As B2B gains momentum, we invited Bian Kailing, Investment Director at Ether Capital, who has discussed over 600 B2B projects, to share what determines B2B success and what investors worry about. The following is Bian's account to iHeiMa: Now, B2B trading platforms in various segments are emerging. If I classify the 600+ B2B projects I've discussed by product category, they roughly fall into two clear categories: production materials and consumer goods. The investment logic for bulk commodities in the production materials sector differs from other segments. The former, due to relatively high product standardization, is easier to monetize and more likely to venture into finance in the future. For consumer goods in the daily necessities sector, future profit models mainly focus on self-operated gross margins, expanding downstream to brands, and improving supply chain efficiency upstream. What are the key factors determining B2B success? I've summarized three dimensions for evaluating B2B trading platforms: market, team, and business model. 1. Market determines the ceiling 1. Market size too small to support a large B2B trading platform The further upstream in B2B transactions, the more intermediate layers, and the lower the markup ratio per layer. Therefore, industries chosen for B2B trading platforms are basically trillion-yuan markets, such as steel (2.5 trillion) and plastics (around 1 trillion). In contrast, glass (nearly 600 billion) is relatively smaller, making it difficult to form a B2B trading platform. Although moving downstream reduces market size and increases profit margins, a market of tens of billions is usually too low a ceiling for a B2B platform. 2. "Gradually dying" markets As industrial structure upgrades, some industries shift from sunrise to sunset, with market size shrinking or expected to decline in the foreseeable future. In such fields, teams are often questioned for "standing on the sinking Titanic." Notably, basic industries (like steel and textiles) are less affected due to their wide downstream applications and large industry scale. The closer to downstream, the more susceptible to industrial changes and consumption upgrades, such as mom-and-pop stores in megacities being replaced by chain convenience stores. With increased internet penetration, some business formats shift from offline to online. However, China's urban-rural dual structure and regional economic imbalances slow this trend to some extent; for example, mom-and-pop stores in third- to sixth-tier cities face less impact from chain brands and e-commerce. 3. Be cautious swimming in the red ocean If an early-stage team's industry is or is about to become a red ocean—such as traditional giants eyeing it or similar business models receiving large funding—even if the team shows strong drive and execution with impressive past data, investors may hesitate. 4. Industry characteristics making internet transformation difficult Not all traditional industries can easily go online. In some industries, upstream and downstream are too concentrated, supply relationships are very stable, intermediate layers play a crucial role, products are hard to standardize, transactions are difficult to complete online, and decision-making is heavy. Forcing a platform into such industries may be harder than imagined. 2. Team determines the starting point 1. Team too traditional "Too traditional" in investor language means "lacking internet thinking," which further translates to "what you do is more traditional business," "not creating value through the internet," "no different from traditional traders"... Sometimes, a team cannot articulate its model concisely, logically, and structurally, or doesn't understand internet language and thinking, which may be perceived as "traditional." A listed company CEO is expected to convey information clearly and accurately to the team and the public. 2. Team instability Some teams' equity structures are unhealthy in investors' eyes, such as two partners each holding half (or very close), the CEO not being the largest shareholder, or angel investors holding a large stake (e.g., over 30%). Or core members are part-time. These deepen investors' concerns about whether the team can go long-term and resolve disputes properly. Additionally, early-stage teams may split due to unequal distribution, personality clashes, or differing values. 3. Bandwagon entrepreneurship When O2O was hot, O2O was everywhere; when B2B emerged, many teams jumped on the bandwagon. But investors won't bet on a CEO who doesn't understand the traditional industry. 3. Business model determines path and speed 1. Media-to-e-commerce may not work As B2B 1.0 information yellow pages are replaced by B2B 2.0 trading platforms, some original information platforms are upgrading to e-commerce. However, constrained by team genes and industry characteristics, media-to-e-commerce may not be feasible. Even if the media period had 10,000 upstream and 20,000 downstream users, whether conversion rates can support sufficient transaction frequency after switching to e-commerce is unknown. 2. Resource leveraging is unsustainable Teams starting in traditional industries often carry industry prestige, able to "handle" industry associations, veteran players, and benchmark upstream/downstream companies. Undeniably, this may help accumulate initial users and transactions during cold start, but if the platform fails to provide valuable services and retain users, data may only show a flat line after the cold start period. 3. Sustainable development capability is the competitive barrier Many B2B platforms believe their core barrier is positioning between upstream and downstream, compressing the original three-tier distributor structure into one tier and supplying downstream at first-tier distributor prices. However, price advantage is not sustainable; low prices in circulation are not long-term irreplicable. A better approach is to go beyond price and focus on value—what value the platform provides or creates in circulation to improve efficiency and reduce transaction costs. 4. Weak cross-regional replication Some industries discussed have significant regional competitive barriers (not necessarily local protectionism), but due to local advantages (like last-mile delivery) and industrial clusters, local advantages are obvious, and cross-regional replication is questioned. Whether scale effects can be achieved after crossing regions is unknown; for example, an efficient last-mile delivery network needs to be rebuilt in another region, and supply chain relationships based on the local industry cannot be transferred. 5. Entry point misses the bullseye Some teams plan to enter from point A, retain customers with B, create value with C, and monetize with D. It seems planned, but other teams might directly create value and get returns from point E. For startups, detours consume energy and cause customer leakage; a simple, clear entry point and path are more advisable. 6. Monetization model In the early stage, to expand market share and establish industry position, B2B matching platforms usually match for free. Some B2B trading platforms have huge matching volumes, often over 100 million per month, but some transactions are completed offline, failing to form a payment loop or be traceable. However, the logic of shifting from matching to self-operated (finding high-margin products for self-operation) may not hold in all industries, and after the shift, the platform may not sustain transaction conversion. What do investors mainly worry about when investing in a B2B project? In the B2B field, I once helped a food ingredients B2B project raise funds. At that time, competition among food ingredients B2B projects in the capital market was fierce. Such projects actually lowered food prices, saved labor, and reduced price fluctuations. Now food ingredients B2B is a red ocean, and early-stage investors generally won't look at this field again, just as they won't invest in another Didi-like model. I often explore and discuss B2B entrepreneurship with investor peers. Our concerns are similar, and we agree that B2B has three main pain points: First, due to the long industrial chain and diverse application scenarios of B2B, the transformation cycle is long, and it won't grow as fast as 2C projects. Therefore, for some VCs, the explosiveness in data and scale is insufficient. Second, the industry is deep. Each B2B project requires in-depth research into an industry: what model truly suits it? Does it really solve industry pain points? These are concerns investors have, but they require interviews and research with industry participants. From a timeline perspective, in the first half of 2015, the main concern was how to find an investable industry (i.e., one that can be transformed by the internet relatively easily) and a team capable of doing it (with both traditional industry know-how and e-commerce capability). Third, since the second half of 2015, as the capital market has become more rational, doubts and reflections on the B2B model have focused on the following levels: 1. Business model: The model for generating main business revenue is not fully verified; monetization capability is insufficient; no closed-loop transaction; self-operated model too heavy; matching model too light; no barrier formed; the internet hasn't transformed the supply chain, and efficiency at the end is lower than traditional traders; how can B2B rely on subsidies to grow? 2. Industry direction: The industry has become a red ocean; industry characteristics make internet transformation difficult; the industry is deep, requiring more research; low ceiling can't support valuation. -END- The best FMCG distributor learning platform in China Focuses on providing professional, practical, and applicable 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 volume 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 eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new sales | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]