So far, all the products I’ve built have been “B2B”.
The apps that a lot of other independent, bootstrapped software companies or entrepreneurs have built have been B2B.
Why is that? What does that mean? Why are we here? Who am I?
Sorry, got a little sidetracked.
There’s a reason for the popularity or B2B, which this post will set to explain, and because the question, “What is B2B?” itself is pretty simple and doesn’t itself demand its own essay, with this post I’m going to attempt to investigate the why of B2B, as opposed to just the what.
So, once again (Should I make this my catchphrase? It’s probably too early for catch phrases…), let’s do this.
B2B. Ze definition.
Simply enough, B2B is “Business-to-Business”. SimpleCrew, CrewFire, and Testimonial Guard are all “B2B” software, because they were made by our business, and our customers are other businesses.
We are a business. We make apps that we sell to businesses. Thus, we are “B2B”.
Pretty simple right?
Right! Thanks for reading. Next week we’ll talk about dinosaurs in the sky and why the earth is pink.
Just kidding. Stick with me. Let’s keep digging. There’s gold here somewhere.
What it ain’t.
Clearly, B2B is not the only way to build a software business.
There’s other types customers you could build products for, and plenty of other business models that aren’t simply building a product and selling it to one customer base.
Let’s do a quick pass over some of those other models & what they’re all about, eh?
Here’s what we got:
- Business to Consumer (B2C)
- Business to Government (B2G)
- Advertising Supported
(Obviously this list is non-exhaustive. There are other business models out there, but this covers the lions share of what you get out there in the software world. Feel free to drop any that I missed in the comments.)
B2C is “business to consumer”.
Again, going back to the examples from my recent post exploring SaaS, Dropbox, Spotify, and Evernote (the premium versions) are all examples of businesses that sell products to consumers.
Thus, these are all B2C. Simple.
B2G is “business to government”.
Whether its state, federal, local, or otherwise, governments are a different customer, with needs, demands, and quirks that are distinct from those of consumers and businesses. So it’s important to distinguish B2G from B2B or B2C.
Examples of this include SpaceX, Palantir, government contractors, and basically all the players in the military industrial complex.
(Side note, have you guys seen that Vice doc about SOFEX, that military & weaponry trade show in Jordan? Absolutely wild. Talk about business, psh… maybe I’m in the wrong game after all…)
Where were we? Ah yes. Marketplaces.
Marketplaces are a different kind of business model.
They’re not as simple as just building a product and selling it to one customer base such as businesses, consumers, or government.
Marketplaces are where you build a platform for buyers and suppliers to come together.
If that sounds complicated, just think eBay, Uber, or AirBnB.
In these examples, you can see that eBay, Uber, and AirBnB aren’t really making products to sell to customers themselves. More, they’re just building a platform (or a “marketplace”) for buyers and sellers to connect.
As those examples illustrate, marketplaces can be extremely powerful businesses once they’re up and running, but they come with a unique set off challenges that make them tough candidates for bootstrappers.
We’ll cover that in the next section.
Finally, there’s the Ad Supported model.
Basically, all the “free” internet services you use out there, along with most of the media companies today that you’re not paying for, are ad supported: Facebook, Google Search, Gmail, YouTube, Twitter, Reddit, et al.
These companies offer products for “free” to you and I, but they actually make their money when they sell our eyeballs and attention to advertisers.
So they kind of have, instead of one target base, two constituencies that they have to keep happy. Again, this comes with it’s own set of challenges that you can probably already start to imagine, but more on that in the next section.
So yes. These are a few of alternatives to B2B. Now let’s talk about some of the nuances of each of these, and what makes B2B more ideal for bootstrapping software businesses compared the the alternatives.
Why B2B is the shit.
What I love most about B2B, and why, for my money, B2B is the most ideal place to start when bootstrapping the software business, is that businesses tend to be the best, easiest customers.
Consumers can be fickle, and it’s hard to charge much for consumer products.
Companies like Google, Facebook, Twitter, Instagram, and other ad-supported tech giants have trained consumers to expect free products, making it more challenging to sell software to consumers.
Government can be a tough customer for other reasons:
- They tend to have really long sales cycles.
- They tend to have lots of bureaucracy.
- They can have ridiculous requirements for billing, product, or other aspects of the transaction.
As anyone who has dealt with governments with any regularity can tell you, dealing with government can be a headache.
It can also pay really, really well (see: all the examples listed above), so the market is nothing to scoff at (which is certainly not what I’m trying to do here).
It’s just a different market, with different timelines, economics, and quirks that, for my money, make it less ideal to bootstrap a software business into.
So B2C, B2G: check. Smart? Wiser? Good. Let’s keep going.
Finally, there’s the complexity of marketplaces and advertising models.
