Deep Dive: Bringing digital and real-world companies together
Can B2B startups and established companies overcome knowledge and trust barriers to build transformative partnerships?
There is a growing wave of founders launching B2B startups based on digital-age technologies. Their operating models take many forms, including platform marketplaces and networks, software solutions, social media, connectivity solutions, data aggregation, and more. But many seem to share a common characteristic—they seek to work collaboratively with established, real-world B2B businesses. They seek not to disrupt but to create change from within B2B markets by leveraging all that digital technology and business models can deliver. Inevitably, as they reach out to leaders and owners of incumbent companies, they hit a wall. Conversations break down because each party fails to understand the other. There is also a trust barrier related to the unbelievably successful B2B marketplace known as Amazon Business. As viewed by digital founders and real-world leaders, Amazon operates disruptively, getting business done on its terms. The willingness of B2B startups to work with, not against, established companies is a bright spot on the horizon. In this edition, I hope to kickstart the dawn of a new era of collaboration for the betterment of customers and the entire B2B ecosystem.
Don’t be shy
“Don’t be evil” was Google’s motto at its inception, before it became the internet powerhouse and dominant business that it is today. If you accept that we are on the cusp of a new digital transformation era for B2B markets, brought about by the collaboration between digital startups and real-world incumbents, then a fitting motto might be helpful. I suggest “don’t be shy.” By that, I meant that startups and incumbents should seek each other out, engage with in-depth conversations, work toward mutual transparency and visibility, create mutual trust, and ultimately build powerful and transformative partnerships.
Many articles, studies, and papers about the future of B2B platforms have shown up on my radar, many with lists of digital startups and platforms. One of the best is Applico’s B2B Marketplaces Top 50 Ranking. In it, Alex Moazed and Nick Johnson make the case for B2B marketplace momentum and growing share based on investments, valuations, professional experience, and a well-explained research methodology. They name 50 startups and profile them by business focus and raised capital. Moazed and Johnson argue that “every startup in [Applico’s] ranking should be studied thoroughly by distributors and manufacturers alike.” I agree. Wholeheartedly. And not just companies on Applico’s list. There are many more worthy of investigation. Let’s get at it.
Be curious and seek answers
In my many years as a channel strategist, I gained several perspectives that I carry forward to my work on B2B innovation. Partnerships and alliances are essential in B2B; no company can completely serve customers on their own without help from others. Creating value is important, but creating the exchange of value is powerful. Trust is gained over time through human-to-human conversations that lead to an ever-widening sharing of values, experiences, facts, and data. Over time, I have created a list of ten questions designed to help potential partners understand each other as a foundation for mutual respect and collaboration. I'm sharing my questions here, updated for digital-age conversations between technology startups and established real-world businesses:
What is your project for the B2B market? I use the word “project” in the grand sense, as a historian might explore “the American project” for representative democracy and enabling life, liberty, and the pursuit of happiness. What is the B2B startup’s big idea? What is the established company’s purpose? How can the established real-world business and the startup work together to make a more significant impact than either can do on their own? How will the collaboration create better outcomes measured as customer, community, social, and economic gains?
One B2B pro and digital startup founder, Keith Williams, explains his project for simplified digital-age sourcing, Factrees, as “We are creating a single source matching platform to help manufacturers build and manage a rep channel for optimal customer servicing and sales growth. Today, manufacturers and reps can’t find each other without hours and hours of manual networking, introductions, phone calls, and emails. Our networking platform connects companies through user-generated company profiles that include product lines, territories, sales and marketing competencies, customer reviews, and performance data from a community that includes thousands of manufacturers, reps, distributors, and retailers. We will match companies together through proprietary algorithms and suggest B2B matches for maintaining sales growth, launching new products, dealing with consolidation, and maintaining a network of high-performing committed partners. My digital and operational experience at Sonepar USA, Petco, and HD Supply revealed the need for a data-enabled platform that simplified the sourcing process.”
What customer purchase occasion should we address, and how will we make it better? Every business customer buys differently according to the specific need at hand. Common purchase occasions include convenience, replenishment, solutions, repairs, projects, emergencies, and more. One goal of the startup/established partnership could be to bring new capabilities to upgrade customer services with digital-age processes and capabilities.
Please note—by design, I am not using modern terminology such as “personas” and “customer journeys.” Jargon is a shorthand that can obfuscate reality. Using plain language can enhance conversations, and deepen mutual understanding.
What goals are we working to help customers achieve? In B2B, customer support activities are not always about transactions, or finding, buying, and getting products or services. Support can also be about helping the customer achieve business objectives as a leader, team member, or worker. Support can also be about helping the customer achieve personal goals around professional attainment, job satisfaction, or wealth that funds the individual’s personal life.
How do we attract or recruit customers and convert them to our offering? Business customers are busy. Asking business customers to shift their purchases (or attention) to a new source (or service) requires them to expend effort and incur costs. Working together, the startup/incumbent collaboration may need to offer economic incentives, guarantees to mitigate risk, or assistance to help redesign roles, processes, performance measures, and organizations.
