The a16z Show - a16z Podcast: B2B2C

Episode Date: May 18, 2018

When it comes to B2B2C business models -- which combine both business to business (B2B) and business to consumer (B2C) -- who really "owns" the customer? That question might not matter as much in more symbiotic, mutually beneficial marketplaces and other platform contexts, but can be a problem in other contexts or if not done right. For example, if it gives entrepreneurs the illusion that they don't have to work to acquire customers, invest in direct sales, or provides a (false) sense of optionality for a second product/ business that "will work later someday". General partners Alex Rampell (who among other things co-founded TrialPay and Affirm) and Martin Casado (who was formerly CTO and cofounder of Nicira, and then SVP and GM of VMWare's networking and security business unit) draw on their backgrounds on both the consumer and enterprise side of B2B2C to share lessons learned in this episode of the 16z Podcast (in conversation with Sonal Chokshi). In enterprise settings, expanding the sale is one of the biggest drivers of growth, and there are broader ecosystem partners and considerations at play. But more broadly, we discuss how one could think about "channel" -- a.k.a. the route to market for distributing product to customers -- as well as if, when, and how to build more than one product in a startup. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A6 and Z podcast. I'm Zonal. Today we're talking about the tricky topic of B to B to C business models, which combines both B2B, business to business, and B2C, business to consumer. And I say tricky because while this model works exceptionally well in many marketplace and platform contexts where two or more sides get something mutually beneficial from each other,

and which we talk quite a bit about in other posts and episodes, what happens in all those other contexts where B2B2C is less symbiotic and more antagonistic or perhaps even worse, invisible, as in the case of white labeling or in the enterprise when you assume your indirect channel is enough to take care of all the heavy lifting for your sales. The two A6 and Z general partners in this episode share their personal lessons learned from their own previous consumer and enterprise businesses. We have Martin Casato, who co-founded and was CTO at Naysera, which was acquired by VMware, where he then served as the SVP and GM of their networking and security business unit, and Alex Rampel, who co-founded trial pay, and also co-founded financial services company a firm,

which offers installment loans and monthly payments to customers at the point of sale, and is a successful case of when B2BDC does work. But they began the conversation talking about the assumptions made when the business model is not done well or very strategically and how that can affect sales and product development as a result. I think a lot of entrepreneurs think of this like the Messiah will come in the form of channel partnerships where it's like really hard to get the end users. I'm going to get a deal with this big company and then they're going to distribute my product and they're going to distribute it for free because they like me and it helps them and then I'm going to get the consumers or the users or the clients that way. I think like one of the biggest

mistakes I see is like, listen, we're working with system integrators, we're working with MSPs, because they somehow think that's going to give them reach to a bunch of customers. And like, basically it never pans out. I guess sometimes the Messiah does appear. It's just, it's very, very rare. And the enterprise almost never. I mean, it does sometimes if you're in a mature market, but in pre-casal markets, I don't think it ever does.

See, what do you mean by pre-casom market? There's no market category. There's no budget. The customer isn't educated by what you're doing. And the reason that it doesn't work out is because like VAR's a value-added reseller. So a lot of the enterprise actually purchases from a reseller, not from like the vendor directly or MSPs managed service provider, which will actually provide services. And the thing is they don't have the sales force to carry pre-casm products. They're good at distributing things where there's a known budget.

But if you're doing something fundamentally new, there's no way that a VAR can actually pitch, educate the customer and so forth. And so normally you have to create a pull-based market before you can actually engage partners. Ah, so there is no way that the Messiah will then come into enterprise. So here's where it can sometimes work. So if you remember my business trial pay, we would monetize consumers that weren't paying on digital goods websites. So you go to WNZip, they were our first client, a decompression, compression software product for Windows. Every day, like a million people or half a million people would go download this product. Very few people want to pay the 2995.

