B2B, B2C, B2B2C, B2C2B... the GTM Menu and Business Model Innovation
With so many ways to enter a market, it can be hard to choose the right approach(es)
A constant focus for me when working with companies is business model innovation. But what does this even mean? It encompasses a few areas that include pricing, go-to-market (GTM) strategy, stakeholder alignment, product, financials and a handful of other functional areas. Some of the most successful businesses of the last 20 years have leveraged new technology to serve large markets in ways that were previously impossible by innovating on business model - taking a model traditionally reserved for one industry and applying it to another or combining two business models in an innovative way.
Tesla built a Direct to Consumer automotive company
Lyft built a Consumer Marketplace for transportation
Shopify combined traditional B2B Software with a Fintech layer and App Store to build an ecommerce giant
Zoom leveraged Consumer adoption to create a massive Enterprise Software company
Netflix and Spotify brought the cloud-based Subscription model to the Media business
A key to success in the current market is not only building a better mouse trap or even an entirely new mouse trap, but also optimizing the way to take that mouse trap to market. Below is a “menu” of GTM strategies and some example companies for each. The key elements of any GTM strategy are stakeholder alignment and customer acquisition costs, and I'll focus on this here and exclude business model elements like pricing (subscription, usage, on-time), product (software, physical goods, services) or delivery mechanisms (in-person, cloud, on-premise, remote).
The hope is that reviewing this menu will spark some creativity when trying to figure out stakeholder alignment and customer acquisition strategies for new products in emerging or existing markets (and is not meant to be exhaustive or all-encompassing):
B2B: This is the classic enterprise model. One business sells to another business. There are many details and permutations here which can span the marketing and sales funnel, land-and-expand, and various pricing models. The sales here involve stakeholder alignment inside the business customer and are typically grown through incremental gains in sales efficiency and larger scale operations. It may also involve several team members on the seller side of the transaction. The marketing and sales motion is a well-oiled machine in many cases and can grow to massive scale. Typically overall customer acquisition efficiency deteriorates at massive scale, but if the customer list and ARR compounds, then this works just fine. Workday, ServiceNow, and Salesforce are all great examples.
B2C: This is the classic consumer model. Usually this is driven by direct-to-consumer marketing and ideally some virality/network effects. The beauty of this model is that consumers tend to adopt things quickly, but they also disappear quickly and are not reliable customers like enterprises. In the software space, Spotify and Netflix are B2C, and direct to consumer / vertically integrated ecommerce like Casper and Warby Parker are another example.
B2B2C: Now we start to get into some of the more interesting stakeholder alignment opportunities. This model typically has one business using another business as a channel to reach the end customer to whom they deliver the ultimate value. If B1 can align with B2, they can quickly access all of B2’s customers, acquiring a chunk of consumers at a time, supplementing an existing offering and leveraging existing brand equity. It removes some of the volatility challenges of the pure B2C model for B1, but can be a risk long term if B1 can’t develop a relationship with the end consumer. An example is United Airlines selling Hertz rental cars when you book a flight. Another example in software is any platform with an app store (Wix, Airtable, Shopify, etc.).
B2C2B: An excellent example of this is DevOps tools, and the idea is that a business offers tools to an individual. That individual can use those tools in single player mode (just like B2C), but where this gets much more interesting is when that individual is using those tools for their work as part of an enterprise. As a result, the pricing leverage and stickiness with enterprises is much higher than for just that individual. If you add intra-company network effects and large scale productivity gains, the pricing leverage grows exponentially. The reason this GTM is so powerful is that you access the relative volatility of a consumer (quick adoption), but ultimately aim towards the high value consistency of an enterprise customer. The broader product-led-growth trend is a play on this GTM model. Examples are Sourcegraph, Monday.com.
B2B2B: Building a platform that allows businesses to transact in both directions can create a very powerful network effect across enterprise customers. A great example is Bill.com. An enterprise can manage their payments to vendors through Bill.com, who in turn has the vendors sign into their platform and create accounts. That vendor can now invoice/bill their future customers through the same platform. This model has to be carefully curated with excellent product execution because the relatively long adoption cycles of enterprise, but when it works it is extremely powerful and creates a flywheel effect.
C2B2B (Affiliate): This model allows consumers to monetize their actions and/or data in order to earn money from B2 by using B1’s platform (who will take a cut as well). Once there is critical mass of both consumers and B2s, the affiliate network has great leverage on the end businesses and becomes a no-brainer for consumers. Ebates, TheStreamable and Honey are examples.
Consumer Internet / Advertising: This model has companies building tools that they give away to consumer for free. They gather enough users that they can build an advertising platform to monetize those users to third party companies. Sometimes the company creates the content and sometimes it is user generated - in most cases, the consumer is the product. Facebook, YouTube, Instagram, Snap are all good examples.
Marketplaces:
C2C - eBay, Airbnb, Lyft are classic examples of consumer marketplaces (even though SMBs often do start building on the supply side). The biggest challenge with this GTM is that acquiring consumers on both sides and managing consumer volatility on both supply and demand sides of the marketplace and be expensive and inefficient. Establishing brand equity is extremely important in order to decrease CAC on both sides of the marketplace. Don't mistake referrals for virality here.
B2C - Booking.com, Expedia, Amazon are good examples where a set of enterprises on the supply side sell to consumer buyers across the marketplace. Many industries have wisely tried to avoid these sort of marketplaces because of the impact that pricing transparency has on competition and ultimately quality of service.
C2B - Fiverr, Upwork are examples where individuals offer their services to business buyers (and sometimes other consumers). These business can be very efficient if you can build a consistent consumer supply side. The businesses on the demand side are typically more predictable, and it’s possible to predict demand and/or lock in rates and retainers.
B2B - Transfix, Freightos are examples of software platforms that allow selling businesses to select and transact with other businesses on demand side. The repeat rates here are typical strong, but the margins are often thin.
Inverted marketplace - This is a slight variation on the marketplace GTM wherein demand gets acquired before supply. Thumbtack originally had the demand side of the marketplace post their ask, and then the supply side makes a bid for the business.
Software-enabled marketplace - In order to access the marketplace, the supply and/or demand side of the market uses a specific piece of software. Attraction to the marketplace can drive users into the software platform or the functionality of the software platform can drive users onto the marketplace. In either case, the hope is that the utility and stickiness of the software increases repeat rates and margins.
One of the most exciting trends I have observed over the last year is how entrepreneurs are figuring out creative ways to apply and combine these GTM strategies to build outstanding new business models. As new technology continues to proliferate every industry, the opportunity for business model and GTM innovation abounds. The next set of great companies will need to continue this trend and find innovative ways to align both consumer and enterprise stakeholders.
Feel free to reach out with questions, suggestions, and ideas.
Originally posted on my website at verissimo.vc
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