Specialists Should Opt For Scalable Solutions To Win Over Market Generalists
Despite COVID-19 Crisis, Businesses Should Seize The Opportunity On The Digital Pathway
Before the COVID-19 crisis started to change the status quo of business and entrepreneurship in Europe, the number of start-ups in Germany increased as the KfW bank group stated in its Gründungsmonitor (‘Start-up Monitor’) 2021, which it titled ‘Start-up Activity 2020 Under [The Influence Of] Light And Shadow: The Corona Crisis Causes For Establishments in Full Commercial Activity To Reach A Low Point, But For Many It Holds Chances’. Whereas the COVID-19 crisis did not curb start-up activities per se, especially because many start-ups were founded based on the observance of new business opportunities, it did coincide with an increase in business closures, which were largely based on economic inefficiency (63%) and to lesser extents linked to the fact that founders received better employment offers (18%) or were busy coping with personal circumstances (14%).
Despite that the KfW’s report does not specify whether this is the case, it would certainly be interesting and relevant to find out if internet-based start-ups and digitally operating start-ups were less affected by losses than start-ups with another functioning mode. It surely is obvious that some businesses coped with large-scale restrictions during the COVID-19 crisis, which were directly linked with the fact that they could not reach out to customers, this does not necessarily imply that digitally operating businesses were more successful in generating profits. As Business Wire remarked in January 2022, the COVID-19 crisis confronted German businesses with the new task and challenge to speed up their digital transformation to maintain economically efficient and successful, whereby a link between competitiveness and digital customer experience was established. As companies, not only in Germany, but worldwide tried to catch up with the digital transformation, Blake Morgan remarked in an article in the Forbes that it is the time now to learn from the failures of big companies such as General Electric (GE), Ford and Procter & Gamble (P&G).
As Morgan revealed in 2019, earlier research by McKinsey & Company from 2016 showed that 70% of companies failed at successfully implementing large-scale technological transformation. Whereas Morgan criticized GE for both spiralling around short-term goals and a lacking view for digital quality services, the self-proclaimed ‘Customer Experience Futurist’ and author of the book ‘The Customer of the Future: 10 Guiding Principles for Winning Tomorrow’s Business’ criticized Ford for failing to integrate digital services holistically into the company’s work giving further note that P&G lost track of the competition in the new digital ‘level playing field’. The failures of these companies may certainly also provide some lessons for start-ups and small- and medium-sized businesses (SMEs), but too little research has been done to gain a hold of the struggles, which start-ups are confronted with in their initial phases, while working towards the provision of digital services.
Yes, there are many founders who aim for contributing innovation to accelerate the digital transformation directly. Microsoft, Intel, Apple, Google etc. are no longer ‘alone’ and that, for quite a while. The latest research on the global distribution of start-ups by sector from 2017, which was established by Statista, shows that the most companies worldwide have concentrated their efforts to contribute to the growth of the fintech sector (7,1%), with artificial intelligence (5%) ranking 3rd, gaming (4,7%) ranking 4th, adtech (3,3%) ranking 5th and other forms of tech (i.e. edtech, cleantech, blockchain, cybersecurity and agtech) as well as advanced manufacturing and robotics scoring between 0,6% – 2,8%. Whereas distributions might have changed to some extent during the last five years and the upsurge the COVID-19 crisis, the overall picture possibly stays the same because artificial intelligence, but also subdomains such as fintech and edtech are yet becoming more and more scalable as the digital transformation takes hold.
B2B Growth Is Spiralling All Across The Globe
To illustrate this fact, in 2021, 30,5% of start-ups in Germany were working in the domain of information- and communication technology (ICT) as the ‘Deutscher Startup Monitor 2021’ (‘The German Start-Up Monitor’) reveals. Next to the latter fact, the German Start-Up Monitor, which was established by PWC, the German Startups Association (Bundesverband Deutsche Startups) and netStart, specified that digital business models were the most prominent ones accounting for 65,2%, whereby SaaS (26,5%) and online platforms (15,6%) were the most popular followed by software development (11,5%), online trading/sales (10,1%) and online networks (1,5%). Among the hybrid business models was additionally technology development (19,6%), which might prove the fact that businesses are cooperating more actively towards supporting other businesses with their digital transformation. As illustrated by the findings of the German Start-Up Monitor, 68,7% of revenues stem from the B2B sector and only 26,6% from the B2C domain. Whether the latter will change as technology progresses and becomes adopted at the large scale has yet to be waited out lastly, because technology will keep changing and this wave of digitization might just be a precursor for the next.