And we would say, hey, get that for free if you join Netflix or if you shop at the Gap or if you switch to Geico. A lot of people thought about switching to Geico for five years. This is what overcomes the inertia and gets them to do it. Geico will pay $1,000 to acquire a new customer a lot more than the $29.99 then Winsip actually charges. So everybody's happy. Guyco's happy. Winsip's happy. They were our B.

Right. So we were the B. We were going to their B. And then an exhaust of this entire equation was actually a consumer because we would get their email address. Every month, we would get like 5 million email addresses from consumers. And we thought, ah, we can build this amazing B2B. Right.

Every time we got a consumer, we got paid for it. You thought you were getting those consumers essentially. Well, we kind of were. This is more like where the C is really a consumer as opposed to where like the intermediate B would be a channel because I think channel and B2B to C are very different. In this case, oh, we could build this business. We could build a portal where they come back, but no, we couldn't because they didn't really know who we were.

Like they knew, they knew Geico, they knew Winsip. And that's one of the other reasons why at least where the C at the end of the B2B to C is a consumer, this often doesn't work. And I like B2B2C businesses, if you can get them right. Contrast that with the other company that I co-founded, a firm where we get paid to acquire customers in contrast to every other lending company where they have to pay a lot of money to acquire customers. So you go to Casper, the online mattress company, you were going to buy a mattress, but you're like, wow, that's expensive. I could put it on my credit card. I don't know how much my credit card company is going to charge me. Therefore, you have a market failure and you leave the site and you don't pay.

But if you knew that that $1,000 mattress was four easy payments of $275, so you're only paying an extra $100 to spread that over a year, you will buy the mattress. And now you actually owe the money to a firm. And then actually we own that customer relationship. It's interesting. So the dynamics of going to the enterprise through channel partners is almost identical. In the enterprise, the two ends are the vendor, which creates the technology and the customer, which consumes the technology. So in a direct sales model, the vendor creates a sales team, and the sales team shows up with the customer and manages that relationship. So let's say that you've created a new widget and you want to sell it to the enterprise.

And let's say like this widget is in a mature market. So the customer doesn't have to be educated. It's not pre-casm. It's not pre-casm, right? It's post-casm. And you're able to get a channel partner to sell it. One of the big problems is you don't have brand or a relationship with the customer. And so much about enterprise dynamics come from renewals, expansions, and upsell.

Often hyperlinearity in growth comes from expansions. The best place to sell something is where you've already sold something. Yeah, exactly right. And so you actually have to have a relationship with the customer in order to do that. And so often, you know, I'll hear pitches. And I've even considered them myself early on, like, for example, when we were doing Nassira of like doing more of an OEM model where you build some core technology, somebody else carries it.

And then you've kind of have this kind of perfect business where you just do a little bit of R&D and then somebody else sells it for you. Enterprise buying much of what. they buy are through resellers or through integrators. And so going that route is fraught with peril for startups. You are not the one that's actually bringing your product to the end customer. The reality is, is that you stop being an entrepreneur because you don't have access to the customer. You don't know what they want. You don't know what they need. And you don't have the leverage point to expand that sale. Well, the way that I think about trial pay is that we were a B to B company and we thought we had

optionality because there was that C coming out of that B2B. But it's challenging me to be a two product company to begin with. And it's even more challenging to be a two-context company. Yeah. What you're saying is context, I think of as just brand recognition. But it's also like, okay, how do you explain to your B's, like the middle B, what you're doing with their C's? There's a lot of complexity where like anything that you might want to do to grow the consumer end of your business that started off as an enterprise company. I'd see all of my other entrepreneur friends that had consumer companies. And it's like, oh, they build a product. They don't have to ask anybody for permission and like, can the feature look like this, can the screen look like that? They just ship the thing. But a lot of enterprise companies,

