In 2011, Noah Lee and Dane Jensen were young guys a few years out of college and in search of a business idea. They stumbled across a story about a company selling black Italian socks. Just black. Just Italian. By subscription only. The company had tens of thousands of subscribers.
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Jensen got excited, built a website and called it Sock of the Month Club. “I was more dismissive,” Lee admits. But he went along. It was a part-time gig. Plus, most people wear socks. And they can’t all just want basic black, right?
Six years later, Lee and Jensen are shipping 40,000 to 50,000 pairs of socks monthly and annual revenue approaches $4 million. But the business turned out very different than they expected (and now has a shortened name, Sock Club). When they debuted, they targeted consumers -- because, well, that’s who wears socks. It seemed like the natural, only decision. But growth was uneven, and competition was ramping up. And then they discovered that companies like Salesforce, Cisco and Slack wanted custom-made socks to promote their brands. Sock Club pivoted to serve those businesses, and orders zoomed 200 to 300 percent annually.
Sock Club, in other words, had transformed into a business-to-business operation. “We stumbled into the market. I didn’t realize how big it was,” says Lee. This isn’t as unusual as it sounds.
Here’s what many people think when they hear B2B: Wonky. Unsexy. Something regular people can’t understand. And there’s plenty of reason for that. Consumer-facing businesses get most of the limelight. But in entrepreneurial circles, B2B is starting to gain a different reputation -- as a market full of loyal, interested, big-spending clients. And some failing consumer-facing companies are discovering that, much to their surprise, they’re one small shift away from becoming successful B2B companies.
There are many reasons why companies make the switch, but chief among them is this: Selling to consumers is hard. “It’s never been more difficult to run a B2C business,” says Karen Dillon, former editor of the Harvard Business Review and coauthor of Competing Against Luck. “Consumers are flooded with junk mail. Marketers are struggling to reach them.” There’s so much noise that Advertising Age recently asked whether marketers should develop a “consumer annoyance” index to help everyone know when to shut up. Corporations, meanwhile, make for far more predictable customers. “Businesses are less fickle in their decision-making. There’s a price and a budget,” Dillon says. That offers many advantages. Companies often buy in bulk, meaning that a B2B business can succeed without chasing millions of customers. If the client is happy, it’ll often place another order (unlike many consumers). And, critically, businesses have never been in greater competition with each other -- which means they’re always looking for new innovations, services or products to delight customers. But making the switch isn’t simple. It’s difficult to get the attention of a Fortune 500 -- or Fortune 1000 -- company. Any big client will have a long line of vendors forming at the doors. And the buyers inside think and talk differently than consumers.
“B2B requires experience in sales. B2C requires no more experience than waking up in the morning,” says Steve Blank, who teaches entrepreneurship at Stanford University and is coauthor of The Startup Owner’s Manual. A B2C company can find customers with a great social media campaign, but those skills won’t land a five- or six-figure corporate account. Founders must deeply understand the companies they pitch, Blank says, and what their executives want to hear.
To bridge that gap, Blank says, entrepreneurs should consider what they learned by selling to consumers. Oftentimes, there’s a lot of insight to impress a corporate buyer.
That’s what Aaron Klein did. He’s the CEO and cofounder of Riskalyze, a financial technology firm. Its first product, which debuted in 2012, measured the risk hidden inside consumers’ investment portfolios. Even four years after the 2008 financial meltdown, that risk remained a big worry -- and thousands of people, with a collective $2 billion in assets, signed up in the first year. But there was a problem: They expected the service to be free and weren’t going to pay for it. “It would be like Google charging for search results,” Klein says.
He saw the bright side: “We looked at consumers as a great way to validate our concept.” Once he’d proven that people want the service, he could find larger companies to pay him for it. Klein first approached the discount brokerage industry, which is always looking for ways to support do-it-yourself investors. TD Ameritrade wanted to sign a deal, but the lead time to integrate the platform was 18 months -- time Klein couldn’t afford to lose. So he turned to registered investment advisers, who are always looking for ways to differentiate their service. They were able to move faster. Today, about 15,000 RIAs license Riskalyze as an essential part of their investment tool kit. TD has since become a client as well.
Jonathan Seliger had something of the opposite problem. He was a manager at a senior-living-residences operator in Toronto, and he felt in his bones that technology would help seniors in similar facilities. The first pass on his product -- software called InTouchLink that makes using a computer as easy as using an app -- was geared to an estimated 25 million seniors in 2009 who didn’t use the internet or email. It would help them stay in touch with families, friends and even residence staff. And yet, the mildly successful rollout didn’t justify the costs to develop the technology.
Seliger and his partner were puzzled. The technology was great, but, it turned out, that couldn’t get them over the biggest stumbling block: Seniors were reluctant to move from “I’m not using technology” to “I am using technology,” says Seliger. Then he had an epiphany: His company should market InTouchLink to the management at senior residences. Administrators also needed easy-to-use technology and could help build community by introducing it to their residents. The hotel industry provided a good model; it relies on screens to share events, amenities and menus throughout their properties. So in 2010, InTouchLink remade itself into a B2B. Since then, says Seliger, renewal rates are close to 100 percent.
This doesn’t mean B2B is a solution for everyone, of course. “Pivot is something companies try when failure is on the horizon,” says Erik Laurence, founder of Polarian Partners, which advises startups on strategy. So before a pivot, he says, it’s important for entrepreneurs to be brutally honest in answering this question: What do I need to get away from -- the wrong customers, or a product nobody wants?
Room 77 is a cautionary tale. The startup created a hotel reservation system that displayed a room’s floor plan and the view out its window. Travelers could use the startup’s site to checkout a property and, the thinking went, would be more inclined to book rooms that appealed to them. The result: “People didn’t care,” says Erik Blachford, an investor in the startup and a venture partner in Palo Alto-based Technology Crossover Ventures. So Room 77 tried to remake itself as a B2B service by acquiring CheckMate, a mobile check-in service. Then it marketed both Room 77’s sophisticated technology and CheckMate to the hotel industry. But it never gained a footing there, either. Last year, it got broken into pieces and sold off to other startups.
If there’s any single key to going B2B, many entrepreneurs say it’s this: Know your value. Noah Lee, cofounder of Sock Club, has an answer for his company -- and it’s not about warm or fashionable feet. “We don’t sell socks,” he says. “We sell a gift experience.” It took him time to understand that, though. He and his partner spent two years hustling for consumers -- experimenting with thread counts and hip designs -- but just couldn’t break big. Then they ran across an unexpected opportunity at South by Southwest: Corporate sponsors were handing out promotional items like mad -- T-shirts, eyeglasses, you name it -- but no socks. Lee and Jensen quickly surveyed attendees to find out if they’d prefer freebie socks or T-shirts -- and socks won.
Sock Club retooled its marketing, focusing on its manufacturing prowess. It is able to conjure 100 pairs of socks in 24 hours, or design, manufacture and ship 10,000 pairs in nine days. Consumers didn’t care about that, but corporate buyers sure did. “We have been strategically pivoting ever since,” says Lee. These days, only one third of Sock Club’s sales come from consumers. The rest is B2B.
But Lee isn’t resting in his cozy, branded socks. Yes, big corporate clients helped him grow fast -- but “you can’t sustain 200 to 300 percent growth,” he says. So he’s on the lookout for his next big switch.