I. B2B May Not Be as Reliable as It Seems 1. Traditional Internet In the past few years, traditional internet projects could achieve certain results by seizing the right timing and focusing on product development with a mindset of increasing revenue and reducing costs. Investors could relatively easily assess a project's progress by looking at DAU, MAU, total user count, retention rate, and specific user behavior data. 2. The O2O Bubble As online opportunities dwindled, last year investors began pouring money into O2O projects. This year, as the capital market cooled, they realized that most O2O projects couldn't operate without subsidies, and only then did they recognize the harm of concepts. The essence of O2O here should refer to the upgrade of personal consumer service industries, where the core is profitability. Many O2O projects abandoned capital-intensive and inefficient physical stores, but significantly increased spending on online promotion, service worker efficiency, and building consumer trust. Without verifying profitability, they began疯狂补贴 to inflate market demand, aiming to present a satisfactory report to VCs. One reason for O2O investment mistakes might be an insufficient understanding of traditional service industries at the outset, overestimating the value of internet concepts. 3. The B2B Frenzy Since the end of last year, rapidly growing "B2B-like" e-commerce platforms such as Zhaogang.com and Yimutian have attracted widespread attention from investors and entrepreneurs due to their massive transaction volumes and the potential for capital retention. These B2B e-commerce platforms typically only solve the information flow problem. However, a transaction in traditional industries requires at least three flows: information, capital, and logistics. When only information flow is addressed, the proportion of transactions that can be converted varies greatly across industries. Capital flow, especially for traditional businesses, is crucial, and payment terms vary significantly. For example, 80% of mid-to-high-end restaurants in Beijing require a one-month payment period for food supplies. In agricultural distribution, credit sales are common, with payment terms aligned with crop maturity cycles. In construction, it's common for payments to be settled at the beginning of the following year. Similarly, the leverage effect of subsidies varies by industry. In agriculture, a small subsidy can achieve a monthly transaction volume of 100 million yuan. In steel, subsidizing logistics can attract transactions to the platform. Of course, orders generated by subsidies are not considered "brushing" (fake transactions). Brushing refers to transactions already completed offline, where warehouse receipts, bank transfer slips, etc., are then processed through the platform. B2B platforms are learning from O2O by using heavy subsidies to drive transaction volume to attract VCs. However, VCs, while claiming O2O is unreliable, are still willing to pay for B2B that similarly inflates demand through subsidies... During due diligence, it's difficult to distinguish between brushed, subsidized, and real orders. A better approach might be to rationally study the input-output composition and transaction details of different types of merchants at each stage of the industry, to assess their demand for the platform, and then value the platform based on demand and market penetration speed, rather than primarily on transaction volume. II. Challenges in Upgrading Traditional Industry Supply Chains Reading many PR articles about "Zhao XX Wang" (find XX network) platforms, several issues seem important: Is it a buyer's or seller's market? How many levels of intermediaries are there, and how much do they mark up? What is the concentration of upstream and downstream? How many SKUs are there? ... Every coin has two sides, and behind the answers we expect lie many challenges. Let's use the agricultural trade chain as an example to illustrate these issues. 1. Buyer's vs. Seller's Market Chinese manufacturing generally has significant overcapacity, so macro-wise, most industries are buyer's markets. However, high-quality brands are often seller's markets, which is why agricultural platforms rarely feature first-tier fertilizer brands like Stanley or Kingenta. 2. The Intermediary Dealer Problem In traditional industries, manufacturers typically establish sales channels through two methods: self-built branches or dealer networks, both aiming to get closer to end consumers at lower overall costs. For example, in agricultural distribution:

  • First-tier provincial dealers: They need to regularly purchase from manufacturers to maintain distribution rights. They mainly serve as warehouses, and marketing-oriented dealers may also need to provide logistics services downstream.
  • Second-tier county dealers: They purchase from first-tier dealers mainly on a cash basis, but they need to provide credit sales to downstream retailers, thus offering financial services.
