While consumer products get all the hype, B2B products are a quiet gem
“What’s cool nowadays?”
I love asking my friends this question and hearing about the latest products and brands they’re loving. I’ve also noticed that in all my years of asking this question, I’ve never heard anyone mention an enterprise company. Can you imagine hearing a response like,
“Oh — Cloudflare, Databricks, Superhuman, Slack, Salesforce, Envoy, the list goes on!”?
To be fair, it’s easy to get lost in the consumer product bubble. Many of the most salient technology companies today are consumer internet companies. They’re splashy and (for better or for worse) attract all the hype. Consumer products also easier to identify with and more consistently used, so it makes sense that they occupy a prominent cultural position. But, after spending my career both building consumer and business products, it's become increasingly clear that building for enterprise is the easier and more pragmatic route. Here's why:
It’s easier to tell when you have product market fit in enterprise.
Consumers have much more varied needs than businesses. Consumers need to solve the nuisances of their daily life, but they also need to feel seen and heard, they need to be cool, they need to be entertained, they need to know about things before their friends do, they need to express themselves in a way that shows they’re woke but not overbearing or obnoxious, and on and on.
Businesses, whose only real needs are to operate and make money for shareholders, are much less complex than humans. If they’re fiscally responsible, they will focus primarily on solving the problems that prevent them from achieving long-term survival. Consumers, on the other hand, have many “problems,” but in reality, most are non-vital. This leads to the lukewarm adoption of most consumer products.
As a founder or product person, it’s easy to get stuck in the “trough of sorrow.” You have some usage, but people seem to feel “just ok” about your product. People aren’t lighting themselves up trying to spread the word about your thing. Many founders flounder at this stage and mosey on for years before throwing in the towel. It’s frustrating, but it’s also the result of solving a problem nobody cares enough about.
When building B2B products, it’s easy to know if you’ve attained product-market fit because most enterprise products require you to pay for them. If you’re not doing a good enough job at solving a need, companies won’t hesitate to churn, since not churning actively costs money. This means that when enterprise customers use your product, they’re largely looking to answer two questions:
- Is this product solving a problem of mine?
- Is the problem being solved so difficult or important that I would pay to not have to solve it myself?
Enterprise problems are problems of survival, while most consumer problems aren’t. Since the former is born from desperation, while the latter is a nice-to-have, B2B customers are much more incentivized to find a solution that works. If yours doesn’t, they’ll churn. You then, as the product person, can get signal quickly about what you’re doing right and what’s going wrong.
Consumer product usage is subject to factors like trendiness, taste, and psychology, creating inconsistency and volatility.
Consumers are inherently fickle, which makes success hard to sustain. Even if you emerge from the trough of sorrow to find what feels like product-market-fit, your product can still fall to the wayside as new fads materialize. Take Yo, a great example of how consumer products can disappear just as quickly as they’ve risen.
The app, which will forever live in infamy as a product whose only functionality was to let people say, “yo” to their contacts, had, at one point, almost 3 million registered users and over 1 million monthly active users.
Yo, an app once valued at $10M. Source: The Verge
It’s meteoric ascent was grounded in a novelty that eventually wore thin as people came to realize, “yo” was really not all that interesting. While Yo is a rather obvious example whose demise seems easy to predict in hindsight, others like Flappy Bird, Vine, Yik Yak and Peach represent products that simply lost their luster for no apparent reason. The risk of being upended by variable external factors is the price of building consumer products. Just imagine being that data scientist.
B2B products don’t face the same volatility because they’re less swayed by cultural zeitgeist. You may stop using a product because none of your friends are using it or because it’s no longer trendy, but businesses remain unfazed in the face of these factors. They’re much more rational.
There are clear moral exceptions to this that may cause companies to jump ship from even the best of products (e.g. CEO of an enterprise software company becomes embroiled in workplace harassment lawsuits), but otherwise, most enterprise customers will continue to pay so long as the solution they’re paying for continues to work.
What’s more, corporate clients also tend to move slower than individuals. If a company decides not to renew your software offering, they may wait until the end of the quarter or pay period to mobilize their employees to stop using it, as opposed to deleting you from their phones the next day. This flattens the curve and gives you the runway to bolster your pipeline or improve your product to make up for lost business before it’s lost.
You’ll never get a warning when an individual ditches your social app for the next TikTok.
For consumers, too many risk factors are out of your control. It’s hard to predict what’s trendy and what has lasting power. And when you think you have it, you might win fast only to fail faster. Hitting on something that will stand the test of time requires a lot of luck.
Enterprise execution is a straightforward path.