they'll say, ah, maybe I can do something with this. I mean, I hate to call it exhaust because consumers are not exhaust. But for many of the companies, it's a data exhaust of sorts. If you're a payment company, it's a data exhaust, right? Can I build a relationship with them? A long time ago, or at the very beginning, before Amazon really became big in Japan, the Amazon of Japan. Big in Japan, Tom Wait, sorry. Exactly. But this is Rakuten Ichiba, which was the marketplace. I was trying to find, like, what was the first instantiation of, you know, B to B to C as a term, and I think it was actually Rokuten, that started using this term probably 15 years ago to explain what they were doing. Basically, they would allow all of these disparate

shopping sites, these e-commerce sites, to come together in one mall because as a consumer, I don't want to pay differently. I want to actually go to one supermarket. And they basically brought all of these merchants together. And then all of those consumers created a Rakuten Ichiba account, because every one of the e-commerce companies realized that people didn't want to have 15. different logins. So it was created in a very, very different structure than Amazon. Rockington was unique in that they said, hey, this is a freestcanning merchant and there were free scanning websites. We're going to unify all of these websites in one centralized place, which made it a little bit different than your typical like marketplace where you list a product and somebody

goes and takes that product. I think it's important to reiterate a point that Alex made, which is doing one thing is really hard. Doing two things. I think. is more than twice as hard often. And, you know, if you have to both have a sales team to bring on enterprise and a marketing team to bring on customers, these are like two fairly independent tasks and both of them are difficult. On the upside of you can pull it off, this is a great defensibility and you have network effects. It's a much, much more difficult. I want to probe on that because that's exactly the question that comes to mind is that you're a startup. You're trying to find product market fit. Maybe you've already found product market fit. You need optionality.

Don't you? How do you then find it? Because the tension, it's sounds like is that some startups are taking this approach where they have essentially not just two products, but two different classes of products that have associated different classes of sales organizations and structures internally for selling them. So what are the tradeoffs? Yeah, well, I think it's highly inadvisable to have multiple products in a startup because in my experience, having now run organizations with multiple products, you basically have two companies if you end up selling to two different people. If you're selling to the same person, same type of budget in the organization, yes, you can have multiple products. That's pretty common.

But if you end up having two products that have two different constituencies, you have to have two product marketing teams. You tend to have different sales cycles. You have different support models. You have different PS professional services models. And then often the future requirements are different. So you basically have two independent companies. And so that's highly advisable. I think that the right model, at least in the enterprise, you iterate on one product, product director fit, and you can pivot and you can add features and so forth until you get that one right. And once you have access to the customer, then you introduce another one, you know, when you want to grow. The biggest jump in operational complexity, a startup will ever do is when

it goes from one product to two products. So if you do introduce a second product, which of course you will, if you can align it with the same constituency, the same buyer, that's the best. I'd be very thoughtful before doing that. A natural response of startups to not having product market fit is building another product, which I think is probably the worst thing you can do. Well, I mean, unless you shut down the old one that has no problem. That's a pivot. That's a pivot.

That's a half big pivot where it's like the optionality pivot is not a pivot. That's a disaster. That's the worst. Right. The other challenge with B2C, if your C at the end was coming from the B in the middle, then the two business models actually endanger one another. Let me just pause on that for a minute. Why is that dangerous?

I'll give you an example. There's a company called Yodali. It's been around for about 20 years. It's a, it's a key part of the ecosystem for every fintech company that goes and gets data from banks. So if you ever go to E-Trade and it says, hey, log into your whatever Bank of America account to transfer funds, that's going through Yodaly. If you ever signed up for Mint, when Mint came out, that was going through Yodaly. Now, it turns out they get all of that information in aggregate, and they have a different business model, which is they sell anonymized aggregated information that they're collecting. from everybody that is all the businesses that are working with Yodali, if they do that too aggressively, it puts them at odds with their main core business, if that makes sense. So you have to be careful when we looked at this as trial pay. The first time that we tried this, we're like, I know, we're going to email a million people that went through trial pay yesterday

and say, here's another product that you might be interested in, but that other product might have been at odds with WNZIP. So we didn't have free rein over those consumers without being not parasitic, Because we wanted to be a symbiote with our middle bee. And you can go from being a symbiote to a parasite or even an antagonist if you start doing things that are competitive with what they're doing or in any way, shape, or form kind of hurt their primary business model. So far, all I'm hearing from you guys is there's no reason to do B2B to C. No, I mean, the reason why I think this is an interesting conversation is that a lot of entrepreneurs say, I'm not going to do direct sales. Yeah.

