B2B Marketplaces: The key challenges

For those of you who have been following our page for a while, know that we love B2B marketplaces. Why? Simply because there is still so much terrain to win in the B2B space. 

Consumer-centered products or services speak much more to one’s imagination than B2B companies, which often include behind-the-screen propositions such as streamlining logistics or removing a node in the supply chain. Besides, B2C transactions only involve a sole decision maker, whereas the B2B space needs to deal with multiple stakeholders, spread over various layers in an organisation. This makes the B2B-realm a challenging, yet promising domain for disruption. To put this into perspective: total B2B expenditure represents almost 3 times the size of the B2C market, whilst the majority of the B2B transactions still happen offline. See the potential here?

Coincidentally, a recent thread on twitter touched upon the apparent trend of first-time founders starting B2C companies, whereas more seasoned entrepreneurs seemed to favor B2B propositions. Although we have failed to find any hard empirical evidence to support such a claim, many investors acknowledged the trend of second-time founders opting for B2B companies. Reasons for this vary, but we guess it has something to do with first-time-founders having the need to prove their product to the masses first e.g. “solving your own problem”. 

As the B2B landscape is still fairly young, there are a lot of key challenges that B2B founders face when starting their venture. We can go on and list a myriad of (potential) pitfalls, but we figured to keep it nice and concise. A TLDR:


- Change purchasing behaviour by:

1. Facilitate transactions
2. Know your users
3. Overcome trust issues
4. Incentives
   

- Change purchasing behaviour

Buyer-supplier transactions in the B2B space are often embedded in deep-rooted relationships that can go years back. Forcefully disintermediating such a relationship is never a good idea, and can seriously backfire if you are not careful. But how does one go about changing the purchasing behaviour then? We listed a couple of cheats that founders can use in establishing trust:

1. Facilitate, not disentangle

Instead of disrupting commercial relationships, try to facilitate them (our friends from point 9 wrote an excellent article about this). Numerous wholesale marketplaces like  the Amsterdam-based Orderchamp or Faire encouraged their buyers to onboard their existing suppliers whilst offering some kind of economic advantage (usually in the form of waived transaction fees). 

2. Matching buyers and suppliers

Some founders adopt a curated or managed marketplace approach, which means that they vet either the supply- or the buyers side by adopting some of the administrative load that is involved with marketplace transactions. Moreover, “Trust” is a virtue in the B2B space, and founders should always make sure to respect this. Allowing for speedy matchmaking between supply and demand is a big plus. A lot of successful B2B marketplaces were started by people who had prior experience in the sector, who leveraged their industry knowledge and network to incrementally build trust and relationships. 

3. Preventing platform bypass

A big challenge for B2B marketplace founders is to make sure that buyers don’t bypass your platform. As B2B transactions are marked by high order values, users might be reluctant to pay high take-rates, increasing the chance of leakage. A way to mitigate this is to expand your offerings (this can be applied to both B2B and B2C propositions). For instance, Opendoor made sure to offer plumbing services, home assessments and general repairs, next to their core proposition. Some B2B marketplaces have superior economics in place that prevent the users from leaving the platform such as bulk-bargaining power at the supply side. 

This list is by no means exhaustive, as there are still a lot of complexities that founders should be aware of when starting a B2B marketplace. Starting, scaling and maintaining the growth of your marketplace can be (very) challenging, but don’t forget: marketplaces are notoriously difficult to build, but once they have reached enough viable liquidity they are even harder to kill.