Who are our primary competitors, and how do we differentiate? Naming competitors injects a sense of reality into the collaboration conversation. Are the named competitors other B2B startups or companies in the traditional value chain? Or is competition manifested in overcoming established ways of doing business, ingrained mindsets, processes, or out-of-date risk-and-return assumptions? This question leads to a discussion of why collaboration can achieve more than each party can achieve independently.
What are the core competencies each of us brings to the table? Exploring this question will help determine if the startup is a new species for the existing ecosystem and if the established business is on a journey toward a new business model. Traditional companies define competencies as functions and processes—marketing, sales, operations, customer service, technical support, finance, and so on. Does the startup speak a similar language? Each partner must fully understand the other before competencies can be aligned to work in a complementary fashion for mutual benefit.
Should our collaboration exist between companies, or should we create a new organization? Every organization seeks to perpetuate its existence. If the collaboration is structured as a partnership between two (or more) companies, clear rules of engagement and common reward systems are essential. Proactively building a shared culture around the new customer offerings can help. If barriers seem insurmountable, a third organization staffed with a team from each company may be necessary. This new organization might even be structured as an independent business and legal entity.
What are the goals and aspirations of each partner's owners, leaders, managers, and workers? It is crucial to get the personal and professional aspirations of each business partner on the table. In my work as a channel strategist, I found that personal and professional goals often aligned with their company’s business model. Members of publicly owned companies pursue corporatist objectives that are ultimately about increasing shareholder value. Independent businesses may work to protect a family legacy, put kids through school, achieve status in a community, or gain an acceptable level of wealth. Employees of entrepreneurial organizations may have very different ideas about adequate wealth and seek accomplishments that stand up to their peers. Dig into this topic. Deeply.
What benefits do we create for each other’s company? The best partnerships make all partners stronger than before. To further this conversation, each company should offer requests and expectations for the other. The discussion that follows will help create a shared understanding of all partners, from the inside and the outside. Each partner should include attainable benefits in their ROI calculations about the partnership. It’s common to think of returns only as sales, shares, and profits. By adding benefits to the equation, a more profound and more lasting partnership is established. If not dealt with elsewhere, this conversation should clarify how digital-age benefits, such as network effects, line up against traditional business dynamics and measurable outcomes. Once benefits are understood, systems for visibility and transparency cement the relationship.
What is the total available margin and how should wealth be allocated between partners? Getting an answer to this question requires trust. In a way, the conversations around all previous questions are intended to create an open dialogue around the shared values and facts that are essential for trust. I frame this question as allocating value chain margins because wealth is not created out of thin air. The incumbent’s perspective is that they are giving away (or transferring) profits earned through selling products or services from their position in the value chain. The startup may have a “take rate” monetization model, meaning that while the company does not buy and resell products, it takes a cut of all business that transpires on its platform. Whether profits are transferred or taken, trust is achieved when each party understands the total pie and how, by working together, addressable opportunities are made larger.
Ideas for innovating B2B
This edition is about offering an approach for creating a dialogue between digital startups and established businesses. I will commit to making some of those conversations happen through networking and introductions. I’ll report on my progress and findings in future editions.
For now, I’ll close by looking at some of the potential outcomes that might happen through better conversations. I see several possibilities:
Bail out. Even the best conversations can lead to … nothing. In this case, I recommend that both parties make a record of the conversation, what seemed promising, and why it went nowhere. Put it in a time capsule and come back to it at a pre-planned later date. Timing is a critical component of product-market fit. What may not be a good fit today, might look completely different in the future.
Join forces. Working together could mean that the established company joins the startup’s business or uses the startup’s offering in the established company. Perhaps a better idea would be for the established company and the startup to work together to build a community of customers that, from the start, can help define a joint offering made possible through collaboration. See this earlier newsletter on building communities
Buy or invest. One company might acquire the other, blending capabilities and existing customers as a foundation for something new. Or one company might invest in the other, helping it innovate and grow while reaping a financial return on the investment. Of course, investing can lead to an acquisition, as the investor gains an in-depth understanding of the acquired company’s value proposition, operations, and growth potential.
Before I close, I’d like to offer a quick sidebar. I hear rumblings of industry associations and buying groups seeking to build what the B2B startup marketplaces intend to create—by themselves, for their members. If you are an association and plan to do this, I suggest that you go in with your eyes very wide open. Better: get help. Remember, you are not a digital-age B2B startup. It’s not your thing. I suspect that you cannot build a platform on your own, even with the advice of industry insiders or thought leaders, myself included. That is my humble opinion. If you decide to create a marketplace, I suggest you do so as a collaboration, which might end up looking a lot like buying or investing, rather than copying what startups and platforms are attempting.
Join the journey
Again, I recommend that you read any and all articles about B2B digital startups and platform businesses, starting with Applico’s report and book. Send me what you find. Let’s talk. I would be interested to hear your takeaways and will share mine. Let’s figure out the future together. Don’t be a stranger. Share your thoughts in the comments section below. If you prefer, reach out directly at mark.dancer@n4bi.com.