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Do you have what it takes to make B2B successful?
Matt Jellicoe, CEO of Offside Gaming, asks what does it take to make an online business-to-business operation work?
A plethora of online business to business operations have launched in the last couple of years from both new ventures and existing operators. However it still seems as if 90% of business to buiness deals founder in reality. There are still many new entrants eager to invest in this space without sufficient knowledge and many fairly experienced new ventures struggling under increased competition and legal issues thrown up in Europe and the US.
With the failure rate so high and the pareto principle (or 80:20 rule) so apparent what are the key principles of getting B2B to work for your business?
Whether a software company or an operator moving into the B2B space, everyone is trying to achieve the same thing - to grow profitable long term businesses. However despite a fairly straightforward strategic objective it is amazing how many different ways there are of going about it.
Software led companies;
The pure software model is likely a relatively easy deployment where the software company charges fees to cover its input and protects itself with on-going monthly maintenance fees or monthly minimums. The reality is, however, that any operator entering European markets in the current time really has their work cut out. There seem to be many suppliers out there currently whose model is more based on getting £100k up front for a platform build, covering themselves with high monthly charges, with the majority of clients burning out after 6 months.
And here lies the fundamental issue. In today’s world launching an e-gaming business is tricky. You really have to know what you are doing.
Too many suppliers are willing to ‘sell’ without too much analysis of the strategy of their intended partner. Questions need to be asked like; What is their strategy? What is their business plan? What is the finance and what are the team like? If you want a partner for the long term it is really important to do full due diligence on them.
This becomes particularly apparent in Europe with so many markets on the verge of regulation. Any software company selling gaming software into a soon to be regulated market likely has little interest in your long term business model and more interest in short term build fees.
Operator models
The other issue is that once a client is live what kind of support are you willing to give them. For example some of the ‘operator’ led B2B operations have full marketing support, CRM, affiliate support and fraud departments. The chance of success is likely much higher when this kind of resource is brought to bear. An operator (as opposed to a software company) is also much more likely to really question your strategy, as operating profitable gaming markets is their day to day business anyway.
What happens if a B2B deal starts to run into issues? Most companies from the software side will effectively switch off a site if minimums have not been met. However an operator is likely to see this differently. Offsidegaming have a number of successful B2B deals, in most cases we have had to get involved in the client’s operation in some capacity to put things right at the start. This can be at a strategic level or it can involve assisting with resource and people. In some cases it has also involved financing partners to get them to full profitability. When selecting a B2B partner you need to be as careful as if you are putting your own operation together. Is the team right? Is it good enough and so on. You will spend time and precious resources on these deals, there is no point squandering them. If you have done your due diligence correctly are happy with the strategy, are happy with the team and happy with the opportunity, you have to be prepared to get stuck in and drive the venture forward if things don’t go according to plan.
This in my view is the key to getting B2B to work for you effectively – only 10% of deals out there are worth doing, finding them and supporting them is the key. Be very selective and as strategic as possible so that the deals fit with your own strategy. Treat them as part of your own operation.
Personally, I think this is where operators have the chance to be better at B2B than traditional ‘software companies’. Why do I say this? Well, operators are aligned commercially and operationally and have much more resource to make the relationship profitable.
Licencing
The other massive difference between software type businesses and tying in with an operator is the type of licence you will gain access to. Jurisdictions such as Alderney and Malta have clear business to business licensing regimes for software operators. But if you want to operate this software you will also need your own licences on top of this. On the other hand working with an operator you are likely to have end-to-end licences in place – certainly from an offshore perspective.
Exit strategy
The other area to think about is exit strategy. Software companies that do not run their operations are far less likely to ever consider buying your business at some point – you will literally licence their software and that will be the end of it. A software company that runs its own B2C operations is much more likely to view many of its partners as potential acquisitions in the future. If you consider the way that Sportingbet or companies such as Playtech have grown this is a serious consideration. Large operators almost always buy out their B2B partners. It is much easier to sell a software-based business when large operators are already using that software themselves.
