Posts Tagged ‘Entrepreneurship’

Business models 101

15 October, 2008

So, apparently it’s “Good times RIP” and every startup and VC firm seems to be competing for who can be the most prepared for the reputed nuclear winter. A whole lot of second guessing and obvious advice from the same people that were bubbling of enthusiast just a couple of weeks before the shit hit the fan (I met a whole lot of them when we presented at TC50)… better listening to people that actually gives good advice before the fact, for example Marc Andreesen’s with his epic “nuclear winter” prophecy.

Anyways. There’s a lot of opinion and discussion on the “let’s switch business model” theme… mostly “omg omg! advertising is dead! we need to get paid! soon! ahhh!”. But I’ll deal with advertising vs. freemium vs. paid service another time and instead direct my thought to the fundamental business model issue, which I’ve been meaning to discuss for quite some time now…

What annoys me is that when most people say “business model” they’re confusing it with “revenue model”.

The “business model” is the overall structure which the company employs make money. One more time. Not to get money (as in revenues) but to make money (as in profit). So business model includes all things related to the business, such as:

  • Revenue model – how do we charge for the value we create?)
  • Cost model – what costs do we have and how are they structured? (fixed vs. movable, investments vs. operating costs etc.)
  • Sales model – how do we create demand?
  • Etc.

There are many different kinds of business models and many ways to organize them. The common denominator being that it’s a system of different components, and how the company charges for the value they create is just one.

For example “we need to switch from an ad based business model (CPM, CPC or whatever) to a freemium business model (SaaS, licensing or whatever)”. What they mean is (naturally), that instead of people pay for the service thru non-monetary means (their time and attention), they will instead finance it with monetary means (their money)… and what they’re really doing is not switching business model, they’re simply changing one component of their business model, the revenue model, from advertisers paying for some kind of message placement or user action to good-ol’ direct payment from the user in exchange for premium product features. Now this might imply , but not necessitate, changes in other sub-parts business model… for example customer service might be required and thus change the cost structure, or a sales force might be needed, affecting the sales model etc. If the change affects all these components I guess you might say that people have “switched” business model, but changing revenue model is actually a slight tweak in comparison to many other parts.

Easy as pie.

Stay put another post on why switching from an ad based to a paid business model might not be the awesome way out everyone thinks!

(hint, if companies have no money, neither does consumers)

On Open Business Models

18 October, 2007

There are many kinds of competitive advantage. The original view here was: I have got it, and you don’t. Then there is the view, that I have got it, you have got it, but I have it cheaper. Then there is I have got it, you have got it, but I got it first. Then there is I have got it, you have gotten it from me, so I make money when I sell it, and I make money when you sell it.

Jeff Weedman, vice president of P&G’s external business development

Read this

22 August, 2007

http://www.waxy.org/random/arsdigita/

Very interesting account on what happened at legendary ArsDigita back in the days. More relevant than ever, with web companies now actually turning profits with little or nor cash injected from VCs.

Brand Gap, recapped

25 June, 2006

So I scoured thru The Brand Gap by Martin Neumeier during the weekend. Fabulous book, somewhere inbetween pop science and inspiration. It’s great to see that so many authors have started trying to make reading more of a visually appealing experience à la Paul Arden.

The Brand Gap has plenty in common with the other create-more-value books (Re-imagine, Purple cow etc.) forcing the reader to ask questions such as “Who are we?”, “What do we do?”, “Why does it matter?” (add a “Who cares?” at the end you got the Tom Peters sequence haha). It really doesn’t add anything new logs to the fire but is highly recommended for those still not convinced of which leg to stand on in the whole kaizen vs. divergence debate.

One interesting thing is Neumeiers recap of the evolution of marketing; from features (1900s) thru benefits (1930s) via experience (1950s) to identification (2000s). I’m not sure if it’s just semantics but I just don’t agree… I’m more of a raw material – goods – services – experience kind of guy. I don’t think that the whole lifestyle/culting/conspicious consumption is all there is to 21th century marketing. As far as I know, understanding the the social needs your product does/might fulfill is not a new concept. Maybe they are more heavily emphasized, but marketing based on a lifestyle- and/or community-platform is hardly “the new new”, but still worth pursuing. Kind of like this book.

