In the startup world, you’ll often hear about companies having either a business-to-business model (B2B, where your business sells to other businesses), or a business-to-consumer model (B2C, where your business sells directly to consumers). 

You may say to yourself, “My startup will do both!” but for the most part you’ll need to pick one or the other. B2B and B2C models are very different, and there are not many examples of companies who have succeeded at both. 

A few very large companies serve both consumers and businesses, but not many. Amazon sells to consumers, and it’s also where many businesses buy their office supplies. Retail banks serve both consumers and businesses. Microsoft sells business software as well as consumer gaming consoles.

The process of earning a customer in the consumer world is typically different from the process of gaining a business customer. With consumer products, advertising and marketing are expensive, but the sales cycle tends to be short. In the enterprise world, purchasing is more relationship-driven, and it tends to be a multi-step process that leads to longer sales cycles. A company the size of Microsoft can put consumer products in a different division (Xbox) that uses a completely different customer acquisition process than selling enterprise software. Amazon’s most profitable business today, of course, is Amazon Web Services (AWS), which is strictly focused on B2B and runs much differently than their consumer business.

My general advice for startups is to focus on one or the other. As the old proverb says, “If you try to chase two rabbits, they’ll both get away.”

The Value Propositions for B2C and B2B

For consumer products, I like to use the Theory of Jobs to Be Done, which was developed by Harvard Business School’s Clayton Christionson. He writes: “When we buy a product, we essentially ‘hire’ something to get a job done. If it does the job well, when we are confronted with the same job, we hire that same product again. And if the product does a crummy job, we ‘fire’ it and look around for something else we might hire to solve the problem.”

This applies pretty well to consumber products across many different categories and dimentions. 

B2B is a little different in that for the most part, businesses make purchase decisions strictly based on ROI (return on investment), so you have to have a very solid proposition that if a business customer spends $X to buy your product that will get more than $X in cost savings and/or revenue growth. 

I spent most of my career running enterprise (B2B) software companies.  Over time, I realized that there is a sort of value proposition hierarchy, and your ability to sell and price your product is almost entirely determined by your ability to position your product as far up that ladder as you possibly can.

Here’s a breakdown of the hierarchy:

If your product is perceived as able to improve an existing process, that’s nice (everyone wants their sock drawer to be more organized), but it’s not something a company would pay a lot of money for. Maybe you’ll get two points in the customer’s mind.

However, if your product is going to save the company real money, the customer should easily be able to get their boss to sign off on that purchase. Now you get five points in the customer’s mind.

If your product will help them drive revenue, everybody wants that, and the boss’s boss will be happy with that purchase! So, now you are worthy of eight points in the customer’s mind.

What if your product will drive the company’s share price and valuation/market capitalization? The CEO herself will jump at the opportunity to approve that purchase. You’ve earned ten points and two tacos in the customer’s mind!

This hierarchy explains how customer relationship management (CRM) became the most successful enterprise software category ever. A CRM vendor is selling a value proposition that

This hierarchy explains how customer relationship management (CRM) became the most successful enterprise software category ever.

A CRM vendor is selling a value proposition that says their product will help you improve a process, reduce costs, drive sales, and (by extension) drive shareholder value. That right there is the home run. Salesforce (whose stock ticker symbol is “CRM,” by the way) has built this into a 260-billion-dollar business.

If you’re launching a B2B business, think about how you can position your offering as far up this ladder as possible. If you’re still down at the “improve a process” level, that’s fine, but consider how you can create a product roadmap that will move you up the ladder over time. Your sales process will improve, your sales cycles will shorten, and you will be able to charge more for your product.

Consumers, of course, make all sorts of irrational purchases decisions, so it’s not as simple as ROI for many B2C companies. But I think Clayton Christianson’s “Theory of Jobs to be Done” is helpful.

Throughout this course we’ll discuss customers and customer growth strategies that apply to both B2C and B2B startup ventures.