To B2C or not to B2C

Every few weeks, I stumble upon yet another think piece warning against starting B2C software businesses. The argument often boils down to this: B2C is a financial black hole—a worse gamble than a lottery ticket. Even Y Combinator, the quintessential startup breeding ground, seems to have shifted its focus toward B2B, a trend that many see as a reflection of market realities.

But let’s pause here. Doesn’t this advice feel... odd? Take a look around your home. Most of what you own—your clothes, gadgets, kitchenware, and maybe even that Peloton collecting dust—are B2C products. Your credit card bill? It’s dominated by B2C expenses: groceries, subscriptions, travel, and entertainment. If consumers are spending so much, why is B2C suddenly considered an entrepreneurial minefield?

Let’s unpack this.

The Real Scope of B2C Success

First, the anti-B2C sentiment overwhelmingly targets software startups, not physical products or services. And even within software, it tends to exclude "hybrid" platforms like Uber, DoorDash, and Amazon that straddle the physical and digital worlds. These hybrids often succeed because they solve tangible, universal problems—moving people, delivering goods, or enabling e-commerce.

When we zero in on pure software, the distinction becomes clearer: it’s primarily about entertainment or utility.

Entertainment Software: The All-or-Nothing Game

Entertainment-focused software splits into three major buckets: communication, content, and games.

Communication apps (e.g., WhatsApp, Slack) thrive on network effects, making it hard for newcomers to break in without a critical mass of users.
Content platforms (e.g., YouTube, Netflix) and gaming (e.g., Roblox) are akin to a roulette wheel. Success often hinges on a few blockbusters, making this space more suited for companies with a "studio model"—deep pockets and a willingness to embrace high risk for high reward.

For startups? The odds are slim unless you have an exceptional insight or leverage emerging distribution channels before the giants do.

Utility Software: Where Work Dominates

Utility software is about productivity and problem-solving. Unsurprisingly, most complexity and demand for tools exist in the professional sphere—hence the dominance of B2B in this category.

But what about personal utility software? Here’s the rub: most consumers don’t actively seek optimization tools for their personal lives. They’re either indifferent to marginal gains (e.g., managing their finances with spreadsheets) or inconsistent in using such tools. As a result, many products in this space face poor retention, even if they initially attract curious users.

That said, success isn’t impossible. Companies like Noom, Calm, and Duolingo carve out niches by tapping into enduring motivations—health, self-improvement, and learning—and by offering engaging, gamified experiences. The common thread? These products aren’t just useful; they’re habit-forming.

Niche Markets: The Hidden Gems

There’s an underexplored frontier in serving specific consumer segments. Examples abound: Quizlet for students, Canva for prosumers, Flow for productivity-focused professionals, and Tinder for singles. The opportunity lies in narrowing the focus further—targeting underserved groups like culinary YouTubers, senior caregivers, or even medical students studying for board exams.

However, here’s the catch: niche markets often lead to niche revenues. While a $5-10M ARR business is a dream for solo founders or small teams, it’s unlikely to attract VCs chasing unicorn valuations. Founders need to be clear-eyed about their funding approach and ambitions.

Why B2C Gets a Bad Rap

Two key challenges weigh down B2C startups:

Customer Behavior: Consumers are fickle, price-sensitive, and often unwilling to pay for software. Many successful B2C companies rely on freemium models or ads, both of which demand massive scale to succeed.
Validation Bias: B2C founders are particularly prone to building for themselves, skipping rigorous customer discovery. It’s easier to convince yourself of demand when you’re your own target market. In B2B, where purchase decisions are tied to budgets and ROI, the lack of validation is harder to ignore.

The Upside of B2C

Despite the risks, B2C startups come with unique advantages. You’re dealing directly with millions of independent decision-makers rather than navigating complex corporate hierarchies. Discovery, onboarding, and billing processes are simpler, and the feedback loop between buyer and user is tighter. This alignment often leads to faster iteration and clearer product-market fit.

B2C also gives startups the chance to tap into emotional needs—delivering joy, relief, or self-improvement in ways that resonate deeply. That emotional connection, when done right, can inspire loyalty and advocacy on a scale that’s rare in B2B.

So, Should You Do B2C?

The answer is: it depends on the game you’re playing.

If you’re aiming for a billion-dollar valuation, be aware of the high stakes in B2C software and the need for massive scale.
If your goal is sustainable profitability or an impactful niche product, B2C offers rich, underexplored opportunities—just be strategic about scope, monetization, and whether you truly need VC backing.

Writing off B2C entirely is lazy thinking. The better approach? Study the unique rules of the game, and figure out how to play smarter. After all, it’s not that B2C is harder—it’s just different.

Aswath Krishnan