B2B & B2C comparison

I was recently asked on my opinion if B2B or B2C differs when it comes to acceleration. In short the answer is that it does not matter.

What is important is that the venture is aware of the differences of the models and their implications.

B2B is short for “Business to Business” and indicates that sales are made between two or more businesses.

Examples here would be product-based B2B – automotive part manufacturers which often sell their products to other companies (the car brands who assemble all parts into the final product) or wholesalers who sell their products to retailers.

Service-based B2Bs – accounting companies which support other companies to do their accounting and taxes.

B2C is short for “Business to Consumer/Customer” and indicates that sales are made between a business and a consumer/customer.

A third (more rare) form is B2B2C, which stands for “Business to Business to Consumer/Customer.” This one will be ignored for now.

These forms differ in the way the marketing and sales is executed.

An important difference between B2B and B2C is that the sales approach for B2B differs from the B2C sales approach. B2B tends to be more strategic and appeals to the buyers’ rationality. B2C is more tactical and tends to appeal to the buyers’ emotions.

B2B

B2B is a sales model that involves one business selling products or services to another business. For a successful B2B sales approach the company has consider many variables. (only a few insights are posted here)

As a B2B company you need to ensure that …

  • the customer sees and understands the value of your product / service.

In case the venture does not provide the lowest price offer, it needs to ensure that the customer understands the added value of the product / service. This value can be stated in terms of “return on investment” which can outpace the low cost providers of their key deliverables, such as quality, brand, dependability, reliability, on time – or just-in-time-delivery.

  • the product / service offering is easily understandable and not complex.

Cancellation or delay in the deal process can be a result when uncertainty enters the sales process. In order to minimize the uncertainty factor for the customer the venture needs to ensure that the prospective customer comprehends the sales offer and that the sales offer does not leave any questions unanswered. Here the venture may follow the KISS approach (Keep It Simple Stupid).

  • the customer believes the venture.

When the prospective customer does not believe that the product / service will solve their problem or serve the need /want, then the issue is rather conceptual than personal. The venture needs to build more rapport and trust with the customer relationship.

  • the customers feel that they cannot do it without you (especially for service-based B2B).

This is one hurdle for service-based B2B sales. The ability to show the customer the opportunity cost of doing a service themselves or using the product can be an educational element to finally closing a deal. The consumer needs to understand that the venture provides a service with an added value from which the consumer can also benefit. A clear differentiation from the competition can help to give the consumer the feeling that only the product / service from the venture is the best option.

 

B2C

B2C sales refer to any sales process that sells directly to individual consumers and differs from a B2B sales process in several ways.

B2C often has…

  • lower price points.

B2C prices tend to be lower than B2B prices due to the amount of products / services exchanged in the sales process (Economy of scale). B2C sells less products within a contract then B2B.

  • shorter sales cycles.

B2C sales cycles tend to be shorter than B2B sales cycles, partially due to lower prices and lower amounts of products being exchanged.

  • fewer decision-makers.

B2C sales have a limited number of decision-makers (e.g. 1-2) whereas in B2B the sales process oftentimes has to be approved by several decision-makers, meaning that in B2B several individuals can influence the outcome of a deal.

b2b-b2c

In conclusion: Even though both business models are different, they touch in several points.

Both require an efficient sales process and an alignment with the marketing as well as an excellent customer service.

Business acceleration focuses on building efficiency throughout the entire business. Therefore it aims at building an efficient sales process that is aligned with the marketing and customer service.

The product / service as an essential aspect for acceleration

Any product / service development is a continuous phase and is executed throughout the entire acceleration program. Therefore it is an important aspect to measure in order to assess the development of the venture.

The product, at the heart of the venture’s meaning for existence, is continuously developed and improved to find the best product for the customer. The product / service is the company’s heart, the customer is the blood.

Each young venture develops its very own product / service based on the identification of needs of the potential customer or client. This is caused by the product development, just like innovating, maturing over time. The goal of any product / service measurement factor is to complete the development of the product / service, launch it, and eventually reinvent the product life cycle.

Product Life Cycle through the 4 stages of product development
Product Life Cycle through the 4 stages of product development

What does it mean?

In order to stay alive, any kind of business needs to constantly restart and reinvent the product life cycle. Not reinventing or improving the product or service may lead to the company entering the developmental death / decline phase.

