Tag Archives: Business model

How To Gain Insulation From Competition: Foster A Tribe

Web2.0 Business Model Check (for dummies ;-)
Image by Alex Osterwalder via Flickr

Not sure what the hardest thing is in business is because so much of it is challenging.  But one of the hardest things to achieve has to be “insulation from competition”.  Even if you are great at doing whatever you do, someone can always come along and replicate it. Seth Godin, marketing guru, makes the point in Seth’s Blog: Thinking about business models

that building a “tribe”, insulates you from competition.  I can think of some examples of this.  Ben and Jerry’s Ice Cream. After all it’s only ice cream.  Volkswagon, when it brought out the Beetle.  After all it was only a car.  Apple when it introduced everything from the Mac to the Iphone.  After all, there were competing products, but for those who fell in love with the meticulous design, ease of use and the sheer enjoyment of using the product, there was only Apple.  Here’s how Seth makes that point when thinking about business models”

“A business model is the architecture of a business or project. It has four elements:

  1. What compelling reason exists for people to give you money? (or votes or donations)
  2. How do you acquire what you’re selling for less than it costs to sell it?
  3. What structural insulation do you have from relentless commoditization and a price war?
  4. How will strangers find out about the business and decide to become customers?

The internet 1.0 was a fascinating place because business models were in flux. Suddenly, it was possible to have costless transactions, which meant that doing something at a huge scale was very cheap. That means that #2 was really cheap, so #1 didn’t have to be very big at all.

Some people got way out of hand and decided that costs were so low, they didn’t have to worry about revenue at all. There are still some internet hotshot companies that are operating under this scenario, which means that it’s fair to say that they don’t actually have a business model.

The idea of connecting people, of building tribes, of the natural monopoly provided by online communities means that the internet is the best friend of people focusing on the third element, insulation from competition. Once you build a network, it’s extremely difficult for someone else to disrupt it.

As the internet has spread into all aspects of our culture, it is affecting business models offline as well. Your t-shirt shop or consulting firm or political campaign has a different business model than it did ten years ago, largely because viral marketing and the growth of cash-free marketing means that you can spread an idea farther and faster than ever before. It also makes it far cheaper for a competitor to enter the market (#3) putting existing players under significant pressure from newcomers.

This business model revolution is just getting started. It’s’ not too late to invent a better one.”

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Surviving The Recession: Morph Your Expertise

Orange, pear, apple
Image by Joe Lencioni via Flickr

Of course, we all realize by now that we’re in a recession.   We really didn’t need CNN to report that the recession started a year ago, but it does help to crystalize our thinking.  If you’re like most of us, whatever industry we’re in, we’re seeing revenue go down as people spend less money, and bills being paid more slowly as customers either hold on to their cash, or juggle it around, trying to make it stretch to cover their own bills.  Not a pretty picture.  And the truth is, it will get worse.

I myself have several revenue streams because my father, who I’ve already mentioned, was an extremely successful entrepreneur, told me to always have at least three businesses (which we would now call revenue streams) because there was never a time one of them wouldn’t be doing badly.  I remember someone else saying: “What you lose on oranges, you make up on apples.”  But what if both orange and apples are in the tank?

That’s the time to look for a market in pears.  Or pecans.  Or speaking about apples or how to grow apples.  Or turning apples into apple butter or dry them for apple snacks. Or put them in a basket with wine and cheese and selling them that way.  Or at a local farmers market.  Or find a county with no apples but dying to have apples and export them there.

Here’s the point:  Change happens.  It can be from the outside or the inside.  Many times, the change that really rocks a company and possibly threatens its existence is change that comes from without, from the world beyond your company. After all, it’s not your fault the global markets  tanked. But wherever it’s from it’s your job to deal with it.

I wrote a post about Business on the Net: The Morphing Imperative. It’s all about facing the fact that something is not working right and you need to change it. You are selling “A” and the market wants “B”.  Or a recession has hit and you can’t make enough profit on “A”, so how do you survive?

That’s the critical juncture at which we have to not only listen to the market but act on what it tells us. In many cases, it may just require moving the spotlight from one corner of your display window to another, showcasing a different aspect of what you’ve proven you can do and for which you are recognized. The trick is to look very carefully at what your expertise really is and move in that direction, not away from it.

  • If you are selling something, whether it is apples or widgets, see if you can sell it in smaller increments so you can sell it for a lower price and sell more of it.
  • If you are selling a product see if there are other products you can sell through that same channel
  • If you are selling a product, see if you can sell a service around that product: “How to build a widget”, or “I will help you build a widget.