Because I have a channel strategy. or don't worry about the bad economics of my current business that are B2B because actually I'm getting all these consumers as exhaust at the end and I'm going to do something with them. So, okay, so channel strategy versus B2B to C, how are they related? How are they different? Because they sound the same to me, honestly. Well, channel, to my mind, represents routes to customers. So I want to book a hotel at Hilton.

How do I book the hotel at Hilton? I can go direct to Hilton and go to Hilton.com or I can go to an OTA like Expedia or Pricedia or Pricedia. line or I can go to Amex or I can go through our own travel agency. There are many, many routes to the customer. Many channels. Many channels from the merchant, in this case, Hilton's perspective, to sell that hotel room. Yeah. And one of them is direct. And this is where the term channel conflict comes in because if Hilton direct is saying, hey, don't go to those bozos that we partnered with like Priceline, come to us directly and it's going to be half price. Well, guess what, price line is not going to be happy about that. And they won't be a channel partner anymore. So I think

that's the way of defining channel. It's routes, different channels, different rivers, if you will, to that end customer. And obviously, everybody wants to go direct because the economics are better, but not everybody can go direct. People also buy from Amazon. What do you best to do that? What should they be presenting when they're talking about? We have this B2B to C. Well, so maybe it'll be helpful to go through kind of like the mental life cycle that startup seemed to go through. Getting customers is hard. And arguably in the enterprise, that dwarfs all of your economics, right? Like over time, R&D pencils out as almost a fixed cost or at least super sublinear, right? You know, you've got an number of engineers, but sales scales linearly with

a number of people on the ground, right? And so like, even though, you know, if you hire more salespeople, they're very expensive. But to get more dollars, you have to have more salespeople. So there's this dream that you can have somebody else bear that cost for you so you can be kind of a fixed cost. And I see this all the time. These companies will say, well, listen, so I have spoken with these Vars and these resellers and they're going to carry the product for me. And in fact, you know, they've given me 50K for a pilot. I've talked to them and they're very happy to do it.

And the reality is that these Vars and resellers are great to have conversations with. They're very happy to meet with startups. They're very happy to put it on the catalog because there's very little cost for them to do that. And if it is a hit, that's great, right? The problem then happens, though, is that like, A, like we mentioned before, the channel doesn't have the sales force to push what you're doing. Because they have to sell it, especially in a pre-casin market, like they have to educate and do all the different things that required with that.

They don't have the people. And they quite frankly don't have the budget. That's just not how they're structured. So the life cycle that normally works is startup, you know, tries that, figures out it doesn't work, but maintains relationships with these channel providers. Startup then builds a direct sales force and creates, you know, awareness in the market and starts to sell it. Once you've started to sell it, you've actually created now a market. And that market, interestingly enough, isn't. a product market, the market is around services around your product, right? So if I sell something to the enterprise, just to do a proof of concept requires some implementation, and often companies will pay for that. And then after you've sold it to integrate it, requires some sort of professional services often along with it. And once you've sold enough gear, like those markets arise. And now

you actually have something that you can incent a channel partner with. And so you say, listen, last year we sold $100 million of our stuff and $30 million of professional services. If you become a preferred channel partner of ours, you can have that $30 million. So now you actually have a market to incent them to invest in training, to get a relationship with a customer, et cetera. And then maybe after the market becomes a poll-based market and the customer's educated and know what they want, they can actually sell for you. What VMware did?

Do they sell the VM through like channels or do they actually, you know, create this market? So VMR is actually a unique case where they did make OEM successful, the product that I worked on NSX for NACA. We started with a direct sale. And we had a direct sales team. What were you selling? That was in the field. It was a network virtual virtual machines for networking, so they're not tied to the physical machines. Yeah.