Again, you can build big, amazing businesses with advertising or marketplace models. Just look at the examples: Google, Facebook, Uber, Amazon, et al.
But bootstrapping such software businesses as an independent entrepreneur or company is a different kind of challenge.
These businesses are often wayyyy more capital intensive (read: they need a boatload more money to get off the ground), and so you usually see a lot of these companies going the venture-backed route.
Marketplaces are complicated because you have to fight wars on two fronts: you have to bring both suppliers and buyers to the marketplace.
Think AirBnB: they have to get both homeowners and short-term renters onto the marketplace, and when you’re just starting out, this poses a massive chicken-or-egg scenario:
Renters won’t go to the marketplace before any apartments are listed, and apartment owners won’t list on the marketplace if renters aren’t there searching already.
So solving the chick-or-egg conundrum poses a massive, expensive challenge to start-up marketplaces.
It’s a related story for advertising-supported businesses.
Again, with advertising supported businesses, you face a war on two fronts.
This time, the first battle is in getting the attention of consumers or users. You have to deliver a product to them that keeps them coming back, and keeps them hooked. A lot of would-be advertising supported businesses fail just trying to win this first battle.
Then, say you do create such a product, that’s great! You’ve one the first battle, but the second battle has just begun.
Now, you have to go out and sell those users eyeballs and attention to advertisers.
This is an entirely different battle, and even some of the biggest ad-supported tech companies around today are struggling with questionable reliability of advertising revenue (see: Yelp, Twitter, and Pandora).
Not to mention, when you go ad-supported, you must forever balance the opposing interests of your users vs. your advertisers.
It’s a delicate game. You have to offer ads that are valuable to your advertisers, but that don’t fuck with the experience of your users. Think about how annoying the new pre-roll YouTube ads that you can’t dismiss are, or just look in the comments of any of the new Instagram ad.
People hate that shit. But it’s your business. You gotta do it, and you gotta balance it.
So, anyways, that leaves B2B, the winner by default (just kidding).
But seriously, when building products to sell to business:
- You have a simple, straightforward business model.
- You have one constituency to keep happy.
- You can have relatively reasonable sales cycles (compared to government), and
- You have customers who are willing to actually pay money (compared to consumers)
It’s a beautiful place to bootstrap a software business.
Why it’s not cool
There’s only one downside that I can really think of with B2B.
It’s what Rob Walling, in his book “Start Small, Stay Small”, called the “cocktail factor”, and it basically means that B2B can be a little bit less sexy when you’re talking about it with other normal people.
(Note: that link is an affiliate link to Amazon, meaning if you buy through it, I get paid $$$$$ #FerrariFund)
To illustrate this point, let me tell you about a story about when I was working for a really cool consumer company, Yelp.
It was my first job out of college, actually, and I was a little peon making $35k/year in New York City. Not even really enough to live on in The City, as anyone living there can attest.
At the same time, one of my closest friends Andrew had a killer job paying 3x my salary in the IT Leadership program at Becton Dickinson.
Ever heard of it? Didn’t think so. Stay with me.
Whenever we’d go out together and talk to people (ok, girls), people could relate to my working for Yelp.
I could talk to people, tell them what I’m doing, and hear, “Ohh I love yelp! I use Yelp every day!” or “Fuck Yelp! You guys are extortionists!”
Love it or hate it, in the context of a bar (or “cocktail party” ala Mr. Walling), working for Yelp was always relatable to other people. Something they could wrap their heads around.
Becton Dickinson? Turns out they are a hugely important medical supply company who supply 90% of the worlds hypodermic needles or something.
But in the cocktail party setting, that doesn’t matter. It’s barely relatable. Eyes gloss over, and before you know it, the new friend is asking you about the cute friend of yours who works at Yelp.
So that’s the downside. Really.
I mean, if you think about it, there’s other more important reasons to pick a business to go into other then it being cool to talk about at cocktail parties.
But I guess the real downside isn’t the party thing as much as just it being relatable or understandable by normal people.
My parents, for example, as hard as I try to explain it to them, they’ll just never really really understand what SimpleCrew, CrewFire, or Testimonial Guard do.
The see that they’re earning money, and that’s great and all, but the world of B2B can often times be an abstraction away from what normal folks and understand or relate too, and that manifests itself in various ways from time to time, in the bar, cocktail party, and otherwise.
Certainly not a deal breaker. But that’s pretty much the downside.
Not so bad, eh?
So that’s B2B.
Good times. What a journey we been on together. We’ve explored the peaks and valleys of advertising and marketplaces, and investigated the crevices, twists, and turns of the consumer and government markets.
We’ve laughed. We’ve cried. And we’ve come out stronger and better for it.
Next week, I’m sure, I’ll find something else new and exciting to discuss with you.
So subscribe here, and I’ll see you back here in a few.