and tactics. For example, B2B and B2C companies will manage Procurement in about the same fashion. As such, holding all other things constant, a tweak in any of these operational areas will not propel a B2B organization to SPPG, although a severe deficiency (such as rampant costs) could be keeping you from operating from a position of strength.
In any case, I do not focus on these areas since they are not the key differentiators for B2B business. Instead, The B2B Executive Playbook will focus on the areas that do affect how B2B companies reach SPPG: the “Go To Market” (GTM) areas of Strategy, Marketing, Service, Research and Development (R&D), and Sales. It is in these functions that the approach for B2B companies must be vastly different from B2C.
Exhibit 1-1: Sustainable, Predictable, Profitable Growth—A Different Go-To-Market Path for B2B Companies
As I have discovered in working intimately with B2B companies and their executives, there is one concise path to get to SPPG:
B2B companies must engage decision makers to help vet and formulate company strategy.
B2B companies must become masters at leveraging the domain knowledge of their customer executive peers to discover game-changing innovation and deliver more value to the markets they serve.
B2B companies must build and leverage customer executive relationships to accelerate profitable revenue growth.
The following chapters will explore why these elements must be central to every B2B company. I will first show you how the B2B world is a different game and why that will shape your game plan to sustainable, predictable, profitable growth.
CHAPTER 2
A DIFFERENT GAME
UNDERSTANDING HOW B2B IS UNIQUE
Michael Jordan is the greatest basketball player of all time. He could hit a game-winning basket under the most extreme pressure. He was so talented a player that he could carry a team to a championship. He did it in high school, college, the Olympics, and an astounding six times in the National Basketball Association (NBA). But when Jordan decided to play baseball, he couldn’t hit a change up or a curve ball well enough to earn a spot on a minor league team. One person, two games, two very different outcomes: victorious domination and failure!
The parable of Michael Jordan’s two careers is a story my colleagues and I see played out time and again in the B2B world. It comes to mind whenever we see a company struggling to meet expectations, despite being led by executives who have orchestrated meteoric climbs at other companies. We are reminded of Jordan when we meet with executives who cannot understand why initiatives and strategies they used successfully at other companies fail to deliver the goods in their new companies. And, we think again of Jordan, five-time NBA Most Valuable Player, when one of us needs to tell an executive he simply is playing a different game.
As in athletics, success for a leader in one kind of business does not automatically equate to success in another without a study of the game and some retooling of the playbook. The proper coaching can also be a big help. Unfortunately, B2B leaders often find it hard to obtain guidance on how to play their game. The most common sources of information—business books and conferences—typically showcase executives from high profile B2C companies. But B2B leaders can’t simply adopt and apply lessons and approaches from B2C companies because it is a completely different experience for both the customer and the provider. Their needs are just different.
Living 50 miles up the road from consumer package goods (CPG) powerhouse Procter & Gamble and the thousands of employees who work there, the point of different games was driven home to me by a B2B CEO who once told me, “Never be the one who first hires someone out of P&G.” Why wouldn’t you? P&G produces professional managers who are smart, articulate, well-trained, and process-driven. They live and breathe the formula for success that has kept the company at the top of its game for decades. Why wouldn’t any company welcome this experience and skill into their organization?
If you are a B2C company whose livelihood is built on a well-positioned brand and product that is preferred by a large share of the consumer market, you should be the first to snatch up an ex-P&G’er. He or she is a master of the B2C game and can bring P&G best practices to your organization. If you are a B2B company, however, that same job candidate may not be such a great hire. You should be looking for a professional who knows how to play the B2B game because the playbook for your success is very different. How often is that considered, though?
It’s not. Think of how many times heralded executives from high profile B2C companies are snatched up to rescue floundering B2B companies. Because of their reputations and the caché of the companies they come from, these executives are almost always granted more authority (and budget) than normal. Emboldened by their previous B2C successes, these saviors almost invariably exercise their new clout promptly and with the utmost confidence by implementing the strategies that worked so well at their previous employer. Just as invariably, a train wreck ensues.
Does this mean that B2B companies should only hire B2B executives? Absolutely not. But whoever is hired must clearly understand the following three realities that distinguish the B2B world from the B2C world and use them to shape the company’s playbook.
Reality #1: The Fate of a B2B Company Rests in the Hands of Relatively Few Customer Companies
When we first meet leaders at B2B companies, they tend to be very uncomfortable about sharing how many active customers they have. That’s because there are thousands of B2B companies in which three or fewer customers account for 60 percent or more of total sales.
In many B2B companies, the loss of their biggest customer would put them out of business entirely. Many more could survive the loss, but would only recover after years of hard times. Think of the many automotive parts and services suppliers that sell to only one or two car makers. There used to be thousands of these companies who made a great living serving the Big Three automakers. But look at what happened to them with the consolidation and failure of the U.S. automotive industry. Today, in 10 minutes, I can drive by millions of square feet of vacant industrial space where the suppliers to General Motors, Ford, and Chrysler once had thriving businesses.
You could argue that the shakeout in the automotive industry is a lesson in the need for diversification along many lines. However, many of the suppliers who sought out foreign manufacturers are gone too. So are many suppliers who were experts in processes such as injection plastic molding that could be ported to other industries. Why? Their customer base was too small to handle the downside risk of losing even one big customer, and they never created a playbook that accommodated that reality.
A Tale of Two Companies
The significance of the much smaller customer base at B2B companies is best illustrated by a simple example that compares the number of customers and revenue at two leading companies.
A simple calculation tells the story. When you divide the revenues of each company by its customer base, you’ll see that Company A receives $125 of revenue per customer, while Company B earns $70 million per customer. Clearly each and every customer at Company B has an immediate and direct impact on the health of the company. That fact alone should race the heartbeat of Company B executives.
But wait. Like every good tale, this one has a twist. Company B’s customers are not created equal. In fact, there is a super-Pareto effect at work: In most cases the top 10 percent (just 10) of Company B customers
