businesses tend to have more money. It is also more transparent which company can write the bigger check: General Electric or Anytown USA Hardware Co.
Typically, a single B2B transaction can yield thousands of dollars for the small business owner, where selling a simple B2C product or services amounts to a much smaller profit.
B2B Marketing services can usually be done from a virtual office and the need for storage and distribution can more easily be circumvented then (for instance, gift baskets).
In B2B Marketing companies, many players can remain in the same vertical and still feed off the target market. In B2C, well, when was the last time you logged into MySpace (assuming you aren’t in a band)?
You can turn B2B success into B2C success if you’re uncommonly gifted, insanely creative, and even more driven by money. A good example would be when I was in Macy’s and saw Donald Trump signature ties. Not a bad gig, turning commercial real estate into neckties.
B2B Marketing-oriented companies have long sales cycles and can often see extended periods of cash flow shortages.
B2B Marketing-oriented companies often have to compete against industry giants, thus fighting every inch to make a name for themselves in an industry that’s already been defined, and redefined again.
B2B Marketing-oriented companies eventually involve some sort of office leasing. I can vouch that it was not fun receiving hate mail from competitors regarding whether our team was interviewing candidates from the kitchen table.
B2C Marketing- and Advertising-Base Companies
Studies have shown that there is no set pattern of behavior governing why the average consumer buys what they do. We know that U.S. consumers are driven by intangibles such as looks, status, etc., but we don’t have individual purchasing down to a science and we probably never will.
In B2C, you can begin with a better knowledge of who the consumer is than the young entrepreneur just getting into an industry.
For instance, you can relate with the 20-somethings on your dating website. The business owner selling alarm systems to hotels probably cannot relate to the day-to-day job of the hotel’s security manager and procurement or purchasing manager.
This detachment can be due to various reasons such as age difference, lack of professional respect on the veteran’s part, or the professional dress of the budding entrepreneur.
In B2C, there is less maintenance. Once things are truly up and running, a B2C success story can sit by the pool at the Venetian worrying whether his margarita is going to melt before his sushi arrives, while the B2B success story can sit by his son’s cubicle trying to instill enough motivation so he can pass the business on.
B2C failure rate is high. With B2C marketing-oriented companies, there are so many players focusing on simultaneously beating away newcomers and growing sustaining current market share that entrance is quite difficult. You’re going to have to produce more than a blog about NYC culture — unless that blog is one-of-a-kind.
In B2C, you’re dealing with an unknown beast. Unless the entrepreneur has B2C marketing experience, they will have to battle with the blatant lack of intelligence that is inherent in nearly each and every U.S. consumer.
That may be phrasing it in the extreme, but in a niche B2B field, the business owner is, more often than not, dealing with another business owner who is equally well-informed about the subject at hand. Not so in B2C.