An effcient acceleration program can assist the venture in doing so by monitoring the progress. In order to boost the innovative potential of a new product / service the accelerator should do so without active direct influence into the product creation process, apart from feedback and providing support if needed (e.g. finding beta testers, etc.). Any interference from the accelerator team may lead to a distortion of the innovative capacity of the venture. Sometimes interfering may help (e.g. when the venture is inexperienced or does not fully understand the entrepreneurial aspects of business and the accelerator team has an entrepreneurial background).

However the product / service creation always remains the main responsibility of the venture. During the acceleration, the startup has to at least create a minimum viable product (MVP) or minimum viable service if it does not already exist. The minimum viable product in this case is the most basic working form of any product. The startup attempts to cover a certain need of the customer with the MVP and at the same time tries to measure the products’ potential and performance by learning through customer feedback and interaction.

Any Product / Service measurement factors may help to pinpoint the main characteristics of the product / service and explain the benefits of usage to potential users / customers.

During an efficient acceleration the startup should proactively test the product / service concept by running it against business mentors, board advisors and the accelerator team, receive feedback on it and if necessary modify it. By doing so, the venture receives direct feedback on the user experience, accessibility, and the feel for their product / service. These are essential differentiating factors.

The basis for efficient acceleration steps

Overview:

Especially for young ventures and first-time entrepreneurs it is essential to get the basics right and have a common understanding of the fundamentals of entrepreneurship from the very beginning of the acceleration.

Therefore efficient acceleration models should bundle the most essential entrepreneurial basics in a concise KPI and teach/ measure them from the very beginning. Even if the entrepreneur is already seasoned and experienced it does not hurt to review the basics.

This KPI should be used to bundle the entrepreneurial basics for starting a business and ensure that the founders speak the basic language of entrepreneurship. This factor will support the venture by providing a clarity of purpose and the long-term goal.

What to focus on

For business basics the venture / founder has to

  1. outline its business idea with its product / service goals and
  2. explain/ clarify the main drivers behind its success.

This provides a first insight if the venture thought about the problem it aims to solve and how potential customers could benefit from it. Therefore this step clarifies the existential core of existence of the startup.

Startups that just want to develop an app/platform/product/service without a real problem-solving focus for the customer are likely not to experience any long-term success.

Especially first-time entrepreneurs demonstrate difficulties with differentiating between a nice-to-have product/service, a good-to-have product/service and must-have product/service.

Every venture that plans to become successful and scale quickly should aim at offering an product/service in the must-have section.

Must have vs good to have vs nice to have

While startups in the first sector are prone to failing, startups in the the second and the third sector might gain quite some momentum and have a higher probability of becoming successful. Startups from the nice-to-have sector might either successfully pivot to other sectors or cease to exist in the long-term. Only a few startups may manage to survive in the nice-to-have sector by branding themselves as a luxury asset.

As soon as the startup outlined its business idea and clarified its main drivers behind the business it should develop a first analysis of the target market and highlight the difference to potential competitors with a basic competitor analysis.

Target market

At the same time the founders should be trained in basic accounting, if no experience exists with finance management and accounting tools.

So what does the business basic factor entail?

  1. Basic understanding of accounting tools (get financial understanding from the very beginning)
  2. Clarify purpose through a Mission Statement
  3. Clarify the long-term path with Vision
  4. Get an environmental overview with a basic competitor analysis and basic customer analysis

The business basics factor forms the basis for further acceleration as it will heavily influence the other acceleration factors later on.

At the end of this factor the venture should be able to provide a clear and concise point of differentiation and a conclusive Mission Statement, Vision, and demonstrate a basic knowledge about the competition and customers.

Measuring the progress of startups in corporate acceleration models

In the last blog post I shed some light on the difference on how corporate incubators / accelerators measure progress, compared to young technology ventures.

This comparison demonstrated that while corporates tend to measure progress by looking at the big picture (KPIs) startups (especially first-time entrepreneurs) measure their progress by taking their development step by step.

Taking this difference into account the developmental progress of the startup in acceleration can be measured.

Using little steps to measure the journey

Steve Blank stated that startups need to figure out several unknowns when building the company.

