As I plan for the Inoneweekend event in Cincinnati on July 11th, I have been browsing the web and reading to get a handle on innovation as it relates to the Web. What is interesting is that everything seems to come back to starting with a workable business model. A good definition of a Business Model is -The structure, processes and actions by which an organization operates in its marketplace.
“Creating blockbuster new business models does not require an ability to predict the future – it requires an ability to redefine the present. However, simple as this may sound, doing so requires identifying and overturning long-held industry norms – beliefs that have shaped existing companies’ decisions regarding the who, what, and how of business and that blind most managers from seeing unexploited blockbuster opportunities.” Deloitte Research based on Deloitte Who, What, How. Below is a modification of the Deloitte who, what, how that relates to business models:
Who – Understanding who the good customers are and what are their real and perceived needs:
· Changing who is empowered to make decisions within an existing customer base.
· Create a whole new class of customers or a new segment within an existing class.
· Identify customers with unfulfilled or underserved needs and target those classes or segments.
· Preying on incumbent’s real and perceived constraints by identifying unfulfilled needs resulting from these constraints and targeting those customer classes or segments.
What – Matching the customer’s needs to the total customer experience or value experience desired by the customer:
· Matching the channels and levels of integration between channels to those that best corresponded to what their targeted customer’s value most.
· Matching the features and functions being offered to only those that the customer really needed and would pay for. Trying to meet needs the customer is not aware they have is allowed. Gold plating existing known needs is not.
· Where ever possible allowing the customer to customize and configure their own unique set of products and services for them selves in order to offer a unique experience tailored to the individual customer.
· Allowing customer to take advantage of new channels as they emerge.
· Ability to expand the product and/or service as to fulfill customer needs.
How – Developing Unique Capabilities and Operational Structures:
· Developing unique capabilities and control over the Value Chain.
· Optimizing provider operations to targeted segments.
· Driving down costs by making trade-offs in what is provided to customers.
· Driving down costs by significant structural cost advantages.
I also found understanding the current business models used on the Internet helpful. A very good review of the most common Internet business model can be found on the following PDF:
Managing the Digital Enterprise, Michael Rappa, North Carolina State University
Very nice outline of current business models on the web in 2008
http://digitalenterprise.org/models/models.html
To understand some of these business models I have found reviewing case studies and white papers from sites such an http://www.startup-review.com/blog/case-study-index/ very helpful.
What it basically comes down to is doing enough homework to have an understanding of the environment in which Internet companies operate. It is impossible for me to know it all but I can at least get my mind around the main existing business models that work today. I can also look for factors that may allow these models to change of for a new one to exist.
The next important factor after the business model seems to be the business plan. Since there is a wealth of data about business plans I will just touch on the key topics that come up relating to startup companies. Helmuth Karl Bernhard Graf von Moltke stated that “No battle plan survives contact with the enemy and War is a matter of expedients.” The same is true with business plans.
· Several sources stated that a startup was like going through one blind ally after another. The problem is that you do now know which ones will end in dead ends. A startup is a project with a large number of known unknowns, and many unknown unknowns. The key seems to be the creation of actionable events that lead to the creation and verification of desired value of the delivered product and/or service. In Agile programming there is the concept of fail fast. In the startup one needs to identify unknowns and prove key assumptions in the most cost effective manner taking into account constraints such as resources, time, customer expectations, etc.
· Window of opportunity will likely be time limited. The Internet is a constantly evolving and changing BEAST. A weakness in a competitor that you plan to exploit today may no longer exist tomorrow. New technologies are constantly emerging that change the rules of the game. Customer expectations are constantly increasing. Generally, time is not on the startups side.
· What does the customer really want? There is an old saying in IT “it’s just what I asked for but not what I want.” Many times the real impact to the customer can not be truly determined until the customer can get their hands on it. Some times an early failure can lead to a later base hit provided the right metrics exist to lean and evolve.
· Scalability – how does one deal with growth and expansion. Growth and expansion are desired traits in a startup. However, it is surprising how many fail to effectively deal with it. Opportunities for grow and expansion can occur overnight. Growing beyond ones ability to deal with it business wise or technology wise can kill a business overnight.
· Complexity – Some plans call for being all things to all people. Others seem ok until the complexity is unveiled in the execution. Complexity must be managed through the business plan. It may require more focused efforts or selecting smaller niches.
Another big item that comes up with startups is death by advertising and marketing efforts. There are countless examples of startups being bleed dry by their advertising and marketing efforts. Startups are generally limited in resources to begin with. Advertising and marketing have to done to obtain a desired result. The desired result MUST fulfill a strategic or tactical objective that advances the goals and objectives of the startup. The results must be measurable and verifiable. Timing seems to be a big issue. The days of the AMAZON startup (loosing money for years, through big advertising budgets) is over. The link between money spent on advertising and marketing to growth and revenue has to have some type of reasonable balance and relationship. Cases can be found where the resources needed to produce a produce or service were consumed in pre-mature advertising and marketing efforts. These companies were never able to create a product or service that could satisfy their customer’s wants and needs.
So those were the items that seemed to standout with startups.
