Becoming a B2C Business and Why It Matters if You Want to Scale
The vast majority of consumer startups selling in retail get lulled into operating as a B2B company, even though they make products for the end consumer. This is because the initial data they manage concerns distributor case sales and retail account sales. They have no consumer data at all. And so, sales tend to dominate the entire strategy around growth. The growth strategy becomes limited to stringing together retail accounts with enough doors to generate automatic growth, at least initially.
The problem that arises is one of perspective. When you inadvertently operate purely as a B2B brand, you lose touch with the motives of your end consumers who determine store velocities. The worst thing that happens is a naïve belief that your product has nothing to do with any sell-through problems. Why? Because a B2B company is focused on shipping more cases of its product to accounts, it refuses to believe that what’s in the case could be the source of the problem. It’s all that the company is doing. It couldn’t possibly be the source of the problem, could it? What I’m shipping?
Well, yes, it could. And it often is, when the founder is very new to consumer packaged goods.
Beyond this blind spot, the B2B founder over-emphasizes working trade tactics to drive velocities, even though these ‘working’ tactics also can undermine the health of the business by generating false lift from weak purchase intent trial. This leads to profit-eviscerating bumps in baseline sales that disappear months later. Moreover, by obsessing with trade promotion, founders fail to develop the kind of two-way relationships that form the heart of the most highly successful startup brands anywhere. While this is easier for D2C businesses, it is possible for retail brands. You have to work much harder to forge those relationships. The more time you spend interacting with your end consumers, the better you will understand what’s driving your business performance, the better you can assess the appropriateness of your account and channel sequencing, and the better you can steer the B2B heart of your business toward the right end-consumer audience.
If this post got you rethinking anything about your 2021 plans, then you may want to attend my Ride the Ramp webinar. On May 7th, my next cohort will go through my Riding the Ramp Strategic Planning webinar. Grab one of twenty slots early!