Startups need overcome and solve the unknown needs and wants and guide it towards a viable business model. Especially for first-time entrepreneurs a lot of business aspects are “unknowns” and the accelerator has the responsibility to help the entrepreneur to understand the basics and provide mentorship (besides providing some basic financing, infrastrucuture and other intangible resources).

Combining KSF and KPI
By pooling related key success factors a key performance indicator can be created which can be used to measure the developmental progress of startups in the acceleration program.

In order to successfully do so the corporate accelerator should include the Key Success Factors used by the startup to measure the performance of the acceleration. By doing so the accelerator can utilize the Key Success Factors of startups to support the Key Performance Indicators.

Which Key Success Factors should be utilized?

It is possible that startups focus on success factors which might not be needed at the current state of development. Here the accelerator needs to step in and provide guidance for the startup to focus on the crucial success factors. This professional guidance is one of the most important aspects for a successful acceleration.

In the end the accelerator needs to ensure that the key success factors support at least one of the nine following points.

The Key Success Factor should aid the startup in…:

  1. … defining its mission, vision, and goals;
  2. … understanding the market;
  3. … establishing and building acquisition models and network;
  4. … understanding and building internal processes;
  5. … aggregating of entrepreneurial know-how;
  6. … aggregating of managerial capacities, leadership, and team building;
  7. … understanding of project management;
  8. … actual development of the business, the product, and service;
  9. … undergoing a reality check.

The reality check, especially in terms of market size, is an important aspect to execute. Young ventures tend to have a reality distortion in terms of what can be achieved and realize in the efficiency phase that their expectations might be unfunded.

Check also Marmer, M., Lasse Herrmann, B., Berman R., „Startup Genome Report- A new framework for understanding why startups succeed” Report version 1.1, Stanford University, 2012, page 58
Check also Marmer, M., Lasse Herrmann, B., Berman R., „Startup Genome Report- A new framework for understanding why startups succeed” Report version 1.1, Stanford University, 2012, page 58

Helping startups to understand where they stand in their development and what is possible to achieve in a relatively short timeframe is important feedback especially at the start of a venture!

Especially first-time entrepreneurs and very young startups which just joined a corporate acceleration program experience a hart reality check when joining an accelerator. Very quickly they have to learn that the meaning of a successful acceleration means that they will be provided support and needed resources, however they are fully responsible for their own progress and have to work hard for it.

Understanding Key Success Factors means understanding crucial parts of a startups internal context and being able to assess the wants and needs of the venture. This heuristic understanding forms a basis for efficiently and effectively supporting the startup on its search for a viable business model and the right product / market fit.

Overall the corporate acceleration performance can be visualized by pooling related startup success factors and by putting them into a matrix.
How this can look like I will explain in the nexts posts.

The basis for successful business acceleration

In the last blog post I explained the parallels between incubators, accelerators and company builders. This comparison demonstrated the difference in the length of support and the difference how they measure progress.

In order to successfully support a startup a supporting program needs to recognize that startups may see and understand success as well as progress differently.

Understanding of success / progress

A corporate business acceleration program aims at supporting a startup in finding and developing a viable, repeatable and successful business. But being corporate by nature most corporate acceleration models might experience difficulties in doing so.

The corporate accelerator needs to match its goals and interests with the ones of the startup in order to provide an efficient and effective program. It also needs to understand and include the entrepreneurial nature of the startup.

Only by doing so it aligns the efforts of both parties towards a sustainable progress.

Goals and interests of startups

The main goal for each venture is to find a scalable, repeatable and profitable business model.

Several major causes for young ventures to fail within the first four years of being founded have been identified. The two most important are:

  • Incompetence or inexperience (46%)
  • Lack of managerial experience (30%)

Other causes include a limited range in the business network of the startup as well as insufficient financial resources.

In 2014 the European Commission identified in a European Accelerator Assembly  the most important benefits a startup is looking for in an acceleration.
These interests included

  1. Mentorship / Coaching / Feedback (over 80% of respondents)
  2. Network / Alumni / Prestige (over 80% of respondents)
  3. Investment / Financial Benefits (over 30% of respondents)
  4. Connections to Investors (over 30% of respondents)

Guided mentoring, together with an extensive network of experts and coaches, and effective resource allocation can help to solve the incompetence / inexperience (managerial, entrepreneurial, etc.).

