Growth of B2B marketplaces

Over the past 6 months we’ve been working closely with a number of B2B marketplaces and spoken to over 50 founders in the space. With the huge shift to digital that was accelerated by the pandemic, B2B retailers and marketplaces are operating in a new landscape. I’ve written about the exciting opportunity to grow and dominate, and how embedded finance can help here.

However, although the potential is massive, there are significant obstacles in the way for B2B marketplaces that are different to their consumer cousins. Below I’ll shine a light on the hurdles and how B2B marketplaces can overcome them.

Chicken and egg problem

Marketplaces create value by aggregating supply and demand. To get your service off the ground and disrupt the industry you need a sufficient amount of supply and demand. But how can you reach this when you don’t have either supply or demand? The main problem founders need to solve is why buyers would come to a marketplace where there is nothing to buy, and why would suppliers join a marketplace with no one to buy from them? This creates the classic “chicken and egg” problem.

Marketplaces need to work hard to navigate this problem. They’ve got to stay innovative by offering value added benefits to retain suppliers while continuing to increase demand. There are a lot of ways to do this, but as starting point it’s worth thinking out:

• Offering suppliers payment on day 1, that they cannot get outside of the marketplace, creates the incentive to add additional supply
• Giving buyers more options and greater flexibility in how or when they pay compared to going direct to suppliers creates the incentive for buyers to participate in the marketplaces.
• Capitalising on your network effects by doubling down on customer experience. The most successful companies and products of the internet era have all been based on the concept of network effects, where the network becomes more valuable to users as more people use it. This is sometimes referred to as the”marketplace flywheel”. If you’re interested in learning more about the specifics, Farfetch has written a great piece explaining how it works.

Building Online Trust (B2B is personal)

B2B relationships are often personal. Trust is built up with account managers over years of purchasing, often over the phone. Replicating this level of communication and understanding is very difficult to do in the online environment. How do you create trust between two parties that a payment will be made and goods will be satisfactorily delivered?

To build trust with their customers, B2B marketplaces need to think about: Security of transactions: providing assurance that the transaction will be fulfilled to the standard expected and paid for in full is critical to building repeat purchasing and developing trust with the marketplace. Branding: The marketplace can increase stakeholder trust through strong communication of its benefits and building a reputable brand in the industry space. Think about your Trustpilot scores, what kind of content you put out, and how you’re seen in the space.

Complex Buying & Procurement Processes

The B2B purchasing process is much more complex and can consist of a wide range of people with their own specific roles and responsibilities. There will be people researching different solutions, decision makers whose buy-in is needed to move forward and financial operatives to approve any spend. Procurement is often tightly monitored and controlled, with defined policies and processes that change across industries. This can include documents like contracts, purchase orders, invoices, and more that the marketplace needs to build into its processes for each industry.

Successful B2B marketplaces need to acknowledge the complexities and design flexible checkout processes to help your buyers. Here’s what to consider:

• Removing some of the complexity surrounding this process comes down to a combination of a better user experience and trust. As such, making sure that the buying decision is easy, and with as little friction along the way as possible, is key in offering buyers a journey that is both simple to manage and that they can trust will deliver.
• Offering flexible payment terms, being able to research solutions in one place and assuring that suppliers are trustworthy, are all components that marketplaces can offer their buyers, facilitating the complex buying and procurement process.

Breaking offline payment habits

Business buyers are used to years of offline payment methods such as bank transfer and cheques. As more payments move to online checkouts, customers need simple and intuitive solutions. Not all buyers have access to company cards, so multiple methods of payment are needed. As for payment terms, business buyers are used to having net 30 days and up to 90 days to settle. Marketplaces need to keep pace with and match these terms while still delivering value add for the suppliers.

Managing buyer credit terms and supplier expectations is a critical challenge to scaling B2B marketplaces. They must live up to the expectations that buyers and suppliers have built up from conducting business offline and translate it to online payments. However, more than that, marketplaces have to offer them a reason to make the switch. Embedding finance at checkout that offers businesses more flexibility in when and how they pay, with as little friction as possible, is key.

Get it right and win big

Marketplaces’ growth ultimately depends on the activity of their buyers, meaning that if buyers are growing quickly, so too will the marketplace. Marketplaces must therefore provide buyers with an environment that ensures buying is as seamless as possible, both in terms of eliminating friction when identifying the right suppliers and in removing financial bottlenecks. However, if buyers are to have the best opportunities, marketplaces must also work to attract and support suppliers. It’s not easy to juggle both these sides of the marketplace simultaneously, especially not if you’re facing the impediments of being a startup. Partnering with someone who can ensure a smooth transaction between suppliers and buyers will free up your resources for actually growing/scaling your marketplace.

The opportunity to win substantial market share is there. Marketplaces that acknowledge and work towards improving their processes and delighting customers are set to reap the biggest rewards.