Choco’s secret playbook for viral growth

How to scale b2b marketplaces in old, established industries

Explosive growth of Slack, Loom, Figma and others have revealed a new way to scale b2b platforms. We will analyze the product growth strategy of Choco, a b2b platform that has in total raised $60M to make it easier for restaurants to order from their suppliers. Most of it is also true for REKKI, a competitor that raised more than $20M and is the original inventor of this particular playbook.

Choco makes ordering as easy as using Whatsapp

A perfect market for viral growth

Viral growth happens when each of your users brings 1 or more additional users to the platform, this is called the K-factor — it’s the same concept as the R-number we all now know thanks to the new corona virus ;)

The restaurant market is perfectly set for viral growth, due to the following factors:

  • A typical restaurant orders supplies from ~5 suppliers and a medium sized supplier (in Germany) serves around 500 relevant restaurants
  • Restaurant employees switch jobs quite frequently, spreading new tools and software
  • Restaurants switch suppliers every few years
There are lots of loops as others would call it

From here, for Choco, there were 2 types of product-market-fit to achieve. First, providing enough value to restaurants to retain them in a single-player mode and later, to make the supplier actively using and promoting the platform.

Single-player mode

The related metric is # of active suppliers per restaurant

Choco acquired restaurants initially the hard way through field-sales going from restaurant to restaurant and installing their app on workers private smartphones and manually digitizing copies of their order-sheets. This allowed restaurants to place orders without relying on any action from their suppliers. That’s how Choco overcame the classic chicken-egg problem of marketplaces.

It’s worth noticing that the key to later viral growth is that even in Single-player mode, suppliers were at least passively involved (see order email).

Suppliers get exposed to Chocos brand and slowly pulled onto the platform

Integrating the supplier — or: when the supplier “flips”

From a supplier’s point of view, over time, more and more of their customer’s orders were now received via structured emails through the Choco platform. This was already an added value compared to the unstructured emails & late-night voicemails they had received before.

The related metric is GMV-share per supplier (marketshare at a given supplier)

Once enough customers of a given supplier were ordering through Choco, it became relevant enough for the supplier to care. That’s when Choco reaches out to the supplier and offers to integrate orders directly into their ERP system and making their whole product catalogue accessible through the app — unlocking even more value for the supplier.

This is usually the time when a supplier “flips” and becomes an active user and starts inviting his customers onto the platform and is thereby strongly incentivized to maintain and update his product catalogue on the platform.

Cashing-in

After having captured a relevant chunk of the target market’s GMV, Choco can now start leveraging the data to create even more value for both sides and ultimately create moats & stickiness that will be hard for competitors to overcome.

Choco will soon start to leverage platform data for further growth. Image inspired by this essay on Figma’s growth strategy

This has yet to be seen, as both startups, Choco and REKKI, are not fully there yet. REKKI spearheaded by introducing discovery and price-comparison features including handling payments, but it’s clear that there will be multiple routes to monetization.

Besides classic subscription models, Choco could try to tap into the huge marketing budgets of producers (e.g. cross-supplier promotions) and even vertical integration (e.g. offering logistics) could be possible at some point.

In any case, with a TAM of $100B+ even small take-rates (0.5-1%) would yield enormous results.

Challenges of this playbook in the real world

Effective monetization

Since margins are extremely thin, suppliers are highly allergic to revenue-based pricing models, and so far neither Choco nor Rekki have been able to find effective monetization models. The high valuations of both startups will be difficult to justify if in the end it just boils down to a SaaS play with moderate unit economics.

Operational challenges

Due to aggressive growth ambitions, Choco’s not well-trained (and most likely badly-incentivized) field-sales initially created a lot of negative response in cities such as Berlin & Vienna. Restaurant managers were left out, existing business relationships between restaurants & suppliers were not respected and customer service did not meet b2b standards. This created initially a lot of negative word-of-mouth.

Weak lock-in effects

The current lock-in effects of Choco’s platform seem very weak. With almost no effort, restaurants can be switched from one platform to another. This is where startups such as Orderlion (raised $2.5M), where I developed the product-strategy, see an opportunity and offer a similar solution, but with a SaaS-enabled marketplace approach. Instead of leveraging the data, the pitch is to protect the data from 3rd parties. This attracts large suppliers, who in turn use their existing business relationships to switch their customers to Orderlion’s platform. In Austria, Orderlion successfully switched almost all Choco and REKKI restaurants to their platform and is now trying to replicate this in Germany.

Counteraction by suppliers

It seems that small suppliers don’t yet care to have a 3rd party between them and their customers. However, strategically thinking suppliers are aware of the risk of commoditization and know that their existing online shops cannot compete with the superior marketplace model.

This is why, industry leaders are trying to build their own marketplaces by leveraging their huge (offline) network of existing supplier-relationships and cash-back programs targeted at restaurant’s management [1][2][3].

Metro and Choco’s Platform stacks. Existing online shops (e.g. Metro and Transgourmet) compete on features (complex price-logic, product availability,..), Choco on network effects and (in the future) on data

Conclusion

The impressive growth rates of Choco (and REKKI) show that you can successfully apply consumer playbooks to the b2b space. However, it is not yet clear how strong the lock-in effects and monetization of the collected data may be. Additional services based on this data could potentially add so much value that at least per country, restaurants and suppliers cannot resist being on Choco’s or REKKI’s platform, similar to Amazon for e-commerce and booking.com for hotels.

Startups such as Orderlion try to prevent exactly this, by helping industry leaders to build their own marketplaces.

While the Choco Playbook may not be as directly applicable in your industry, you can still learn a lot from product-led (viral) growth and creating moats that last, especially in similar highly connected industries like healthcare and logistics.

Are you building a b2b marketplace or want to build growth loops into your product? Lets talk!

Product Strategist, Founder, UX