Perfect. Now, this had never existed before, right? Nobody had ever kind of built something like this before. So you go to the customer and you say, hey, listen, we've got this thing. And they're like, what were you talking about? There's a massive conversation about, well, what about my boxes? you know, you know, et cetera. So massive educational 18-month sales cycle very expensive because you're paying these AEMs to do this.

And we probably got to, oh, you know, well over $100 million in actual run rate revenue when we started to say, you know what, now we have customers that are, you know, asking us for this inbound. They understand the pricing requirements. Because they're hearing about it. They're seeing the value. The industry is talking about it. As you're talking, you've got references, you can actually point to ROI. Case studies, right.

It becomes a thing. Once it becomes a thing, all of a sudden, you don't have to go through these very difficult conversations of convincing people that, you know, it works and they need it and everything else, right? They're like fighting gravity on the list. And at the same time, you know, we had, you know, tens of millions of dollars that we were getting for professional services. Now, professional services isn't the type of business any vendor wants to be in.

It's just very low margin, right? for every dollar that, you know, the customer buys, you've got to put a body there and you've got to pay for that body. But the channels actually, many of the channel partners are, are structured for exactly this type of a business, right? Like, they are professional services businesses. So now you've got this, say, $30 million, um, a professional services that you've had to do just because the market didn't exist before. Now you can incent the channel partners. And how did you incent them in the case of the physical networking? You start giving them, you start giving the business. So you say, you say, listen, like we just did this deal with Goldman Sachs or

whoever it is. As part of that, we've got $2 million of professional services to implement that. We will train you, and then you can have those $2 million to do that. You bear the cost of the body in order to do that. So now the channel is being involved in the deal. They're getting some dollars, but they're still not selling your product. And in fact, to date, almost none of the actual deals will come through the channel for NSX. So what's a point of having, what does the company care about the channel again?

Well, so this is interesting. So one, often you don't want to do the professional services. Oh, right. Two, they'll actually generate leads. So they'll say, here's an interesting customer. But that doesn't mean you don't have to have a salesperson in there, right? So often the channel, before it actually becomes a way to sell your stuff, it actually becomes lead gen, top of funnel. So they'll do what's called deal, register deals.

They'll have conversations with customers for you, but you still have to have a salesperson in account. Right. And then when the market's very mature, the channel can actually carry it, which is like your product is in their catalog, and their salespeople will sell it amongst all the other things that they sell. So that's kind of the life cycle. And also the pricing dynamics and the economic rent and the gross margin implications are different when it's pull versus push.

To go back to the Hilton example, which I know is different, but actually has a lot of similarity here. If the only route to the customer is Priceline and there are four hotels and they're all indistinguishable, then Priceline says, Hilton, I'm not going to list you amongst one of those four unless you give me 99% of all of the gross profits that you earn for. from that customer. That's a very dangerous position for them to be in versus if people show up and say, I want to stay at the Hilton. This is the hotel that I want to stay in. Suddenly, that sharing of

economic rent changes dramatically. Because people expect to see Hilton in the inventory of the price line offering. This is the other reason why I think a lot of people make a mistake when they say, I'm going to go for a channel strategy when nobody knows my product. And it might be really cool. And I have four competitors. And the way that I'm going to beat my competitors is by partnering with the channel before nobody knows my name. And the challenge there is, is that the channel partner actually, they extract all the economic rent. And it's easy come, easy go.

It's funny, I have this law now, not law. And that sounds, that sounds everything. It's okay, you're allowed to make of laws on the Acese podcast. We encourage it. For every B to C company, there is somewhat of a white-labeled B2C variant. So I'll give you an example of this. You've probably heard of wealth front.

