Jan 2, 2019 · 29m · a16z
a16z Podcast | B2B2C
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of the a16z Podcast, Andreessen Horowitz general partners Martin Casado and Alex Rampell join host Sonal Chokshi to debunk common misconceptions about channel partnerships and B2B2C business models, explaining why startups must establish direct market pull before relying on indirect sales channels.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The host holds 13.4% of the talking time here. How this is scored →
The host as informed peer 3.7 Guest teaching 6.0 Guest disagreement 1.6 The host pushing back 2.1
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 10:31 Alex calls the optionality pivot a disaster
Alex forcefully rejects the idea that startups can pivot by keeping two half-baked products alive, calling it an optionality disaster rather than a real pivot.
Hardest push from the host ▶ 8:45 Sonal pushes back on avoiding multi-product optionalitySonal directly challenges Martin's assertion that multi-product startups fail by arguing that early-stage companies inherently need optionality to find product-market fit.
Biggest teaching moment ▶ 1:58 Martin educates on VAR limitations in pre-chasm marketsMartin reframes Sonal's question about channel partnerships by explaining that VARs lack the sales incentives and capabilities to sell non-category pre-chasm software.
The host holds their own ▶ 22:18 Sonal invokes Alex's distribution vs innovation ruleSonal demonstrates deep familiarity with the guests' intellectual frameworks by bringing up Alex's widely-cited line on startup distribution versus incumbent innovation.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| The Messiah Fallacy of Channel Partnerships | 3 | 7 | 2 | 2 | Sonal prompts the guests to define pre-chasm markets after they dismiss the idea of channel partnerships bringing a 'Messiah' deal. Martin educates the host on why value-added resellers cannot educate buyers on novel pre-chasm categories. | |
| B2B2C Case Studies: TrialPay vs. Affirm | 2 | 7 | 1 | 1 | Alex details case studies from TrialPay and Affirm to highlight how consumer email collection can create false expectations of owning a customer relationship. Sonal largely listens and interjects briefly to confirm understanding. | |
| Enterprise Sales Dynamics and Reseller Pitfalls | 3 | 6 | 1 | 1 | Martin and Alex discuss enterprise renewal dynamics, OEM traps, and the historical origin of B2B2C via Rakuten. Sonal helps track the narrative with brief clarifying interjections. | |
| Multi-Product Dangers and Channel Conflict | 4 | 6 | 3 | 4 | Sonal challenges the guests by pressing on why startups shouldn't seek optionality through multiple product lines. Martin and Alex forcefully reject the 'optionality pivot' framing as an operational disaster. | |
| Enterprise Channel Lifecycle: Lessons from Nicira and VMware | 4 | 6 | 1 | 2 | Martin outlines the enterprise channel lifecycle using Nicira's history with VMware, showing how professional services margins motivate VARs. Sonal acts as an active co-pilot, summarizing concepts like virtual machines. | |
| Economic Rent, White Labeling, and Incumbent Leverage | 5 | 5 | 1 | 2 | Alex and Martin break down economic rent, white labeling risks, and incumbent channel dominance. Sonal demonstrates high comprehension by synthesizing how rent extraction changes when customer pull exists. | |
| Startup Distribution vs. Incumbent Innovation | 5 | 5 | 2 | 3 | Sonal introduces Alex's famous distribution vs. innovation framework and prompts discussion on incumbent channel dynamics. Alex uses the Safeway shelf-space analogy and Apple's channel strategy to conclude. |
Statements from this episode (16)
Casado: Startups must create pull-based demand before engaging value-added resellers
“And the thing is they don't have the sales force to carry pre chasm products. They're good at distributing things where there's a known budget, but if you're doing something. Fundamentally new, there's no way that a VAR can actually pitch, educate the customer…”
Rampell: B2B2C portals fail because consumers identify with partner brands like Geico
“We could build a portal where they come back, but no, we couldn't because they didn't really know who we were. Like they knew Geico, they knew WinZip, and that's one of the other reasons why at least where the C at the end of the B to B to C Is a consumer. Thi…”
Rampell: Affirm gets paid by merchants to acquire customers, unlike traditional lenders
“Contrast that with the other company that I co-founded a firm where we get paid to acquire customers in contrast to every other lending company where they have to pay a lot of money to acquire customers.”
Casado: Hyper-linear growth in enterprise software stems from account expansions and upsells
“So much about enterprise dynamics come from renewals. Expansions and upsells. Often hyperlinearity in growth comes from expansions.”
Rampell: Rakuten popularized the term B2B2C around 2003 for its e-commerce model
“I think it was actually Rakuten that started using this term probably 15 years ago to explain what they were doing.”
Casado: Running enterprise sales and consumer marketing simultaneously is twice as hard
“Doing one thing is really hard and doing two things I think is more than twice as hard often. And, you know, if you have to both have a sales team to bring on enterprise and a marketing team to bring on customers, these are like two fairly independent tasks an…”
Casado: Expanding from one to two products creates a startup's largest operational jump
“The biggest jump in operational complexity a startup will ever do is when it goes from one product to two products.”
Casado: Building a second product to fix poor product-market fit is disastrous
“A natural response of startups to not having product market fit is building another product, which I think is probably the worst thing you can do.”
Rampell: Yodlee monetizes anonymized, aggregated data collected from its enterprise partners
“Now it turns out they get all of that information in aggregate, and they have a different business model, which is they sell anonymized aggregated information that they're collecting from everybody that is all of the businesses that are working with Yodely”
Casado: Software R&D is a fixed cost, while sales scales linearly
“Like over time, R and D pencils out as almost a fixed cost, or at least like super sublinear, right? You know, you've got a number of engineers, but sales scales linearly with a number of people on the ground.”
Casado: Nicira's NSX passed $100M run rate via direct sales
“And we probably got to, Oh, you know, well over a hundred million dollars in actual run rate revenue.”
Casado: Software vendors avoid professional services due to low margins and headcount
“Now, professional services isn't the type of business any vendor wants to be in. It's just very low margin, right? For every dollar that, you know, the customer buys, you've got to put a body there and you've got to pay for that body.”
Rampell: InvestCloud powers white-label robo-advising for Chase, Schwab, and Fidelity
“There's another company called InvestCloud that nobody's heard of, but if you have a Chase account, or if you have a Schwab account, or if you have a Fidelity account, they're the ones that are doing the wealth front for those guys.”
Rampell: Pure white-label channel strategies cannot build massive tech businesses
“You're never going to build a massive business if you go channel, kind of white label channel, because nobody knows who you are.”