One of the benefits of building paid products is that if people are unhappy with your product, they’ll find a way to let you know.
When I worked on building Nearby Friends at Facebook, a free location feature enabling you to see which of your Facebook friends were around your area, we would conduct user research by incentivizing people to attend focus groups or take surveys with Amazon gift cards. We’d beg people to participate, since one of our biggest concerns was not getting a large enough sample size to inform our decision making.
For people, attending these sessions was usually a big chore. You could tell most people didn’t really want to be there.
When I transitioned to working on paid enterprise features, I saw the opposite phenomenon. People were clamoring to give us feedback because they were paying for our product and wanted to do anything in their power to get their money’s worth. We instrumented a feedback button on every page and, to my surprise, businesses would take the time to report bugs, write long, open-ended pieces of feedback, and request new functionality through the channel.
Businesses have a greater sense for what they want. They’re able to identify gaps that, if solved, would better serve their use cases. If you asked a consumer, “would you want an app that lets you see photos posted by your friends, supports direct messaging, and shows you ephemeral photos and videos that expire after 24 hours?” (Instagram) would they say yes? Or if you had asked a consumer 10 years ago whether they would stand in line for hours to buy a phone with a 3X larger screen (iPhone), would there be consensus?
Actual consumer behavior is much more inconsistent with what people report they want. This makes product execution circuitous and often unfruitful. It’s easy to build the thing people say they want and sit back and watch as no one uses it. Businesses report feedback based on real pain points. There is a world of growth opportunity that lies simply in solving these pain points and expanding to adjacent issues/use cases.
And if you get things wrong, you can bet that companies will find a way to scream at you over the phone about taking away something that was beneficial or adding something that made their lives more complex. In this way, execution for B2B products is much more linear.
In the enterprise world, there are also more consistent ways of operating and getting to success. When you don’t need to hack virality or devise creative marketing tactics for shock value, your work becomes less guesswork of what will capture consumer attention, and more about how to build an enduring and scalable product.
Interestingly, most enterprise companies are structured the same way across sales, marketing, engineering, etc., so learnings are broadly applicable across B2B companies, even if the products being sold look markedly different. While the success of consumer products is hard to trace to a specific set of factors given the impact of trends and psychology, enterprise products have a relatively consistent playbook.
Enterprise products make for better businesses.
The challenge of building consumer products is not only that of creating a sticky user experience, but that of generating the monetary runway to continue iterating. While it’s true that some of the most lucrative and outsized exits have been consumer businesses, these should be considered outliers. Why? Let’s take a look at the most common monetization schemes:
- Advertising (e.g. Google, Facebook)
- In-product purchases (e.g. buying add-ons in games)
- Subscription (e.g. Netflix, Underclub)
- Commissions on selling product (e.g. selling physical goods or collecting app install fees for software)
If you’re building a consumer product, monetization is difficult before you’ve achieved significant scale. Each of these models has their own associated challenges. You can’t build an a business based on advertising if you don’t already have millions of people using your product. If you offer in-product purchases, you’ll need to sell something that’s high-margin and re-buyable.
Subscriptions are so common they’ve begun creating fatigue for consumers that don’t want to be beholden to so many monthly payments. And finally, selling products won’t create an outsized consumer outcome unless you are marketing an extremely high margin product (e.g. luxury goods).
Even businesses like Youtube and Uber, which have grown to millions of daily users, still face tough questions on the viability of their business models. It’s not uncommon that SaaS companies like Salesforce and Shopify see gross margins of >85%, while salient consumer players like Netflix, Snapchat, and Uber generate gross margins between 40–55%.
Enterprise products are usually subscription services, which businesses will pay for so long that it solves their problems. And unlike consumers, businesses don’t fall prey to subscription fatigue.
We can also look at startup exit data to understand the ease of value creation across consumer and enterprise companies. Since 1995, the number of enterprise venture-backed exits has consistently outpaced consumer exits (4,600 enterprise vs 2,600 consumer), though in recent years, the value of individual consumer exits has eclipsed enterprise exits fairly consistently.
- Source: Sapphire Ventures
What does this tell us?
It’s much more common to see enterprise companies succeed. It’s hard to build consumer businesses, but if you are one of the lucky few to reach the promised land, the prize is certainly worth grinding for.
Like most things, the decision of whether to build B2B or B2C comes down to your goals. If your goal is to learn how to develop strong products and businesses, enterprise is probably the right choice. On the other hand, if you’re excited by fame and can handle extreme frustration, maybe you’re cut out for the harsh climb of the consumer world.
The best thing to do is to make a determination of what matters to you, stick to it with resolve, and guide yourself down the path most aligned with your inner scorecard.