• Innovative Strategies That Create More Profits

Month: January 2020

How To Breakout From Destructive Competition

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Many companies today face a very competitive market and are looking for a way out to break out. When every competitor is focused on short-term tactics (ie, special sale, drawing for a prize, etc.) the solution only lasts until one of the competitors comes up with a new tactic.  

Self-destructive competition is one of the problems W.Chen Kim and Ranee Mauborgo take on with their book, “Blue Ocean Strategy”.  For example, if your company is experiencing: 

  • Margins shrinking
  • Competition growing more intense
  • Competition driving commoditization
  • Rising costs

Too many companies focus their strategic thinking on the competition which puts the competition, not the customer, at the core of their strategy. Stop benchmarking the competition and responding to their strategic moves because it means you look more like the competition. 

Instead, put your strategic focus on the buyer and innovate new ways to deliver more value. Note: just because a  competitor is doing something, doesn’t mean it of value to buyers.

Think about these questions:  

  • Which features of your product or service could be dropped because they are not valued by the buyer?
  • How much would this reduce your costs?
  • What products or services could you add with those savings that would have value to the customer?   

If you know someone struggling in an overly competitive market, tell them about this post.  Maybe it will help. 

Part Three: Test And Verify Your Business Model

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You have analyzed all the elements of your business model and designed a business model that appears to offer an excellent opportunity. But, you still only have a hypothesis, and your risk is real. The next step is to test, iterate, and verify your business model.

Following is an example of why you can’t take your business model for granted, even if the model had proved it works, When JC Penny was in trouble they hired Ron Johnaonk the man who designed the Apple stores which have been an enormous success, How could they go wrong? He laid out the store design into various boutiques rather than the traditional “boys department,” etc..

Plus, because the concept was so successful (at Apple), they modified all their stores within a  year, which cost millions of dollars, But customers hated the new store and loss of “bargain items,” sales declined rather than increased. A little over a year later, they fired Ron Johnson and looked to go back to their old way and search for another business model.

A lot of the information here is from Seve Blank, entrepreneur, and professor at Sanford University, and comes from his book,  “the Four Steps to the Epiphany.” The point of testing and verifying the business model is to move away from the standard product development model and move to a customer development model. Having a product isn’t sufficient, You need to verify you have paying customers and a financial model that works.

The cost of getting the business model wrong is devastating, and not all startups are the same. (See our article on market types).  This test and verification process looks at two areas: customer discovery and customer validation,

In Customer Discovery you are trying to find out who the customers are for your product and if the product or service you solve is vital to the customer. nOt just the early adopters but to the mainstream customers, You are developing a sales model that can be replicated and can drive customer demand,

In Customer Validation you are developing a sales pathway for sales and marketing, You are trying to prove you have found customers and a market that is positive about your product or service.model and the process is repeatable

These two steps will:

  • Verify your market

  • Locate your customers and identify the economic buyer

  • Test the perceived value of the product or service

  • Establish your pricing and channel strategy

  • Establish your sales cycle and process

When you have completed both of these steps, you can move on to executing your business strategy and model,

 

Part Two: Design Your Business Model

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Now that you have a basic business model put together, you do not want to accept that design as the best one automatically. Your goal is to find the best business model. The one that will set you apart from your competitors, deliver the most value, and offer the best revenues and profits. The business model canvas allows you to design alternative models easily by changing the data points in the individual modules and create an entirely new business model.

There are many, many examples of this design process. For example, Walmart changed the design of its business model several times before arriving at its current model. They had to reframe the definition of a big-box retailer. Even today, they are continuing to change their model with the economy, customer characteristics, and technology.

Another example is Southwest airlines. They were bankrupt trying to use the traditional hub and spoke business model of all the other airlines. They decided to redesign their business model and fly direct from San Antonio to Dallas or Houston and land at the suburban airports with far fewer gate fees. Passengers loved it as well as the suburban location was preferable because most of the business occurred in the suburbs. They also added some “viral marketing” like stewardess dressed in hotpants and great food and drink, Today, they are the only airline that has been profitable every year, since they redesigned their business model.

These examples point out three important things to remember when you are designing your business model (per Alexander Osterwald);

  • The product is essential, but not sufficient; you need a business model that makes it work

  • You can’t just copy the business model used by a competitor

  • A business model design is not proof it will work. It is a hypothesis and, therefore, a risk, and has to be tested and verified.

New products and services are opportunities that seem to get everyone excited. But, innovative business models also offer great opportunities. How could you redesign your business model to increase your value proposition?