Goals and interests of an accelerator

Fast-paced markets, industry competition, and the fact that innovators establish a leading position in their markets, form the necessity for traditional companies to stay innovative in order to survive.
The globalization of markets and the digitalization of industries leads to increasing transparency, decreasing information and transaction costs.

This evolution of doing business amplifies the importance for innovation and forces established companies to scout for innovative trends, products and services.

Innovation inside of an existing company is much harder than a startup. Accelerators as one approach to identify and potentially insource innovation therefore have to scout for

  • innovative / disruptive business models,
  • innovative / disruptive products,
  • innovative / disruptive services.

Comparison of interests

A comparison of the interests of accelerators and startups shows that they are matching. It demonstrates that a cooperation can generate a mutual benefit in the form of a win-win situation. If both parties are clear of the mutual benefit is not totally clear.

Accelerator Startup Interest Comparison

But the comparison also demonstrates that solely providing financing does not suffice to accelerate a startup.
This is falsely understood by some accelerators as a point of differentiation. More investments shall attract better startups.This however is not always the case. Wide and effective networks, excellent trainings and good mentors are other very important factors startups look for when being accelerated and have to be offered to increase the efficiency of the acceleration program.

Therefore accelerators need to be able to provide additional services and resources to successfully support innovative business models, products, or services. This effective provision of services and resources is what attracts talented ventures to join acceleration programs, together with a clear vision how the startup can benefit from being an acceleration program alumni.

Understanding the startup

Understanding the startup not only in terms of goals and interest but also in how it measures progress is the basis for a successful business acceleration.

Startups tend to measure their performance by measuring Key Success Factors. A Key Success Factor is those few things that must go well to ensure success for the organization, and must be given special and continual attention to ensure a high performance.

Measuring Progress StartupsThis means that startups tend to measure every single step they take. For first time entrepreneurs it can be progress to understand how a balance sheet works, or which legal aspects to consider when trading, etc.
Key Success Factors include what is essential for the achievement of a desired result. They describe an outcome and the result of an action.

Accelerators tend to measure their performance through Key Performance Indicators. Key Performance Indicators are a type of quantifiable measurement and are used to evaluate the progress of a specific activity in terms of effectiveness and efficiency.

They reflect the Key Success Factors of an established organization.

Measuring Progress AcceleratorA KPI describes what is essential in order to successfully put an activity into execution. It hence describes the efficiency of an action and is quantifiable. Strict KPIs and rigid processes are the main obstacles for corporate or public companies to become agile and responsive innovators.

This demonstrates to some extent that established companies and startups measure progress differently. However the mutual benefit from business acceleration can help the corporate as well as the startup to grow faster, better and more efficiently.
What this means and how it can be achieved will be described in the next blog.

Accelerator vs incubator vs company builder

In the last blog posts I explained why corporates have to review their business models and need to innovate, adapt and overcome the challenges of new business contexts.

One way to do so is through Business Incubators / Business Accelerators.

But what are they and where do they differ? And what makes them different from company builders such as Rocket Internet, Venture Stars or Rheingau Founders?

Accelerators & incubators

The goal of an incubator, as in the meaning of the Latin word “incubare” is to hatch a business from the very start and nurture its first steps. This can be put into context in terms of helping a freshly created venture in its very first business steps and escorting the young company through its very fragile early developmental stages.

Incubator in regards to Marmer stages

A business accelerator provides the framework, tools and methods as well as access to knowledge, which a young company requires to grow. The goal of the accelerator, as in the meaning of the Latin word “accelerare” is to bring it up to speed. This can be put into context in terms of bringing young ventures up to speed regarding understanding, developing and leading a business and as a result guide the young company all the way through its very fragile early developmental stages towards true growth and first significant financing.

Accelerator in regards to Marmer stages

Even though very similar to a business incubator, corporate accelerators are often seen as slightly more formal than incubators by not running regular cohorts of startups. Accelerators and incubators can be understood as a co-working space with some mentorship and classes and are two descriptions of the same phenomenon (even though there is contradicting statements in the literature).

Incubators provide a nurturing environment for an entrepreneurial idea to develop, out of which a business can be developed. Accelerators usually not only provide the framework, but also offer guidance through mentorship and workshops, financial support and often provision of required infrastructures for these young startups to grow further.