In my morphing post, I gave an example of Beyond.com which was in a continuous morphing process for many years. Beyond.com was a business to consumer software site. When the business to consumer model seemed to flounder all across the Net, Beyond.com decided to leverage its existing knowledge and experience of selling online. It then targeted CEOs and executives of manufacturing companies who wanted an online presence to sell their products but didn’t want to undergo a long learning curve developing their storefronts. Instead of selling software, Beyond.com now used direct mail to sell their expertise to manufacturers touting the logic of outsourcing to “e-Stores by Beyond.com”. The pitch to businesses was “Why reinvent the wheel? Let Beyond.com build and manage your eStore for you.”
Beyond.com’s morphing continued.  They went on to become what they describe as the world’s largest network of niche career communities, powering thousands of job sites, apparently with success.
Beyond.com recognized, at their core, they were essentially a technology and networking platform. They chose to sell their expertise and the use of their platform to different communities, first those who wanted store fronts, second, those who wanted job boards.

If you look deep inside your self and focus on what is your core expertise, you can probably find a number of ways to monetize that, even in a down market.

Remember, when TV killed the movies, the movies discovered popcorn and candy could be their new profit center.  When movies figured out they could create big screen epics which couldn’t be replicated on TV they rose again.  And so can you.  Just keep morphing and evolving until you do.

If you’ve gone through a morphing experience yourself, please write us and share that experience so we can all learn together

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Guy Kawasaki’s The Art of Bootstrapping

Guy Kawasaki, American venture capitalist and ...

Image via Wikipedia

The Art of Bootstrapping

There is probably no one smarter, more capable and creative on the Net….. and friendly, approachable and outgoing, in addition…. than Guy Kawasaki He has a string of successes as long as your arm.  And, from that, he has really honed his knowledge of entrepreneuring or, as most without really deep pockets wind up doing, bootstrapping.

You should read his entire post, The Art of Bootstrapping and, if you like that, you might consider buying Kawasaki’s latest book, Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition.

I’m going to point you in the right direction with five of Kawasaki’s guideposts, but if you’re planning to bootstrap, you should definitely read the rest of them at The Art of Bootstrapping.  If I had read his guidepost on How to Forecast From The Bottom Up, I could have saved myself a lot of heartache when I used a “top down” forecast, because I didn’t know any better.  The best advice any entrepreneur can give you is to learn from their hard earned experience and their mistakes so you don’t have to make them yourself. Here’s how to start:

  1. Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small upfront capital requirement, short sales cycles, short receivables terms, long payables terms, and recurring revenue. It means passing up the big sale that takes twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.
  2. Ship, then test. Perfect is the enemy of good enough. When your product or service is good enough, get it out, because cash flows when you start shipping. Besides, unwanted features, not perfection, come with more time. By shipping, youll also learn what your customers truly want you to fix. It’s definitely a trade-off your reputation versus cash flow so you can’t ship pure crap. But you can’t wait for perfection either. (Nota bene: life-science companies should ignore this recommendation.)
  3. Start as a service business. Let’s say that you ultimately want to be a software company: People download your software or you send them CDs, and they pay you. That’s a nice, clean business with a proven business model. However, until you finish the software, you could provide consulting and services based on your work-in-progress software. This has two advantages: immediate revenue and true customer testing of your software. Once the software is field tested and battle hardened, flip the switch and become a product company.
  4. Pick a few battles. Bootstrappers pick their battles. They don’t fight on all fronts because they cannot aff ord to. If you are starting a new church, do you really need a $100,000 multimedia audiovisual system? Or just a great message from the pulpit? If youre creating a content Web site based on the advertising model, do you have to write your own customer ad-serving software? I don’t think so.
  5. Go direct. The optimal number of mouths (or hands) between a bootstrapper and her customer is zero. Sure, stores provide great customer reach, and wholesalers provide distribution. But God invented e-commerce so that you could sell direct and reap greater margins. And God was doubly smart because She knew that by going direct, you’d also learn more about your customer’s needs. Stores and wholesalers fill demand, they don’t create it. If you create enough demand, you can always get other organizations to fill it later. If you don’t create demand, all the distribution in the world will get you nothing.

(Kawasaki says) As my friend Craig Johnson, the great Silicon Valley corporate finance lawyer, likes to say, “The leading cause of failure of startups is death, and death happens when you run out of money. As long as you have money, you’re still in the game, and outlasting the competition is one of the hallmarks of bootstrapping.”

Amen!  The Art of Bootstrapping might well be called The Art of Belt-Tightening, Ingenuity and Persistence.

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Bootstrapping – What’s That?

Small Businesses 1

Image by Angela Radulescu via Flickr

Starting Your Business: It All Boils Down To Making Money and Saving Money – Entrepreneurialism -  AdvancingWomen.com

Bootstrapping in the context of business start-ups refers to the use of creative financing approaches such as leveraging personal savings, credit-card debt, loans from friends and family, bartering, and other means to launch a business. Some business founders use bootstrapping because they have no other choice. Just about anyone who has approached a bank has learned that “only established businesses need apply.” Bankers typically look for cash flow, assets, an established customer base, and a successful track record on the part of the business that is seeking a start-up loan. Obviously, this is a short list that is impossible to fulfill when you are just getting started.