Yeah. You've probably heard of betterment. Now, it turns out there's another company called InvestCloud that nobody's heard of, but if you have a Chase account or if you have a Schwab account or if you have a Fidelity account, they're the ones that are doing the wealth front for those guys. But it's all white labeled.

It's all white labeled. And it's B2B2C kind of, but they have no rights whatsoever to the sea. The consumer is actually logging into a white labeled version of InvestCloud, but they're doing that at Chase's website. There's nothing wrong with that, but there are only five banks that really matter in the U.S. or five asset manager, 10 maybe.

You're never going to build a massive business. Right. If you go channel, kind of white label channel, because nobody knows who you are. And they're going to say, okay, time for renewal. Yeah, we know that we paid you 100K a month last year. How about 90K? And then how about 80K?

Because it's really much more of a commoditized business. Eventually, those channel partners might wisen up and they might start extracting more of the economic rent or flip you out for a competitor. I think channel in the white label sense is okay if you have thousands of potential clients and there's a real product differentiation. I think for entrepreneurs, there's two recommendations.

One of them is understanding the traps and pitfalls, I think you can be actually pretty crisp on the pitfalls. You don't have direct access to the end customer. No direct access, no feedback. So no ability to then do upsells and cross-sell, expand, et cetera. Right. The second thing is if you're not in a poll-based market, the chance is almost zero. They can sell it.

I mean, it's just like they just can't. Or they can, but to Alex's point, the rent extraction is extremely high because there's a huge power differential because you have no pool. Correct. And then when we haven't talked about, which I've found to be in the, the enterprise huge is the incumbents own the channel and have tremendous leverage with the channel. I want to pause and talk about this because Alex also wrote a really interesting post about distribution versus innovation and one of the classic lines that people keep recycling on Twitter, by the way, which is that the challenge for startups is that, oh, you should actually

say your own line. Yeah, it's the battle between startup and incumbent is whether the startup gets the distribution before the incumbent gets the innovation. The best way to visualize this is you go to safe. way and you look at all the shelves at Safeway and they're all full. That's the incumbent, like P&G or Coca Cola or Pepsi, like they own that shelf space and because they've negotiated long-term deals, they actually pay for shelf space. They want to have prominent eye-level shelf space and that's why Crest Toothpaste is here. So Martine and I come up a better

toothpaste company. The startup can move a thousand times faster. Everything about it is better. And if it turns out we're using a secret ingredient of, I don't know, baking soda, I guess that's not a secret ingredient. Lots of toothpaste has that. But come up with your different secret ingredient. That's the innovation that Crest will probably figure out five years later. And we're still struggling to convince Safeway to give us like a test pilot in like their Fresno store. So the established company can do the, if they can do the innovation faster than the startup gets the distribution.

So now go back to your point. Right. So the channel is a particularly acute battleground of exactly this, which is the channel is dominated by the incumbent, which already has the relationship. But more importantly, already has economic leverage. with the channel partner. So let's say I go to a reseller in the Minneapolis region and I want them to carry my virtual networking product. And then that really says, well, listen, you know, our biggest partner is Cisco. And we sell a billion dollars of Cisco gear. Now, Cisco has tremendous leverage with that partner. And so there's like a very, very kind of complicated and nuanced dance you've got to do when entering the channel if you're competing with a big competitor. And often this requires you to either go to different sets of channel partners or non-perperperferferferferial. for channel partners in order to do that, or you just have to segment the space so that you're not directly competing in some way. The way that this generally plays out in the enterprises, it's incumbent on the startup to create the market. And once you've created a market, you have

sufficient leverage to turn on the channel. And the way that happens is you do direct sales first. You create some market for professional services. You get them turned on to that professional services market, you get them educated to the point where they can actually do top of funnel, but you still have to have an account rep there. And then when it's a fully pull based market, they can actually sell for you. I think that is the life cycle. The equivalent for consumer? I think it's almost identical. To take my oversimplified Safeway example, if Safeway has buyers that decide which products to put on their shelves, and if it's very, very clear that people that are going to Safeway want to buy a particular thing, Safely wants that share

of spent. Like, they already have that captive customer. If they knew that 20% of Safeway shoppers would buy vitamin water. They're going to stock vitamin water. And that's how new products get into shelves. You have to build the market. You have to build the demand. And then eventually you layer on channel. That's where I was mentioning the economics of channel.