 

The Business Model Canvas

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Creating an in-depth business plan for new, developing companies is not realistic. When I started work at Honeywell in 1968, one of my first tasks was to work on was the yearly, one, five, and twenty-five-year business plan for the commercial division. Honeywell had been in business for almost a hundred years, so they had lots of data. Today, things are changing too quickly, and for startups, just trying to get a business plan that works may take many iterations. That is why Alexander Osterwalder’s Business Model Canvas makes so much sense,

The business model canvas illustrates the nine fundamental drivers of the business model. And how they all work together to deliver value to the customer, including revenues and profits to the company. Also, because it is an illustration on one page, the entire business model is visible and defined so everyone can participate in the discussions about how best to deliver value to the customer.  

We are going to look at the business model canvas in three parts. First, the nine elements that make up the model. Second the “Design” aspects or capabilities you can use to experiment with the models until you get what you think is the right strategy and composition (referred to as a hypothesis). Third, the requirement initially proposed by Steve Blank, entrepreneur, and professor at Standford on how to get out of the office and into the market so you can test and iterate your hypotheses until you achieve product-market fit.  

Following is a description of the nine critical elements of the business model.

1  Value Proposition. This is, of course, your product or service, but it is why customers will buy and pay for your product or service or both.

2 Customer Segments. These are the people who will buy or use your products and services, This could be one segment or multiple customer segments. And it could be for multiple kinds of jobs, pain points or potential gains,

3 Channels. This is how you are going to sell and deliver your products and services to your customers (retail stores, internet, etc.)

4 Customer Relationships. This is how you are going to find, get, keep and grow your customers base,

5 Revenue Streams. This  is how you are going to capture revenues from buyers and users of your products and services (one time sales, subscriptions, etc.)

6 Key Resources. What resources are you going to need to make and deliver your products and services (physical facilities and equipment, Intellectual Property, human resources, and financial resources)?

7 Key Activities. What key activities must be done perfectly if you are going to deliver the value proposition you promised your customers. (e.g., Ikea must continuously find well designed, contemporary furniture that can be broken down and packaged into a box for customers to take home with then from the store,  

8 Partnerships. IN today’s world, we are not going to do everything ourselves, So, in addition to suppliers, who will you get to help you execute your business model.

9 Cost Structure. Knowing the eight elements above, what are your costs going to be to fulfill your business model?

These are the things you control. There are also four things not included in the canvas above, but which issues you will have to deal with when you design or modify your business model. These are the competition, the government, the industry, and the market. These issues will be dealt with here separately.

 

Prepare To Deal With New Regulations On Privacy Protection

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Starting on January 1, Americans – or at least 40 millions of them living in California – now have a comprehensive online privacy protection law in place called CCPA (California Consumer Privacy Act). Just like it’s European General Data Protection Regulation (GDPR) counterpart, which was passed in 2018. CCPA will eventually extend far beyond the State of California and reach the entire nation. 

Professionals and experts believe the odds are pretty strong that CCPA will be the foundation of privacy regulations in many other states or even U.S. federal online privacy law.

CCPA has established much stronger rights for Californians concerning their online data. For example, California residents now have the power to order any company NOT to SELL their data to any third-party for any purpose without their consent. Californian consumers can also ask just about every company that has collected their data and anybody else with which the company has shared it, to delete the information from the company’s record.

What Can a Business Do?

Under the newly enforced regulation, Californian consumers are entitled to know the categories of information that companies have collected and able to see any specific bits of the data, such as postal address and browsing history. Although CCPA is meant for consumers residing in the state of California, most companies will find it difficult to pinpoint the exact location of every single consumer. It is just the nature of the Internet that no one knows where a user is. Some businesses will have to apply CCPA across the board simply because they cannot effectively distinguish between Californian consumers and those from other states.

Another thing to consider is that Californian consumers have the right to take legal action for unlawful use of their online data in any form, so failure to comply may lead to disastrous consequences on companies’ part. CCPA applies to any for-profit entity which does business in California, collects consumers’ data, and meets any of the following thresholds:

  • Generates an annual gross revenue of more than $25 million
  • Trades (buys or sells) personal information of at least 50,000 consumers or households, or
  • Earns more than 50% of annual revenue from selling consumers’ data

The thresholds may appear to target medium-to-large-sized companies, but many small businesses and even startups can quickly meet one or more of the limits. But then again, this is not the end of the world. Online data privacy regulation has always been a hot topic over the years, and CCPA is the logical first step into the culmination of the discussion. There are several things businesses can do to ensure compliance without sacrificing profitability.

Read the fine print

Unless you have an executive team to do it for you, it is always best to try and understand CCPA yourself. This way, you can make notes of the things you don’t fully comprehend so that you can ask the more experienced legal professional for help later. While you’re at it, pay attention to the following rights granted to Californian consumers:

  •  the rights to know what personal information is collected about them
  •  the rights to know whether the personal information is being sold or disclosed to any third-party and who the party third is
  • the rights to decline the sale of personal information
  • the rights to access the personal information
  • the rights to receive equal price and services, regardless of how they exercise their privacy rights

And in the case of loss of personal information due to theft or other causes, California consumers have the right to seek damages.

