Next Wave: How startups capture more value by building complements

Premier startup accelerator, Y Combinator, has a clear, notable trend of mostly selecting B2B startups, also evident in its newest class. | Infographic: Ayomide Agbaje — TechCabal Insights

The business-to-business-consumer (B2B2C) model easily lends itself to e-commerce. But the advantages that make it an easy option for entrepreneurs who create online spaces for selling and buying stuff apply widely too. After all, all business is commerce—the exchange of value in different forms of utility. Outside of common e-commerce spaces, however, it takes more work to identify how a B2B2C model may work in other settings.

Traditionally, B2B2C means that two or more companies partner to provide complementary goods or services to reach the same end consumer. A complementary product or service adds value to another service or product. To derive maximum value, the end consumer has to use both services together. Consider the fictional example below.

Let’s assume that the initial demand for cars is represented by D1. And the initial price of cars is represented by P1 while the quantity is represented by Q1. If the price of petrol were to decrease, more people would want cars. But because more people want cars, the demand curve for cars and petrol will shift rightward to a new position D2. Assuming a constant supply curve (represented by S) of cars, the new increase in the quantity of cars demanded will be at Q2 with a new increased price P2.

One of Africa’s most successful business segments is a good example of this complementing business approach in Africa. The telecoms industry in Africa continues to grow as mobile phones get cheaper. Because of its unique structure, the telecoms industry, as a whole, is predicated on variations of this B2B2C model. The same principle holds even outside Africa. Blackberry dallied between focusing on making devices that its corporate consumers (the same demographic that helped the phone maker find success) were used to. And ultimately paid the price for failing to see that its corporate relationships were made of people who were visibly turning to a different type of consumer phone.

For companies seeking to digitise X in informal consumer sectors or informal business spaces, finding these complements may be a useful exercise to help deepen customer relationships. Thinking in B2B2C does not necessarily mean creating new products. It is also a way to think about forming new operating partnerships or even mergers and acquisitions.

I have spoken with founders and startup operators, especially in B2B e-commerce who point out that they hope their credit offerings will help them create better profit margins. It sounds like a product complement, but it is not the same thing as demand for credit should reduce over time as the retail business grows. Except it somehow creates a strong lock-in effect, it is easy for vendors to switch to other producers/suppliers.

---