Because if you do it in that ordering, hopefully the channel wants to work with you, as opposed to the other way around. Because if the channel says, ooh, I already have, I already own this group of customers. Here's something else that I can sell to them, which is often how they think about it. You're one of N? Like maybe I'll just pick one of the other ones. But I need you. My customers actually want you.

You've defined a category. Now the balance of power in terms of the economic split is much more fair. So this is super helpful for entrepreneurs who are trying to build these businesses and thinking about what they really should be doing versus having to go through this sort of false start exercise. It works when you are a bread merchant. And then there's another meat merchant that you can work with. And you realize that the meat merchant sells more meat and the bread merchant sells more bread.

if there's one communal shopping mall for them to all work with, they don't want the consumer to sign up directly. They want the consumer to sign up in that communal shopping mall. That's highly symbiotic. For a firm merchant, Casper has an incentive for us to work with Martine because we know how to work with him to score his risk, to collect from him, to say you owe us money. It's because Casper is unlikely to become a lending company. And a firm is unlikely to become a mattress company. That symbiotic relationship is extremely. likely not to turn in any other direction.

That's right. And if that started to change, then that would be a problem. It almost makes one assume if more traditional businesses and then you pair it with a software business might be one likely scenario to make this kind of thing happen. And that's where context is everything, because if I compare a firm to trial pay where WNZIP didn't want to deal with customer support for GEICO customers, GEICO didn't want to deal with customer support from WNZIP customers, they would both send them to us. And that's why we had a very valuable role in that ecosystem. But it was just very, very hard from a context position for us to build a consumer brand. We ended up being a

two product company for our merchants. We had a post-transaction coupon product for merchants and that actually worked out fine. But we couldn't be a two-context company. Right. That was the thing that was actually much harder. And your wrap up on when B2B2C works for enterprise? I actually think that the big difference between B2C and then channel for the enterprise is simply that the channel is a natural part of enterprise motion and you have to have a channel strategy. And so I think it's less about do you do channel or not do channel, because eventually you will do channel. And it's more about being realistic about what the channel can provide in the timelines. Channel relationships do take a while to build. And so I would recommend engaging

with the channel early. I would just be very clear on expectations of what they'll do for you. One of the biggest misunderstandings of young entrepreneurs is to really believe that even when the channel's engaged, that they're going to sell your stuff. I mean, it's a long time before you don't have to have a salesperson in the account, even if you're deeply engaged with the channel. And that's why I think it's helpful to visualize it in the shelf space analogy. Imagine that you do get into Safeway. You're probably going to be in the back aisle and it's going to get dusty and nobody's going to see you.

And then you're not going to sell anything. So, like, you have to be able to build demand for your product. And actually, like, avoiding channel altogether, I think it's very, very indicative that the biggest market cap company in the entire world, Apple, they use a channel strategy too. Like, you can buy stuff at Amazon and Apple hates Amazon. You can buy Apple stuff and lots of other retail stories. You can buy Apple stuff at Best Buy. But if they have so much power, why would they still do that?

Because they recognize, like, you still want to go to where the customers are. And it would be a mistake just because people go to Best Buy with their wallet open. And if everything there was Samsung and nothing was Apple, that would probably not be good for Apple. So, you know, if the biggest in the world has a channel strategy is probably a mistake as the smallest in the world not to have a channel strategy. But the flip of that is to only rely on a channel strategy. strategy. When nobody's heard of you, you're going to be at the back of the Safeway and nobody's going to find you. That's best case. In normal cases, you don't get into Safeway and you lose all your money to try. Well, thank you guys for joining the A6 and Z podcast. Thank you very much.

Thank you.