Business-To-Business (B2B) or Business-To-Consumer (B2C)?

Say you’re a budding Internet entrepreneur in search of a good business idea. Should you go for B2B or B2C business? In the former, you’re selling to another business. In the latter, you are selling directly to the consumer. My recommendation is that if you are new to business, it is better to go into a B2B business. More specifically, B2B service business. The reason is because B2C businesses are not as easy as they seem. These are the common headwinds faced by budding B2C businesses:

  1. Without a physical store location, it is very hard for your business to be seen as a ‘player’ in the market. Despite what you read about the rise of online shopping, consumers tend to buy online from businesses that already have a physical brick-and-mortar store. Without a physical store, you have to work extra hard to gain the consumers’ trust before they will buy from you (see Why are you no able to sell?)
  2. Marketing tend to be more expensive and complicated for B2C business. You have to be a master at knowing what makes consumers tick and open their wallet. Consumers tend to be driven more by emotion than by cold hard calculations. Advertising costs tend to be much higher.
  3. You have to bang your brand into your consumer’s head repeatedly before they will open their wallet. This means you have to continually jostle and push your way to the front of your competitors’ brand.
  4. If you are selling products to consumers through your website, you will immediately face global competition. Unless you have a very strong brand in the first place, this means your product will be reduced to a commodity very quickly.
  5. Big brands tend to dominate B2C service industries. You will have a very hard time overcoming your competitors.
  6. B2C service businesses tend to be more cyclical than their B2B counterparts. If you start such a business during the wrong part of the cycle, not only do your business has to survive during the waiting period (before the cycle turns), it will also have to ready to compete when the turning point comes.

Between B2B product businesses and service businesses, the latter is preferred. That’s because:

  1. In product businesses, you need to keep inventory. Storage costs can easily add up.
  2. If your product is a commodity (see What you can do to avoid becoming a commodity?), you have to rely on other factors like support, delivery times and options to differentiate from your competitors. This makes your business vulnerable to the big boys competitors (e.g. Dell, Asus).
  3. For products businesses, inertia is much greater and you cannot change your offering very quickly. This lack of agility means that any mistakes you make will have a multiplying effect very quickly.

The advantage of B2B service businesses are:

  1. You can be more agile in changing your service offering.
  2. Businesses tend to have more money to spend.
  3. Unlike B2C businesses, marketing tend to be easier because your competitors’ marketing tend to be not as strong.
  4. Unlike product businesses, you have more pricing flexibility.

So, if you are new to Internet business, start with a B2B service business.

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