B2B Challenges - Supply example

Customers and Users; Decision Pipelines; Value Chain

• 22 December, 2021

So you want to sell into another business

Take a fictional company Baye. They design and manufacture tapware pieces for kitchens and bathrooms. Their products are high quality, they have marketed them well and have won over high rise developers and the architects that serve them. Baye have done a lot right - designed with a great product with strong product market fit and have executed a successful go to market strategy.

If Baye was an online consumer company, they are off to a cracking start - monitor retention, continue to improve in the right areas, and prepare for growth. But being a B2B company Baye have to contend with additional layers of complexity between customer desire and orders.

Below are three techniques things that are useful in navigating B2B challenges. They are to build an understanding of customers and users, the decision pipeline, and how you fit in your customer’s value chain. In the spirit of “You should start a Blog” this post simply states what is obvious to anyone who’s been in this position before.

Baye’s Construction Pipeline

First a quick aside to describe the high rise construction process and the different parties involved.

A new development is being kicked off. As per the architect’s design the developer specifies Baye tapware as one element among hundreds and puts out a tender. There’s a general clause in the tender allowing all specified products to be replaced with “an approved equivalent” which makes sense - nobody expects the build to be halted if Baye has a manufacturing delay or other stock issues. But overall Baye are confident the developer won’t approve anything less.

Builders submit their tender responses. One is selected and off they go. Builders select contractors, including plumbing contractors for supply and install of tapware. Plumbing contractors already have relationships with merchants for the myriad of plumbing equipment that goes into a building. Merchants help plumbing contractors with certainty of supply, easy returns for defects, cashflow-friendly terms and of course offer standard incentives such as bulk discounts.

To summarize, we have the architects, the developer, the builder, the plumbing contractor and the merchants. With that under our belt let’s dig into those three areas.

Understand the Customers and the Users

It’s good to understand all the stakeholders, and one useful distinction is between customers and users.

Customers are the decision makers who set the guiding direction in your favour. Generally this means that they are the money holders who will ultimately pay for your product.

Users are everyone else who comes in contact with your product in any substantial way.

In our example, the developer is the customer as they will be the ones paying in the end, even though the plumbing contractor or the merchant might be the ones who will pay Baye directly. This is an important distinction to draw out. The architects can also be thought of as a customer as they are the ones that decide to put in the Baye in the first place, on the part of the developer.

Users can be easier to identify, but there are often multiple users. In this case the main users are the plumbing contractors, the architects, the developer’s sales team and of course the home owners who end up buying the homes.

Customers and users both have significant roles to play in the decision pipeline.

Understand the Decision Pipeline

To implement the customer’s desire there are dozens of decisions that need to be made, and the devil is in the detail. Let’s call this the decision pipeline.

Discover the decision pipeline and go searching for those who have the opportunity to say No to or derail your sale or deal. This is absolutely critical - having the people at the top of the pile decree something is not enough, so often people downstream will have some form of veto capability.

The developer’s design team (including the architects) choose Baye’s products and the developer specifies them in the tender. After this comes the tender responses, negotiations, and contract formalization involving multiple teams within the developer and the builder. A smaller version of this process is repeated between the builder and the plumbing contractor, and then there is the merchant relationship in the mix as well.

The tapware product selection could easily be a casualty along this journey. For example, the developer’s commercial management team may require certification of sustainability or human rights; the builder requires the installation method to be of a standard form for reasons of predictable cost, the plumbing contractor requires supply to be available through an approved merchant to help with their cashflow and de-risk returns.

Time spent spelunking for vetoes allows you to get ahead of potential blockers; time well spent.

Understand how your Supply fits in their Value Chain

As is to be expected there is a lead time for manufacturing and supplying a high-rise worth of high end tapware. The developer has outsourced this problem to the builder, who has in turn outsourced it to the plumbing contractor. This gives the plumbing contractor and their merchants leverage over the builder and developer. For example, as a result of the plumber not placing a timely order, the developer may have to choose to either hold up completion of the build waiting for supply, or accept an alternative (there’s only one way that decision goes).

There are multiple ways to address this if you have control over the whole construction pipeline. Milestone payments to the builder could be linked to tapware orders being placed, or penalties could be applied for where alternatives are needed. Each of these has drawbacks, but the biggest issue is that now Baye has the problem of educating and changing behaviour downstream of their customer.

Another alternative is for the developer to place orders directly with Baye. This would require the least overall change and would save the developer money by removing some of the downstream mouths to feed. It notably carries the downside of asking the people at the top of the pile (the developer) to take on more work, which is its own special type of challenge.

Ultimately this alternative would be an example of Baye supply occurring at a more aligned layer of the value chain¹. If their product is genuinely differentiated on quality as decided upon by the customer there is marginal additional value to the developer for it procured through a merchant or plumbing contractor so why not go direct. It’s not true to say there is no additional value to the developer² with the current setup, so Baye would need to address all the tradeoffs involved³.

Even if Baye are unable to optimise the construction pipeline to suit them, understanding it and how the value in it accrues to the customer is of tremendous value to operating the business.

Back 2 Basics

Baye’s challenge is exacerbated because though their product is differentiated from the competition, it’s not a major disruption to the market and is ultimately substitutable. Being substitutable is an advantage when you’re trying to insert yourself into the market but carries the same disadvantages of being easily replaced when the chips are down. It’s amazing how substitutable innovative new products can be when times are tough⁴.

This example with Baye is a case study in the complexity of B2B over consumer plays. The focus for Baye has been on supply of a physical product; adding in operations of an ongoing service brings new levels of difficulty.

Whether its upfront purchase or ongoing operations, these three techniques help de-risk success in a B2B world.