What does it take to build a B2B marketplace unicorn?

This is the second part of the 3 piece article on the state of the B2B marketplace in India, the other parts could be accessed at the following links —

• Status-quo and why B2B marketplaces are needed more than ever
• What does it take to build a B2B marketplace unicorn?
• B2B Marketplace evaluation hacks — which investment can give me 100X returns?

Before deep-diving into how I believe you should think about your product offerings, I would like to emphasise the fact that what a true revolution you guys are bringing in, this is not one of those “cool” industries that witness a mammoth of entrepreneurs envisioning to be part of or a multitude of start-ups coming in daily to disrupt the market, so I prefer to refer all the entrepreneurs building for this segment as “you are the chosen ones”.

To start with, on one fine afternoon when you decide to start building a B2B marketplace, what are the key things that you need to execute to succeed -

Changing the behaviour of the buyer — This is easier said than done. When it comes to B2B transactions, much of the purchasing tends to be old school and based on established relationships. There is a huge trust component involved and most buyers are reluctant to try out even a new supplier, forget about a new platform. So, how do we do that?

• The first step is to accept the fact that for suppliers you are not a priority, as in the initial days you lack the liquidity to be relevant for them, for buyers you are just a platform, and they are not sure whether to trust you or not. So, start with basics, i.e. building trust on both sides — do things that don’t scale, for example — celcius, a marketplace for cold chain logistics started with VVY, where they converted dry logistics vehicles into cold storage reefers, assured minimum guaranteed income, and started onboarding the demand. Owing to the quality at which they were able to offer the services, they started receiving initial traction from the shippers.
• Build a single-player mode that is valuable for the supply (or demand) side of the platform even when there is no demand (or supply) on the platform. This will help in increasing trust in the platform.
• Never try to disintermediate existing commercial relationships, try to facilitate them, and pursue either the demand side (or the supply side) to onboard the other party onto the platform, to ease their workflow. If even one side started building trust onto the platform, this could become a very cost-efficient way of the other side’s acquisition.
• Once you start getting the demand on the platform, the focus should be to double down on the supplier end, use data to build trust amongst the suppliers, understand their KPIs, key challenges, and build according to their user journey. For example — one key KPI for a grocery supplier could be AOV, now there might be a threat amongst them, that through these digital transactions, they might have to compromise on their AOV, as small as these challenges, could also become a major reason for the difficulty in onboarding the suppliers, resulting in higher CAC and poor unit economics, hence build the platform to incorporate for such KPIs.
• Start by providing access to the “surplus” supply or excess demand. For example — if you are a marketplace linking farmers to the retailers, start with capturing farmers’ marginal sales whilst the core still went to established buyers. Gradually upsell and increase the wallet share. This is also known as the “land and expand” model.
• Once you start receiving sufficient interest from the suppliers, and they are ready to get on board, to ensure quality delivery for your buyers, implement comprehensive SOP for suppliers curation —
• Credentialing — Allow only those suppliers that meet certain compliance requirements. Conduct regular checks to monitor the quality of the delivery and buyer’s satisfaction.
• Cataloguing — Time, speed and relevancy are the most crucial elements for the buyers, hence use an inside-out approach to build the platform, understand buyers journey and try to replicate the same for cataloguing and searching.
• Ensuring minimum viable happiness — Do not be in a hurry to acquire a lot of suppliers, acquire a pool of suppliers, give them a good amount of work, ensure a minimum viable wallet share, that makes them happy and dependent on the platform, only after that, infuse in more money to acquire more suppliers.

Overcoming the complexities of B2B trade — I believe this is the most difficult part of the game. As the majority of these transactions have a long sales cycle, negotiation-based pricing, complicated payment terms, customized orders and multiple party relationships, being able to account for all of it in the platform become a mammoth task. I sometimes get goosebumps after witnessing how some of the marketplaces are doing this so right and without a flaw.

• I would suggest you go and just shadow the buyers and suppliers for a couple of days to understand their user journey, how do these transactions happen in the offline world. I know this sounds cliche, but not a lot of founders do it.
• Prefer to be a managed marketplace to remove as many inconsistencies as possible, to ensure you charge the buyer and then pay the supplier so that all the transactions and their recordings are happening through the platform. Organizing these transactions are again a hell of a task -
• Payments — Buyers expect to be offered payments on credit terms. Due to large payment cycles, try to institutionalize channels like payment insurance or parametric insurance to manage the credit risk. As you would be replacing the middle-men who in the offline world used to provide loans to the suppliers, you will also have to keep a pool of working capital to lend or pay to the suppliers immediately, until you are able to collect the complete payment from the buyers.
• Transaction administration — The most boring part, but the crucial one. Tasks that need to be done once the order is placed — from confirming the availability of goods in stock, sending invoices to the buyer, organizing last-mile compliance checks and orchestrating the various ancillary services. Target is to build a platform (or an ecosystem) that makes it 10X easier for buyers and suppliers to transact than the status-quo.

Mitigating the risk of platform disintermediation — This is something that happens in all marketplaces but is especially prevalent in B2B since buyers have a tendency to fall back on their established supplier base. On top of that, since the average order values and the need for customization are so high, there is a tendency amongst buyers to fall back on their established supplier.