Late on Godin’s liars

10 June, 2006

Seth Godin is an interesting guy who has written countless very important marketing books. For some unknown reason my copy of All Marketes are liars by Seth Godin had been gathering dust on the shelf for quite some time and I decided to read it on a train ride to Stockholm yesterday. The book is about how (and why) to use stories to further your company’s/organization’s/your own objectives. The main thesis’ of the books are:

1. Competitive advantages are becoming too complex too formulate in a one sentence positioning statement and people need stories to make sense of what a company is all about.
2. Stories are what makes people (irrationally) believe that some products are superior to other products. This is why people sincerely believe that a 80 000 dollar Porsche Cayenne is superior to the 36 000 dollar Volkswagen Touareg, despite the fact that they are basically the same part. We buy stories, not products.
3. Stories are what we tell other people and stories are thus what a savvy WOM enlighted marketer should aim for to maximize marketing (mainly WOM) efficiency.
4. To be effective, stories must fit the existing worldview of the target group. If it doesn’t, don’t try to change their worldview (because people can’t be changed), change target group.
5. To break through the info clutter, one must “frame” the story in a way that makes sense to people.

The first point I buy completely. It is obviously very inspired by Malcolm Gladwell’s Blink, but still worth pointing out in a marketing context (to be fair, Godin does give Gladwell some credit in the prologue). The second point is nothing new at all. The use of stories is just basic branding, slightly adjusted. Regarding stories increasing the efficiency of WOM I think it’s absolutely true. However, it’s not like it hasn’t been said before, only using different terminology (even Godin himself in “Ideavirus”). Number four and five are quite obvious if you’ve read some consumer behaviour, however I don’t agree. The thing that I remember best from Blink was the case study of Herman Millers Aeron chair. It took a couple of years for it to become the best selling office chair of all time. It didn’t do this by meeting people’s existing worldview on what an office chair was all about. People hated it at first sight. But Herman Miller believed in Aeron and when people got used to the ground breaking design, it redefined how an office chair should be evaluated. The main point about Blink (for me) wasn’t that people make snap judgements and use intution. That’s hardly news to anyone. The most interesting part is that you can actually change what people believe. And that’s good news, now isn’t it?

I understand why Godin writes what he does; a lot of neomarketing lit. is critized for not being practical enough. People want books like “Ten things that guarantee you instant success within (enter industry here)”. And it is a realistic goal for most companies to get their story straight, find a group that might believe it and tell it (“frame” it) in a way that they’ll understand. A crowd pleaser. Instead of saying what he did in purple cow “create something remarkable, meaning something semirevolutionary” he’s saying “I didn’t mean that remarkable. You could just tweak a little, adjust your communications strategy and you’re good to go”. I like the fact that he points out how product development, WOM and sales are all interrelated but to give him credit for this is kind of like saying that Newton for “invented” gravity. To be honest, it’s just a slight improvement over the classic approach: build a decent product, select a target market with a high likelyhood of adoption and communicate in a sensible way. Boring. And actually kind of ironic (or a big conspiracy maybe?) since what he does is finding a new frame to an existing worldview (WOM, classic communication theory and product dev. ignorance). But hey… at least he’s living by his word. Which is more than you could say for most marketing writers.

From the marketing stand point that Godin wants us to buy books it’s all very clever, indeed (and hardly a coincidence no?). But I don’t like it. I think that the winners of tomorrow are those standing out by making a really, really, really awesome product. The crazy ones. The misfits. The round pegs in the square holes. Those who see a work of art when other people see a blank canvas. Think different. Go for broke. Revolutionize. Re-define. Re-imagine. Remarkabalize. Think it. Test it. Try it. Do it. Impossible is nothing.

If only I had 18 million Euro…

6 February, 2006

I would also have put every cent into FON. But somehow Google and Skype beat me to the punch. Brilliant idea yet so simple. Love the pricing plan. Absolutely love it.

Making Godin’s success formula come true

1 October, 2005

A common claim nowadays is that consumer scepticism, advertising clutter, consumer affluence, a distorted balance between sender-medium-reciever etc. is considerably lowering the effect of traditional big-bang product launches, making it harder and taking it longer for a product to reach a decent userbase. Seth Godin (who’s books everyone in marketing should have read by now) have summed up a short och to the point formula for success for developing and launching new products. I took the liberty to complete the list with a couple of relevant books on how to actually accomplish each step.

  1. Create something worth making (Purple Cow by Godin, Re-imagine by Peters, Art of the start by Kawasaki)
  2. Sell something worth talking about (All marketers are liars by Godin, Selling the dream by Kawasaki, Unleashing the ideavirus by Godin)
  3. Believe in what you do because the big break might take a while (Tipping point by Gladwell)
  4. Don’t listen to the first people that give you feedback (Blink by Gladwell)
  5. Don’t give up. Not for a while, at least (Jane Eyre by Brontë)

Good luck!