Lessons Learned on the B2C2B Model
In a recent post Tomasz Tunguz helped popularize the term B2C2B, which characterizes enterprise businesses that leverage winning the hearts and minds of the intermediate consumer, the employees of the company, as a primary customer acquisition channel. This bottoms-up approach to driving adoption & purchase within the enterprise has gained popularity for SaaS companies in the past years, including very successful startups like Dropbox, Slack, and New Relic leveraging the model.
LinkedIn is arguably the largest B2C2B SaaS business out there and I wanted to take the opportunity to share some of the lessons I learned on leveraging this model for success.
The Genesis of the Model: Consumerization of IT
The reason this model has started to take off has directly followed the consumerization of IT trend. In the past all technology choices were made by IT departments as it required deployment of expensive on-premise software before a given solution could be leveraged. This typically resulted in long sales cycles for technology solutions, RFP processes, and more to ensure an organization didn't make the mistake of picking the wrong solution. With SaaS removing the need for on-premise implementations, the significant reduction in cost of hosting SaaS products, and the consumerization of enterprise user experiences, it's become far easier for individual employees to bring solutions into the enterprise for their individual or small team use case compared to ever before. Similarly, whenever an employee brings a smart phone into the office, the same consumer apps they're using quickly become business applications leveraged during their workday. These individual and small team-based solutions can then organically spread within the organization, creating a ripe opportunity for the vendor's sales team to come in and upsell the enterprise to their premium and company-wide solutions.
It's important to understand the genesis of the model, because it also helps you understand when this model still isn't appropriate. Take HR solutions. You find that since an organization can only have one central HR system to be effective, a bottoms-up distribution model is ineffectual. It's why Workday, an incredibly successful HR solution, still employs the traditional B2B top-down sales approach as opposed to B2C2B.
The Main Advantage: Reduction in Cost of Acquisition
The main advantage of B2C2B compared to traditional top-down sales is that it can significantly reduce your customer cost of acquisition when executed well. The traditional B2B sales process requires a focus on large marketing budgets and long sales cycles to generate awareness, interest, and consideration for your solution. Whether it's a large search advertising budget, native advertising, or trade-shows & events, it's very expensive to generate high qualified leads that will convert to promising enterprise customers. The B2C2B model takes an alternative approach by providing free or cheap solutions targeted at individual employees or small teams that are distributed through far cheaper cost of acquisition, whether it's word of mouth, search optimization, viral distribution, and more. For example, need to send a large file to a colleague? You may be in a pinch, so you quickly share it via the Dropbox account that you've already been using to store your personal photos. Looking for a better chat solution? You and the 3 other developers on your team decide to give Slack a spin since it's free to use and your buddies at another company are raving about it. Customer complaining about the sluggishness of your website? You can quickly deploy New Relic to start to diagnose what might be going on yourself before getting the rest of the broader engineering team involved. This completely avoids the typical B2B consideration cycles for initial adoption of your solution within the enterprise. This gives you your foot in the door at a given enterprise far cheaper than you may have been able to through traditional marketing & sales approaches.
Success Depends on Employees Influence Over Decision Makers
A critical ingredient for this model to succeed is the individual employees who are adopting the solution need to be able to influence the eventual sales process that will happen with the appropriate business decision maker. With a solution like New Relic, the individual application developers deploying the solution likely have a significant say in the developer solutions that are broadly rolled out within the organization so there it's more important to ensure the solution will meet the remaining enterprise requirements that are likely to come up. For more broad-based employee solutions, the way individual employees have leverage with decision makers is purely through scale. For example, if 30% of an organization is already using a certain solution, it's very hard for a decision maker to ignore. Given this, it's crucial that you can build in viral distribution into your application to enable it to scale from employee-to-employee well before decision makers get involved. I believe this is why Dropbox and Slack have been so successful in converting organizations to customers because their file sharing and instant messaging scenarios are inherently viral and create broad distribution within the organization through the very use of the application itself. Without such built-in distribution tactics, it can be difficult to make this model work.
Leveraging Data on your Prospects to Optimize the Funnel
One of the incredible assets you have when employing this model is that you can gather detailed demographic and behavioral data on each of your end users that can help to significantly optimize and prioritize your upsell and sales efforts. The mindset you need to have is to think about each of your end users as a potential customer prospect. When you do so, this helps guide you to understand what information you need to ensure you collect and leverage in your upsell and sales efforts. For example, the more individuals within an organization that are leveraging your solution, the more likely you'll be able to leverage them as champions to convert the decision maker. So you should ideally prioritize the companies your sales team is going after based on total number of end users using your free or cheap solution. LinkedIn was lucky enough to have this information for all of our end users since they provided their current employer on their LinkedIn profile, but you can alternatively gather this information through parsing the corporate domain name of the email addresses they registered with, reverse IP lookup leveraging the MaxMind database to determine the company accessing your site, or simply just asking the user as part of registration. Equally important is prioritizing individual end user for upsell based on their own behavioral data using your application as well as engagement levels. The more sophisticated approach we took at LinkedIn was to develop propensity models that helped us find members whose behavior suggested they were likely to buy our paid offerings, based on models trained by existing users who had already chosen to purchase our premium offerings. What's exciting about all of these approaches is that they are far more personalized and targeted than an targeting criteria you could provide to any advertising solution already out there. So make sure you take advantage of this as part of your playbook.
The Disadvantages of the B2C2B Model
The B2C2B model is not without it's own challenges, which are worth talking about as well. The first is the significant cost associated with maintaining the free or cheap tier of service for your non B2B customers. It's important to ensure the cost of servicing these customers are low, otherwise you lose the main advantage of reduced cost of acquisition since you now simply replaced marketing and sales dollars with costs associated with servicing your free tier. It's important to think about these costs all-in, not just infrastructure & overhead costs, but customer service costs, marketing & branding costs, and more.
Another disadvantage of this model is that you need to be able to create compelling differentiation between your free/cheap tiers and your enterprise solution to convince decision makers to rollout a company-wide solution as opposed to simply allowing their end-users to continue to use the tool as is. Coming up with this free vs. paid line can be incredibly difficult and is a careful balancing act. You may even find that your primary competition becomes simply your free tier as opposed to any other specific competitor in the market, which can be frustrating. So it's important to not give away too much functionality in the free tier initial and be thoughtful about where you create that line.
Given my experience at LinkedIn, I'm incredibly bullish on the B2C2B model and expect we'll continue to see this new way of enterprise distribution and sales grow in the future.
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Jun 24, 2015