Understand what personal information your business collects

As obvious as it may seem, many companies are not fully aware of the kinds of personal data their own businesses collect from consumers. Some probably don’t know that their businesses collect data at all. This is most often seen in startups where the focus is mainly on growing the business. Privacy regulation is likely considered an obstacle in growth, but now they cannot just ignore CCPA for the consequences can be severe.

Have your business partners read the law too

If you run a reasonably sized company, chances are you have multiple employees (or departments) to handle various tasks from bookkeeping to marketing, from networking to customer service. To properly implement CCPA and ensure compliance, make sure everyone in the company also reads the bill. Your officers, executives, and legal teams should understand the law better than anybody. Know the potential risk and craft a plan to avoid penalties.

You can read the full text here.

Privacy policy and regulation have the reputation of being the dark sides of business conduct. The reality is that many companies most likely takes advantage of personal consumer data for marketing or downright additional revenue by selling the information to third-party entities such as advertisers. CCPA is trying to get rid of the murkiness and provide a clear path for both companies and consumers to play it fair and square.

 

 

Recognize And Adapt To Your Stage Of Business

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Recognizing the growth patterns of small businesses and the peculiar set of challenges presented by every stage of development are indispensable for every budding entrepreneur who often seems to get lost in the process of penetrating the market. Businesses, especially small-scale ones, are in constant growth. They start with just a few employees and a very limited range of objectives, but they all have the potential to embark on major expansion with properly crafted and well-executed action plans. While all small businesses are unique in terms of organizational structure, strategy, and managerial style, they have one thing in common: they experience or follow the same set of growth patterns.

A business does not simply come into existence and become profitable overnight. Businesses have to go through a sequence of developmental steps and overcome all the challenges that every step creates. Believe it or not, the same pattern applies to every company including startup with just a handful of employees to the multi-million dollar software developers. 

The similarity of the growth pattern makes it easier for startup founders to understand the opportunity and obstacles ahead of time, and create an effective plan in accordance with market conditions, so they can survive and thrive in the long run. 

Such an understanding is the foundation for business owners to devise a creative plan that ensures the efficient use of available resources.

Growth Pattern

Various studies have attempted to come up with a definitive model to examine the growth of a small business, but the most commonly used pattern is as follows.

 Planning

At this very early stage, the business to be established must answer these questions:

  •  Does the idea (of goods or services) fill a need in the market? 
  • Will the company make a profit?
  • How will people react to the product idea?
  • What is the right business model for this business?

The “initial” plan is just that: initial. You cannot stick to that same plan over the years and expect steady growth. The key to a successful startup is adaptability, meaning the business plan must change in accordance with current market conditions and consumers’ demands. Every single part of the action plan must be under constant review and ready for quick adjustment. Many times the plan also includes a requirement for outside investment.

 Establishment

The next growth stage is Establishment, in which the business is starting to take shape, and therefore a change of plan is most likely necessary. A small business undergoes a massive difference at this stage because the initial plan can no longer sustain growth. Some of the most common challenges include:

  •  Seeking outside investment because the actual budget exceeds the allocated amount
  • Hiring more employees to support day-to-day operation, which also adds more expense
  • Establishing market presence and customer base
  • Ensuring a balance between cash reserves, expenditures, and sales
  • Determining more appropriate management styles due to market demands

In the establishment stage, the most important thing to achieve is sustainable operating procedures with risk management.

Early Growth

A significant milestone in building a business is the ability to gain steady cash flow from the customer base. It is a sign that the production and delivery of goods and services are well-managed. At this point, small businesses have overcome all the difficulties endured during the earlier stages of growth and are in the process of generating revenue. As profit starts to come through the door; however, competition is catching up and bringing some new challenges:

  •  Fulfilling the demands of an increasing number of customers
  • Streamlining company operation to minimize operational cost
  • Keeping up with competitors
  • Increasing the volume of cash reserves

During the Early Growth stage, the deciding factor is whether the company can recognize the key profit driver and optimize its impact on the business itself.

 Profitability

With more reliable distribution channels and effective marketing strategy in place, small business has earned its place in the market despite fierce competition and makes money. Being profitable is a sign that the business is moving toward the expansion process. Naturally, the company is seeking to:

  •  Stay ahead of competitors
  • Acquire competitors whenever possible
  • Expand the business sectors
  • Increase the volume of production

 Many small business owners think that Profitability is the final stage, and they are not entirely wrong. After all, the purpose of building a business is to earn a profit. However,  complacency at this stage often leads to a decline, mostly because the competitors can afford to stay creative. There is always room for improvement, for example, employee engagement, customer satisfaction, brand image, and collaborations with partners.