  • Township and village retailers: They sell agricultural products to farmers mainly on credit. Farmers repay after selling their crops. In rural areas, people know each other well, so deliberate default is rare. Rural logistics infrastructure is poor, and farmers have ample free time to visit retail stores to buy supplies. Retailers often have agronomist certificates and provide agricultural technical services. When B2B e-commerce platforms attempt to eliminate a certain level of dealers, they must provide alternative services. Finance, warehousing, and logistics are capital-intensive services. Simply making information transparent may not be enough, as new upstream and downstream parties might be unable to transact due to payment term needs. Even if they truly replace dealers, the costs are high, and it's questionable whether the new model can surpass the decades-old system in terms of input-output ratio and time efficiency. 3. Upstream and Downstream Concentration A common view is that the lower the concentration of upstream and downstream, the greater the value of an internet platform. Theoretically, this is true, but success and speed often depend on details. When upstream and downstream are highly fragmented, merchant needs vary greatly, promotion costs in manpower and time increase, and conversion rates are hard to guarantee. For example, the restaurant industry is highly fragmented, with dozens of platforms providing food distribution services. During promotion, one finds:
  • Large and chain restaurants: They purchase in large volumes, and self-arranging transport from North Fifth Ring to Xinfadi in the south might be cheaper than the platform's quoted price.
  • Medium and small chain restaurants: 80% of merchants will demand a one-month or half-month payment period. BD staff need multiple communications and compromises to close deals. After cooperation, chefs usually order through the platform, and BD staff still need to give chefs about 20% rebates to maintain the relationship.
  • Small restaurants: They have no bargaining power and don't demand payment terms; they can settle on the same day. They have no quality requirements for ingredients; their biggest need is low prices. Early on, platforms lack sufficient SKUs to offer low prices. In personal consumer e-commerce, platforms like Mitau, Vipshop, and Chuchujie have risen quickly by targeting different consumer segments. When an industry is highly fragmented, merchant needs are also stratified. B2B platforms hoping to quickly capture the market with a single solution may see results far below expectations. Of course, subsidies might make results look better than they are. 4. The SKU Judgment Problem When we don't understand a traditional industry well, seeing 3-4 types of potatoes on an agricultural platform might seem like a rich SKU. However, there are thousands of potato varieties. Lay's has developed over 2,000 potato seed varieties, and over 40 types are common in agricultural markets. Judging SKU richness requires more market research. 5. An Important Question: Is B2B E-commerce Truly Needed in These Industries? Why did we initially focus on B2B investment? Similar to the "sharing economy" concept, when Airbnb and Uber quickly gained capital market favor, people began abstracting their business models and expecting to apply the same thinking to other industries, rather than first analyzing the current state and needs of a new industry. Seeing platforms like Zhaogang.com attract large amounts of retained capital, the market hopes to replicate this model in other traditional industries, ignoring the actual demand for B2B platforms. B2B itself has value, but whether it can drive transaction funds through the platform without subsidies remains a question. It's easy to see that many professional reports indicate Chinese agriculture and manufacturing lag developed countries by 20-30 years, with low technology and capacity utilization:
  • Agriculture: Israel, a small country, has modern drip irrigation infrastructure, with one pipe for water in and one for out, and farmers control drip speed via mobile apps. Drip irrigation was originally invented in China but hasn't been well applied. Chinese agriculture faces problems like backward production, severe soil pollution, and frequent food safety issues. The root cause is low average farmer income (about 10,000 yuan annually), preventing them from buying quality inputs, agricultural services, or investing in equipment, leading to irrational planting, which undermines next year's income, creating a vicious cycle.
  • Manufacturing: As a developing country, Chinese manufacturing has long lacked core proprietary technology, focusing on labor-intensive, low-margin assembly and OEM work. Entry barriers are low; when one company profits, many enter, causing overcapacity, lower industry-wide utilization, and declining margins. The state uses bank lending restrictions to SMEs to roughly manage overcapacity, but SMEs face private financing costs of over 12% annually, preventing them from optimizing internal efficiency and reducing costs. Compared to trade chain optimization, technological advancement and low-cost, industry-specific financial services seem more meaningful. Trade chain optimization should be supplementary, not dominant. III. Rational Investment and Entrepreneurship Also Reduce Resource Waste When traditional industries combine with the internet, people from traditional backgrounds see internal problems and join internet entrepreneurship. During exchanges, there are significant differences in business thinking between traditional and internet people, rooted in their inherent survival and development strategies:
  • Internet companies: The Matthew effect is strong; they need to continuously capture resources to increase market share and gain user and capital support. Especially platform companies, only one survives in the end—they merge: Youku and Tudou, Didi and Kuaidi, 58 and Ganji, Qunar and Ctrip...