Also, there is an overlap between incubators and accelerators in the developmental stages of a startup.

incubator acceleratorThe development status of startups and young ventures are known as the Marmer Stages. These stages describe the developmental lifecycle of a startup and provide an overview of the main goals during the specific stages.

  • The Discovery Stage:

The entrepreneur discovered a problem and develops a solution (product) for it. The venture is now in its rawest form. During this stage, the entrepreneur learns if its business idea (product / service) provides a solution to a real problem. This is the earliest stage of any venture and contains the highest number of young ventures.

  • The Validation Stage:

The startup evaluates if people are interested in the product / service and generates its first metrics (user traction, first revenues or other attention) for validation. If an interest in the product / service cannot be confirmed the startup either ceases or pivots. This stage is essential for the venture to fully understand its business model and prepare the business for future growth.

  • The Efficiency Stage:

In this stage, the business idea is proven to be viable and repeatable. The business model of the venture is improved to increase the operational efficiency. The startup improves its operational excellence and user acquisition. During the efficiency stage, startups usually start to raise more money.

  • The Scaling Stage:

The venture is becoming more efficient in its execution and pushes the further development of the company in order to grow effectively. It aggressively drives the customer acquisition and implements processes. At the beginning of this stage, external investors tend to board the venture. During this stage the startups often are supported by financial investments.

  • The Profit Maximization Stage:

The startup successfully scaled its business and can now be considered an established company. It now expands production and operations in order to increase its revenue. This usually happens under the guidance or with the support of an investor unless the startup is bootstrapping, meaning starting its business without any external investor. During the profit maximization stage the startup makes the most money from its performance.

  • The Renewal Stage:

The Renewal Stage prevents the company to sooner or later shut down. The startup has to reinvent its business, and come up with a new innovation in order to stay alive. Similar to the product life cycle, a renewal stage helps the startup to prevent decline.

Incubators and accelerators differ from a professional company builders like Rocket Internet, Rheingau Founders or Venture Stars. Let’s analyze how:

Incubators support young ventures to evolve their business ideas and are therefore mainly active in the discovery and in some cases also in the validation phase of venture development. Accelerators take the development a step further and accompany the ventures from discovery and validation through the efficiency and scaling phase.

Most corporate accelerators and incubators have to follow key performance indicators which might not necessarily be related to the development of startups. These KPIs can also act as a obstacle towards the fast and efficient progress of venture development. Not all KPIs consider the importance of key success factors used by the startups. How Incubators / Accelerators measure success

Company Builders Company builders accompany their ventures throughout the entire developmental value chain.

company builder 1They are proactively building their ventures and they follow a clear developmental roadmap throughout the Marmer stages.

Often disputed some company builders are described as fast copycat business model “borrowing” successful business models from others and take proven tech ideas to emerging markets. However not all company builders act that way.

In the end company builders are more deeply involved in the development of their ventures than accelerators or incubators. This proximity to the venture itself also generates another way to measure the progress of the venture. The company builder is actively involved in the performance and is aware of all key success factors the venture needs to focus on. How company builders measure success In comparison, an incubator and accelerator are following the same goal, which is to support young companies in their first developmental steps towards a viable, repeatable and successful business.

The company builder accompanies its young ventures all the way, until they either exit the venture or the venture is dismissed. In doing so they act as co-founders.

Accelerators and incubators only escort ventures for a part of their developmental journey.

Company Builder in regards to MarmerIn the European accelerator and incubator as well as company builders environment it is still too early to say which model is more successful. However there are only a few successful and professional company builders and an increasing number of more or less successful incubators/accelerators.

Their approaches in supporting young companies differ and one thing catches the eye: The difference in how to measure of progress.

Company builders with a high proximity to their ventures appear to have an overall better success and survival rate when it comes to their startups. A rule of thumb states that between 6090 % of all startups fail. With company builders this percentage is lower.

The venture development tool (which will be partially described over the following posts) includes aspects of the company builder approach, but in the acceleration and incubation context.

Innovate, adapt, overcome

Different trends and developments put established industries under constant pressure.

Market developments like:

  • the globalization of markets,
  • increasing international competition,
  • the disruption of markets through new technologies and business models as well as the
  • digitalization of products and services

require that corporate companies place great importance on innovative ideas.