However, certain sectors might digitize faster than others. As McKinsey’s Global Institute argue in a briefing note from May 2019, titled ‘Twenty-five years of digitization: Ten insights into how to play it right’, the pharmaceuticals industry only generates 9% of its profits from digital services, whereas the media/telecom (95%), the financial (85%) and retail (93%) industries have long been thriving on the digitization of their services. Arguably, this picture might already be changing at the current moment, because the B2B industry will unavoidably experience growth as a consequence of large-scale digitization including through support of governments in Europe and the EU. As Roland Berger reveal in their ‘The sun rises: The role and opportunities of B2B marketplaces in a post-Covid world’ study from May 2021,
“[i]ncreasingly threatened by leading generalist marketplaces, B2B players have turned to diversifying their products and developing vertical services on highly controlled and specialized markets to protect themselves”Matthieu Simon and Olivier de Panafieu 2021
And the latter might also be of increased importance for B2B players in Europe. As stated in the study, Europe has to first compete against big generalist marketplaces such as Amazon and Alibaba Group, especially as B2B growth is spiralling at an even faster pace in Asia. The latter has been confirmed by findings of a study by the Federation of German Industries e. V. (‘Bundesverband der Deutschen Industrie’) from November 2021, which illustrates that B2B-platforms strengthen the competitiveness of German enterprises on the global market with 71% of companies having generated additional revenue and 68% of companies affirming that they believed they had better future prospects thanks to B2B-platforms.
3 Tips How German Businesses Can ‘Successfully’ Digitize Their Services and Reach Customers…
- By Offering ‘Specialized’ Services
One key tip for B2B players on the German market might be to offer specialized services. As summarized in the Roland Berger study, generalist marketplaces have one or two weaknesses, for instance – that their “their search engine architecture, catalog and identification system are less deep and more prone to errors”. In addition, they are less flexible when it comes to adapting their customer’s journey and gaps with regard to onboarding, KYC, credit management and dunning. What companies have to understand prior to undertaking any efforts in relation to the digitization of their services, is what ‘trust’ looks like in the changing business scene. As Carlos Ferro-Soto, Carmen Padin, Goran Svensson and Nils Høgevold remind, “in a B2B relationship context, trust is understood as the ‘[…] willingness to rely on an exchange partner in whom one has confidence[…]’”. However, this willingness might be impacted by different factors than prior to the large-scale emergence of digital commerce and trade.
- Through a Good ‘Trust Strategy’
To understand what the afore-mentioned factors are, it might be relevant to observe which business structures and processes are openly visible for customers – and in this case, other businesses. As Matthieu Simon and Olivier de Panafieu argue, there are possibly five factors that contribute to the success of B2B-platforms, namely: 1) a wide product range, 2) the offer of targeted key services for customers and vendors, 3) the availability of efficient online payment options, 4) stock availability and visibility, 5) the impeccability of organizational processes at various levels (i.e. vendor management, product development, digital marketing). Whereas it should be comparatively easy to get a hold of the first three factors when choosing a particular business partner and service as a business, businesses might arguably want to work on making information about stock availability and their organizational structures and processes more transparent and available on mobile.
As Duran Inci argues in an article in the Forbes magazine, it has been revealed by Netsolutions that in 2018 “91% of B2B use[d] mobile devices to search for a product, and 25% use[d] them to make a transaction”. In 2021, Netsolutions reemphasized the relevance of mobile wallets claiming that marketing strategies became ineffective once mobile wallets were unavailable as a payment option. How the latter is linked with gaining the trust of customers is explained in a more recent publication by Netsolutions, which argues that starting in 2022, ‘Buy Now Pay Later’ (BNPL) and ‘Loyalty Programs’ are, among others, changing the landscape of eCommerce. Whereas such options might be particularly attractive to end consumers, it can certainly be assumed that businesses might also benefit from more flexible models of cooperation. Other ways to increase trust might be linked with attracting customers with similar values – and one of the most commonly shared values at the moment is possibly to make sure that business efforts have a positive influence on the environment targeting sustainability objectives directly.
- Through Inspiring Product Presentations
The afore-mentioned article in the Forbes magazine does not only highlight how mobile wallets can make a difference to business success, but it also reemphasizes that the presentation of products and services has become ever more important to strategically and successfully speak towards a certain age group. As 2016 research from Roland Berger showed, a little less than half of B2B buyers in Germany are under the age of 35 and as findings from the German Start-Up Monitor 2021 underline, the average age of founders balances at roughly 36 with 75,5% of founders being between 25 and 44 years of age. What this might imply following Inci is that Gen X and Y buyers need to be effectively catered to. Especially when offering digital solutions, the digital presentation of products is of increased importance and this accounts for smaller start-ups as well as SMEs and MNCs.
More concretely, Inci advises businesses to allow for track records of purchases to support informed decision-making. Indeed, any efforts to support decision-making without the pressure of making a purchase immediately, might be worth investing if TrustRadius’ claim is correct, that “Millennials are 20% less likely to use analyst rankings and reports than baby boomers [and] Gen Z buyers are 30% less likely”. Next to that, presenting products and services in a participative way that allows for team interaction might be effective to showcase products and attract the attention of teams of decision-makers. According to TrustRadius, most millennial buying committees consist of at least four team members and both, Millennials and Gen Z buyers easily blend out irrelevant information, probably seeking for human interaction, diversity, influencers, social impact, transparency, tech and some sort of instant gratification.
If you are a start-up or a SME with an interest in the B2B sector in Germany or Africa, then our team will happily assist you with your relocation and scale-up. We are not only specialized across various African jurisdictions, but also in supporting businesses in Germany in a variety of legal domains. Our support starts with providing help on immigration and relocation matters, but it does not stop there – taxes, tech, intellectual property…You heard us! We truly want to support businesses from their initial founding phases to their regional expansion. Contact us today to find out more and check for any potential synergies.