• I think this cannot be emphasized enough, but provide value-added services that make everyone’s life easier, add features that make your product a data storage centre for either the supplier or the buyer or a crucial part of their workflow, that improves the stickiness associated with it.
• Do a hell of a lot of work, offer after-sales services to increase customer satisfaction, resolve the after-sales disputes between the buyer and the supplier, offer insurance, logistics, data, payments etc.
• The best part about a verticalized ecosystem is that you know your buyer and the seller, you can have targeted and niche events to get their attention. Organize events, publish reports based on the transactions happening on your platform, provide openness to as simple as prices, best-selling SKUs, top buyers etc to just build more trust and reliability with the platform.
• Build for reverse compatibility to scale fast, never make the suppliers do any heavy work at the onset of the partnership, it will be a recipe for disaster.

Given, now that we have talked in length about how to start a B2B marketplace and take it to a stable state, the question to think about is how to decide the focus for the sales team? Whether we should reach out to more buyers, or more sellers? What would be the north star etc?

According to me, there are just 3 metrics that are the holy grails of the marketplace, that you should use to define the focus of your sales team -

• Search to fill rate — This metric defines the buyer’s liquidity, i.e. out of the 100 customers coming to you, how many are you able to cater to. Track the metric on an MoM basis, ideally, it should keep on improving, because as the marketplace would grow, it should have more products/supplies to cater to the requirements of its buyer set. To remove the skewness of non-relevant users coming onto the platform, the analysis could be performed at a cohort level, to understand how the marketplace has been able to cater to their needs. The moment, you observe a dip here, your sales team target should be to open the directory and start onboarding the suppliers.
• Utilization rate — This metric defines the supplier’s liquidity, i.e. out of the 100 products that they have listed on the platform, how many are we able to sell for them. Again, track the metric on an MoM basis, ideally, this metric should also keep on improving, because as the marketplace would mature, you should be able to attract more buyers, hence higher sales. The moment you start witnessing a dip here, the sales team should be out there onboarding more buyers.
• Buyer-supplier ratio — This could be the single most important north-star, use the numbers for the oldest cohort of the buyers and the suppliers, calculate total transactions per buyer/transactions per supplier, this is the ideal ratio. If you are operating at a ratio below this, focus on onboarding buyers, otherwise on onboarding suppliers.

To end this, let’s answer the most important question for any founder, how to identify whether they have achieved the product-market fit?

I have tried to keep it very simple — for me, the vision of the founder is very important, when I say vision, it is not that by when they will be able to reach the $100M GMV mark, or by when they will become a unicorn, it is more about what they want their venture to become synonymous with? What level of impact do they wish to bring in the lives of their beneficiaries?

I think the 2X2 matrix is very simple to comprehend:

• the y-axis talks about how compelling the vision is, a proxy for this is, are your buyers, suppliers, employees and maybe VCs are getting excited with the vision that you are showing them? Are they getting excited enough to get onboarded on to your platform? If any of your buyers/suppliers could have invested in your company, would (s)he be willing to take a bet on you? If yes, then you do have a compelling vision, and you have solved for half part of it.
• the x-axis talks about the depth of the customer engagement, are you able to become a reliable platform for your customers or suppliers? Are you able to continuously improve your wallet share? Are >90% of your customers returning to purchase from your platform, and are compensating for the lost customers by improving their AOV? If yes, then you have both of the pieces in place. I trust that you are on a superb journey to become a unicorn.
• If you lie on the compelling vision but high churn and declining repeatability quadrant, I am sure you must be having very challenging unit economics, difficulty in scaling beyond the early adopters etc. I term this quadrant as the owl quadrant, now you have one part of the game in place, you do have a compelling vision, but now is the time to stay awake and burn mid-night oil to understand your users better and their needs, start with niche offerings, make them your star products and then scale to acquire more wallet share.
• If you lie on a high repeat rate but unconvincing vision quadrant, I think you must be struggling with compromised margins, inconsistent sales cycles and a high level of after-sales services. You too have one piece of the game in place, now is the time to roar, think more highly of yourself, break the invisible barriers and try to envision the value that you could add to the journey of your suppliers and the buyers and what you can help them become 5–10 years down the line. Now come back to the present, and see what you are to them? That should drive your vision.
• The last quadrant is very self-explanatory, owing to a lack of compelling vision and a weak sales team, you are not able to achieve what you envision to become. Of course, you can still go in the unicorn quadrant by following the few tips and tricks mentioned above, but the road would be very difficult and challenging, but I think that’s what entrepreneurs are expected to do, execute something that is unreal. So, trust your guts and go for it :)

Please follow the following link to access part 3 of the article, where I have talked about the hacks to evaluate a B2B Marketplace and identify the investment opportunities that can yield 100X returns (:P).

I think that’s it for now folks! I hope that this post will be useful for entrepreneurs building B2B marketplaces and I would love to hear any comments and feedback on the above. And, if you’re building a B2B marketplace at the seed+ stage, please don’t hesitate to get in touch. My email is abhisheksingh@riverwalkholdings.com. I would love to connect with you to brainstorm, help and evaluate (if you are in the market to raise :)).