Corporate companies under pressureKnowledge-based businesses have the potential to break through industry barriers and create meta-industrial businesses. The next wave of economic growth is going to come from knowledge-based businesses.

Smart (knowledge-based) products, created by knowledge-based businesses, can be identified by a variety of characteristics: they are highly innovative, interactive, they become smarter the more you use them, and they can be customized. In short they are closer to the customer.

Young technological ventures disrupt product industries, starting from cigarettes to game consoles and not ending with the automotive industries. Hence corporate companies are under pressure to move innovation to the forefront of corporate agendas as knowledge and innovation will only increase in importance.

Several established corporate companies have started to develop structures in which they can capture the value of innovation in the emerging knowledge-based economy.

There are many ways to identify and potentially insource innovation. Each of which has advantages and disadvantages. One way that is increasingly getting more attention is incubators and accelerators.

Ways to innovate

In order to survive the evolution of business established industries are required to review their business models and (similar to the mantra of the US Marine Corps) need to innovate, adapt and overcome (similar to the mantra of the US Marine CorpsImprovise, Adapt and Overcome).

The next blog entry will shed more light on the challenges of current business acceleration approaches and show how to partially overcome them.

The current circumstances

An increasing trend can be observed when looking at the current accelerator environment.

According to f6s there are currently 5140 accelerators active worldwide in 232 programs according to Seed-DB.

TechCrunch claims that the current accelerator growth may slow down, but looking at new corporate accelerator programs popping up may prove different. More and more major brands are looking to get into the startup funding game.The current accelerator growth curve continues to increase.

Featured image
The motivation of corporate companies to accelerate young ventures differs for each corporate company.

However the major factors to take money in your hand and accelerate / support young ventures in their first steps  are easy to assume.

Young ventures have the

  • creativity,
  • the agility and
  • the speed to market

corporate companies may lack.

In a time where speed, innovation and customer-centric business is crucial for survival, corporate companies need to come up with new ways to stay competitive. Young ventures have the potential to disrupt established industries over night. Hence major brands start to establish accelerator programs to attract the best entrepreneurial talent.

Established companies are steadily challenged by the

  • increasing transparency of business (requested by customers or others),
  • the globalization,
  • the digitalization and
  • Porters 5 forces.

5forces

These current circumstances force major brands to find new ways to stay innovative.

Speaking in a metaphor:
Current major giat brands can be seen as dinosaurs, the current market development (globalization, digitalization, etc) demonstrates the change of the environment. Startups are the new species, which now might be small and ignorable, but have the better potential to navigate in new environments.

Every company nowadays need to stay constantly alert in order not to be wiped away by potential competitors in the global market.

Accelerator programs are one way to stay close to innovative grounds. In the coming post I will shed some light on why accelerator programs are struggling and only very few accelerators are actually really successful.

Hello World!

I will use this blog to share some of my insights on my research on disruptive business acceleration and business development efficiency.

But first who am I?

My name is Alexander, i am an 33 years old free professional business consultant. Coming from a diplomatic family I grew up very internationally and had the chance to experience a lot of different cultures from Asia, over the US to the Arabic Peninsula.

I have always been fascinated with entrepreneurs. People who, in the face of adversity motivate themselves to go one step further and get things done. People who build something that will outlast them.

With that motivation I founded my first venture together with my brother in school, producing high quality Rugby-Shirts and marketing material. After some time in the Germany Navy, studies in Germany and the UK, I helped to develop the first market study on the potential of bioenergy in Morocco. Being interested in the renewable energy and water treatment field I sooner or later ended up in the United Arab Emirates, where I became the Business Development and Project Manager for a local SME, specialized in off-grid Solar Energy and Water treatment. I was responsible for the development and creation of artifical oases based on solar-powered groundwater desalination.
Featured imageAfter my time in the desert I went back to Academia and did an MBA in General Management. During this time i fell again in love with entrepreneurship, especially with startups.
Being the COO of the Munich Venture Summit I got in touch with inspiring entrepreneurs and speakers.
Nice story you might say, but why did I research this topic?
I did an 8 months interim directorship at a global accelerator, after having already worked on a project basis beforehand in startup acceleration. I realized a few challenges in the entire process and asked myself if they could be improved.
So I focused the topic of my MBA thesis on that issue, together with the support of the global accelerator.

I will share some of my insights with you in the coming blogs…