A Brief Memo on the B2B2C Model

By David Frankel, Managing Partner at Founder Collective and on the board and/or first check into @pillpack , @seatgeek , @olo , @coupang, and many more.

B2B2C business models, where a startup sells to an enterprise with the intent that the enterprise sells to consumers can be a powerful strategy. It’s also a dangerous approach for startups that can lead to total disaster.

Here’s why:

There are actually two sales cycles, first you have to convince the organization to work with you, then you have to sell the project internally to a variety of stakeholders, each with different concerns and motivations.

Long sales cycles are often a mismatch for entrepreneurial psychology where progress is most comfortably measured in days, if not hours. B2B2C deals by their nature are measured in quarters if not years. It can drive founders crazy.

I can’t overstate how slowly large organizations move. In a world where you’ll likely need to be fundraising annually, they’ll be focused on five-year plans. Your capital structure and product roadmap need to be aligned with this reality!

Assuming you can deal with the lackadaisical pace, there are many structural risks that need to be considered…

B2B2C projects attract organizational antibodies that will gum up your project in unexpected and frustrating ways. Legal reviews, marketing buy-in presentations, and countless committees can stall progress and kill partnerships.

Often, B2B2C deals are just glorified opportunities to sell to customers through the partner’s platform. Overly credulous founders are suckered into deals that sound like they come with benefits but really just lock you into a single marketplace.

As a founder, you still have to create the message that will resonate with the actual end-user, but you’ll need to help sell it through the partner organization. That’s harder than going direct in many cases.

Founders hope they’ll be able to get “free” marketing support from the partner org. This is true, but only after you’ve spent a small fortune “training the trainers” and incentivizing the channel. Neither of which is cheap.

If you don’t provide immediate savings or revenue growth, you’re going to have a hard time capturing value. The enterprise will be loathe to spend. They’ll know you’re dependent on them. That’s a tough position to be in.

In summary: B2B2C can be a brilliant strategy, but it has to be a *strategy* from the outset. Unless your model is built around the challenges of this approach from day one you’ll have the challenges of B2B and B2C with the benefits of neither.

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