B2B the way forward for many small businesses of tomorrow

AGL's Andy Vesey: one of the things we have to do to support big and small  businesses is to teach them about each other.
AGL's Andy Vesey: one of the things we have to do to support big and small businesses is to teach them about each other. Jeremy Piper
by James Dunn

The public perception of the start-up companies beavering away at becoming the businesses of tomorrow is that they are designing and testing and perfecting the better mousetrap that will deliver them a potentially global consumer success – when they are probably more likely to be working on their place in the business ecosystem.

In many cases, this means collaboration with larger organisations that have the advantages of size, scale and customer base.

The 2016 Businesses of Tomorrow Report, commissioned by Westpac and conducted by Deloitte Access Economics, found that Australian businesses were realising that success was not just about beating other businesses – sometimes, it was about working with other businesses, collaborating and creating shared value.

This reflects the fact that in true collaboration some bring the ideas, some bring the experience, some bring the capital and some bring the market reach to provide the test-bed.

Where many people might assume the target for start-ups is a business-to-consumer (B2C) thrust, it is more likely to find a business-to-business (B2B) fit.

When you look at where the real growth is coming from in our economy it is in small business. "Where is it coming in small business? It's in the B2B space," chief executive of the Business Bank at Westpac, David Lindberg, told the Businesses of Tomorrow roundtable held in Sydney.

"More and more we're seeing this B2B relationship, where a smaller company comes up with the capability and then partners with a bigger company that introduces that capability to their existing customers," says Lindberg.

Chain of innovation

Andrew Purchas, head of innovation and collaboration at Sydney fintech hub Stone & Chalk, sees this shift in thinking. "What we're seeing is that there's been a fundamental change probably over the last 12 to 18 months to where it's now actually less about disruption in the financial services sector and more providing services to the existing financial services players," he says.

"B2C businesses are very difficult. B2B is probably easier in some respects but you need to have a certain sense of maturity in order to do that."

In big companies, says Lindberg, it is "very rare" that the kinds of people who identify the problems are the same people who will then solve the problem. "What we're finding is there might be someone with a great idea to solve a problem, and almost always what they lack is one ingredient, customers. We've got lots of customers but we might not have had the idea or we might not have scaled the solution as quickly," he says.

If you "follow the chain of innovation", he says, you see growth in B2B relationships, and growth in SMEs (small-to-medium-sized enterprises).

Purchas agrees that this collaboration is the way of the future, but says this does not happen organically – there is still a lot of work to do on "fundamental cultural issues" that crop up between large businesses and smaller ones.

"We're seeing too often that [Stone & Chalk's corporate partners] are fundamentally ill-equipped to be dealing with our start-up community. They don't have the ability to be able to make a decision [to engage on a pilot program with a start-up] – the procurement areas, the legal areas, the risk areas are still operating in a mindset which is completely different to what is actually required.

Cultural issues

"If the corporates think they're dealing with a Microsoft or a Cisco, and treat [the start-up partners] like that, then they'll kill them. If they've got a 70-page master services agreement even before they do anything it just won't work. There are fundamental cultural issues in how people are incentivised, what their risk tolerance is, how apt is the business to allow failure, and those things need to be fundamentally addressed if corporates want to take advantage of this externally developed technology [that the start-ups can provide]," he says.

Andy Vesey, chief executive officer of AGL, agrees that there is "a lot of work to be done" in mutually training big businesses and little businesses on how to work better with each other.

"The majority of the value a small business is going to get is through sourcing revenue from big businesses, so one of the things we have to do to support big businesses and little businesses is teach them about each other," says Vesey.

"Big businesses have to realise that you can't send a little business five lawyers, long documents and procurement processes. And small businesses have to realise that bigger businesses have processes, you can't just say on a handshake with a senior person, 'let's go do this.'

"Small businesses have to realise that large businesses have processes: it takes longer, but once a process is in place that's where the gold comes to a little business. They just need to understand how to interact and do business with big businesses, and we've got to teach them that."

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