 Revitalization

 Also often referred to as the maturity stage, Revitalization is the beginning of a process where the business must think about new and improved products or services or an effective exit strategy. As you know, the market is always changing; your goods and services need to stay relevant if you want to stay in business. Go back to the drawing board and craft a new plan to support and encourage innovations. But this time it will be easier because you have reliable financial resources to get the job done.

Considerations When Launching A Startup

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Launching a startup business from scratch is a massive undertaking. It is as if you have to manage somehow an engine in which there are many moving parts,  all moving at the same time. Every small business owner understands how complicated this process can be, mainly because the company is in an early stage and unable to afford a lot of professionals’ to help.

In most cases, a one-person owner serves multiple roles as manager, bookkeeper, marketer, and customer service. There are fun parts such as brainstorming business, a name or drawing a product design. And then you have to deal with the stressful parts, for example, registering with the government, filing the taxes, and making financial decisions.

 The entrepreneurial world is full of stories of success and failures. With careful planning, however, you can avoid the latter and lean toward the former. A business plan exists to help you launch and run the business using the methods you prefer; every action listed in the document allows you to take a step back and review your strategy.

A useful approach to getting the business off the ground as smoothly as possible is to consider all possibilities and think through every aspect which may affect the company as it grows. In short, you have to consider the legal side of the business, marketability, organizational structure, and of course, investment.

Key considerations

 There are at least ten significant considerations to think through, even before the business officially exists.

 1 Legal setup

 Here is one thing to put in mind: venture capitalist or any other investor will not want to pour money into a startup that doesn’t have a reliable legal structure. If the legality of your business is in question, outside investment is hard to come by. Do not make rookie mistakes such as failure to register with the local authority, registering incorrect business forms, having poor contract agreement with co-founder, poor employment documentation, or using a weak contract. It can be a headache to have proper legal setup from the start, especially if you have no help, but you cannot ignore the importance of this matter.

 2 The market

 Startup owners are naturally excellent problem-solvers. They have ideas on how to create products that will solve existing problems consumers have. But in reality, everybody can have ideas; the most significant difference between business owners and everybody else is the ability to transform ideas into a profitable venture. Market research is the key. You need to conduct research continuously to see how consumers at large (or those in your target market) respond to the solution you propose. Document your research, for example, the problems your products solve, who the customers are, what the competitors do, and how big the demand is. In short, you need practical knowledge of the market before you launch.

3 From ideas to reality

 All business ventures have challenges. One of the first obstacles is bringing your idea into reality. Chances are you don’t have a factory capable of mass-production or a team of professionals to provide services. YOu will need to develop collaboration with other businesses to help you execute the ideas, run production, and bring the products to market.

 4 Organizational system

 It would help if you had constant report updates to know how the business is doing on a day-to-day basis. Critical financial information of the company must be accessible and current at all times. Otherwise, you cannot devise an effective plan to keep the venture going.

 5 You need advice from professionals.

 Admit that you don’t always have the right answer to every question that arises during the launching process. There can be all sorts of legal issues and organizational problems for which you need advice from more knowledgeable people. It costs money to consult professionals, but it would be money well-spent. Investors will also take you more seriously if you make the right decisions based on suggestions from the experienced.

 6 Fundraising

 Unless you have a lot of money at your disposal, you cannot stay away from investors. Just like with everything else, do your research regarding potential investors, for example, their track records in your industry/niche and how to get in touch with them. Investors have the money, and sometimes you have to devote serious effort and time to meet them. 

7 Not every investor you meet will be interested

 Your startup is not worth a billion-dollars; you are not a Unicorn. It only makes sense if some investors turn down an offer to invest. Improve your ideas or look for other investors. Sometimes an investor wants to wait a little longer until a startup shows signs of development, and only by then, the decision to fund the company comes to the surface.

 8 Startup ownership

 Every investor has share ownership of your startup company. Be careful with what you give away. Otherwise, you may lose the company entirely. Remember that you can always seek advice from professionals to avoid this mistake. Investors will appreciate your decision not to give away too much.

9 Vesting

 Most investors want you to stay active in the company, at least for the first several years of development. You understand the idea better than anybody, and therefore you are the best person to oversee how the plan transforms into profits.

 10 Have a legal counsel

A lot of startup owners rely on their investors’ legal teams for documentation and advice. Although it is not always a bad idea, you’ll feel more confident with a legal counsel who works for you and your best interests. In every negotiation and tough financial decision, the legal counsel will help you understand all the risks involved, including when you have to deal with your investors.