Bootstrappers develop their knowledge and personal skill-sets and use their abilities as a substitute for cash. There’s also a certain satisfaction that comes from becoming more self-sufficient. After being confronted with a contractor’s very expensive building renovation estimate to convert a retail space and make it suitable for a bookstore, one start-up entrepreneur and her husband reacted by visiting a local home improvement store. A few home improvement books, a sledge hammer, and a reciprocating saw allowed these nascent entrepreneurs to save thousands, and she said it was actually fun knocking down walls! “It’s a great stress reducer.”

The entrepreneurial couple also acquired a set of simple plans for bookcases, courtesy of the book distributor who would become the store’s supplier, and built 100 bookcases themselves in production-line fashion for $40.00 each, as compared to an original estimate of over $200.00 each. Then the book distributor stocked their store and provided generous repayment terms. The savings the couple amassed through techniques such as those above allowed them to whittle down what had been a two hundred thousand dollar start-up estimate to the cost of a typical mid-priced car, an amount they could afford as a result of several years of saving to start their business.

Simply put, there are only two basic methods employed by bootstrappers: 1) finding ways to gain control of resources, and 2) using what they can get their hands on effectively. In other words, it all boils down to making money and saving money (inflows and outflows). There are some important considerations in choosing a business model that is amenable to bootstrapping. Start-up entrepreneurs without capital should think seriously about selecting a business that entails compensation prior to the delivery of a product or service. For example, consulting, mail order, or a niche oriented Internet business; all of these examples do not require a significant infrastructure or capital outlay. Other options could be an agency or brokerage-type business: if you can connect a party who needs to sell, with a party who needs to buy, with a profit margin for you as a go-between, you just might have a viable business model.

By trading on skills, bootstrappers can also band together to stretch limited dollars. For example, cohabitation could create a very logical arrangement: a desktop publisher, a photographer, a publicist, and a small ad agency might do well by sharing an office space. The possibilities are virtually endless for a creative thinker.

Author, Dr. Robert Lahm is the founder of several businesses and Web sites, an entrepreneurship professor, a public speaker, and a writer EntrepreneurshipClearinghouse.com.

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Don’t Raise Money – Bootstrap A Niche Market Online

This is the third in a series on financing your business.  But this time we’ll discuss starting small, counting your pennies, inching your way up, (commonly called “boot strapping”, pulling yourself up by your boot straps) until you are making a profit.

Martha Stewart at a 2006 Cynthia Rowley fashio...

Entrepreneur Martha Stewart Image via Wikipedia

One way to do this, with low barriers to entry, ie. not much money to start, is to launch an online business in a niche market. Many entrepreneurs are willing to risk their careers and their homes and work until they drop in order to own their own business. The problem is there are a lot of really big players with billion dollar pocket books chasing the same markets. What to do? One answer is to think small, or at least smaller. Consider a “niche” market.

Defining Your Niche

First you have to discover what your niche should be. One way to approach this is to zero in on what niche you would excel in, which would make the most of your own special knowledge and talents. Just as Martha Stewart started by baking and catering out of her home kitchen and with a flair for elegant living, not to mention superhuman drive and perfectionism, and Debra Fields’ had her cookie recipe, you probably have your own unique talents, interests and aptitudes,if you look deep enough. It may be found in your ability with graphics, or your talent for getting an office organized or inspiring people to join your project. Being smart about specific,marketable things has value; it is “the raw material from which financial results are produced”. Taking a hard,objective look at yourself, assembling a knowledge and skills inventory, allows you to find your particular niche, something you do better even than others in your same field. It is a way of narrowing and refining your niche so you can focus on only those things you do best and know more about than those around you. This should tell you also what niche market you should target.

Sometimes this happens in a more evolutionary way. You set up a dot com on the Net to sell books and the next thing you know, Amazon.com turns into Godzilla, about to stamp you under his giant foot. Do you stand there, stare Amazon.com in the eye and go head to head in combat? You do no such thing. You think through your best niche and move a step in that direction. Let’s say you start marketing rare old books. If Amazon.com moves in that direction, you start marketing rare old books on Texana, a quite profitable business, believe it or not. In other words, you keep moving another step away from the center of the market. And eventually you’ll find a niche which is too small for Amazon.com but may be specialized enough so that it requires considerable expertise for entry. And that’s what you have to dig deep into yourself to find… the area you can execute better than most people, a market too small for the giants, but extremely profitable, perhaps because you have the field almost to yourself.

Using the niche concept, you have positioned yourself for success. Build a reputation and the giants may even send people your way for products they don’t stock.

And there are other benefits in a niche market business model:

Financing

You won”t need as much money.

After you’ve exhausted the savings you’ve set aside to sustain you in the beginning, hit on your family and friends first, just not too much. You want to be able to look your mother or your sister in th eye when you go other to holiday dinners.

Don’t try to play with the big boys too soon. Prove up one part of your plan at a time. Start small, keep building, look good before you go to your bank or your first real investor.

(See
Start Your Own Small Business Using More Ingenuity, Less Cash

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