  • Traditional enterprises: They are cash-flow-oriented. When the industry isn't saturated, 1,000 stores can all thrive. When overcapacity hits, only those with good cash flow survive. When combining traditional and internet, one must maintain the wolf-like aggression of internet resource competition without losing the profitability essence of traditional industries. Of course, the internet isn't as magical as legend. It excels at providing information transparency and improving internal and external efficiency through data accumulation. Traditional offline stores have value in stable customer acquisition and brand trust. No matter how the internet upgrades traditional industries, it won't change their profitability essence. Many entrepreneurs are told, "Do what you love, and success will follow," leading to all sorts of whimsical projects. However, internet investors' ambitions far exceed the stable profits of a restaurant chain. For internet entrepreneurship, the full saying should be: "Do something you love, the market loves, and investors love, and success will follow!" Entrepreneurship is exciting; most people don't want to let opportunities pass, but few rationally assess whether they're suited to be founders. Some founders might create more value as COO, CTO, etc., in a stronger team, while as founders they might hit a clear ceiling. Nationwide entrepreneurship might also be a waste of social resources; nationwide innovation might be more meaningful. IV. Investment Logic for Internet + Traditional Industries Here are some insights from angel investing, for discussion. In order of importance: 1. Strong Founder & Quality Team The founder must be strong, reflected in:
  • Strong ability to attract talent
  • Strong execution
  • Strong product capability These three points translate to: a seasoned, charismatic founder can continuously attract top talent; an efficient team doing the right thing in the right direction is more likely to succeed. In traditional+internet projects, most investors prefer internet veterans to lead. The ideal founding team is:
  • Internet people hold 60-70% equity, traditional people 30-40%;
  • Internet people have 8+ years of experience, preferably with mid-to-senior management experience at internet companies like BAT, 360, JD, 58 (Microsoft, IBM, Lenovo are IT companies, not internet companies, nor are advertising/media companies), and experience from 0 to 1 to 100 is a plus. Previous entrepreneurial success is a bonus;
  • Traditional people have 12+ years of experience. For internet platform startups, they need resources covering the whole country, or at least a large region. For brand startups, they need familiarity with production supply chains. Of course, traditional people with strong internet thinking can also be good founders, but internet thinking here means truly understanding completed project processes, not just reading internet news. 2. Sufficiently Large Market Size When internet investors choose directions, they first look at the width of the track: for example, traditional internet markets over 100 billion yuan attract more attention because they can birth 10-billion-yuan internet companies. For internet+traditional industry directions, markets over 300 billion yuan are worth attention. For traditional industries with very low gross margins, the market might need to be trillion-level to attract interest. 3. Appropriate Investment Timing For angel-stage internet investment, there's usually a window of about six months per direction. For traditional industry upgrades, the window may extend because reliable teams are rare. The first teams entering a new field usually "educate" investors. When 5-6 teams emerge in a direction, it attracts more attention, and investors start looking for the team with the strongest background and comprehensive strength. The middle of the window might be more suitable for angel investment; too early, strong teams may not exist; too late, teams may lag in business data and face difficulties in subsequent funding. There are exceptions, such as when early teams have serious model flaws preventing rapid growth, or when late entrants have exceptionally strong backgrounds. 4. Good Model First, a good model isn't a good concept. A good model should outperform existing models on comprehensive results, including at least:
  • Product or service quality
  • Manpower and time efficiency
  • Financial input-output ratio Especially in a capital winter, investors prefer projects that can be profitable without funding, and with funding, can use subsidies to quickly gain market share. Why is "good model" last? Because models have no secrets in China; hiring a few employees or discreet inquiries can easily reveal a project's actual situation. Entrepreneurship is more about team and execution. Finally, investors at any stage need subsequent investor support to realize returns. For entrepreneurs, if investors don't understand what you're doing, the path is tough. For angel investors, aligning with later VCs' logic and understanding is crucial. Early investment in projects you strongly believe in but outsiders doubt is also tough; this requires joint effort from entrepreneurs and investors. If you've looked deeply and carefully and remain steadfast, it might be worth betting together. -END- China's best FMCG distributor learning platform Focusing on providing professional, practical, and actionable tutorials for enterprises and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Techniques | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's 18 Skills | 013 KA Operation Strategies | 014 First Lesson for New Sales | 015 Internet, Brands | 016 Distributor B2B Transformation | [Long press QR code to follow]