business model

When the business model doesn’t ring true – it often isn’t

 

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Last week I wrote about the need to monetise.  An innovation is only valuable if you can monetise …. generally that means creating a business model that gets more than eyeballs or customer visits and makes money.

From a customer point of view, convenience is great. Nothing better than have an Uber turn up to your door or a meal delivered by a courier booked through a site such as Menulog.  But I have looked at a lot of the services that ‘deliver’ to your door and thought “how do they make money?” People are expensive and that last mile of delivery is not cheap.

Obviously I’m not the only one that has thought this and we are seeing an increasing number of startups that set up with a key component being ‘the last mile of delivery to the customer’ go out of business or forced to change their model.

Even Amazon has been addressing the cost of delivery by introducing Prime as a service cost/subscription and looking at buying physical stores as a way of reducing distribution costs.

Below is an article from Fortune by Kia Kokalitcheva talking about “The Great Business Model Correction continues”.

Earlier this week, Munchery, one of San Francisco’s many meal delivery startups, finally began to serve lunch in addition to its dinner service— but it’s expanding conservatively. While other so-called “on-demand” food delivery services let customers order food on a whim and deliver it as soon as it’s ready, Munchery customers will have to pre-order lunches the night before, at the latest. What’s more, the company is only making lunch available to office workers whose employers have signed up to regularly order through Munchery, and each day it will deliver the meals all at once—all in the name of efficient operations and predictability.

In other words: Munchery wants to minimize any losses on its new endeavor, unlike competitors that ferry burritos, salads, and everything in between to individual customers.

Thanks to Uber’s success, we’ve seen an explosion of startups over the last several years that let consumers order anything from a ride to groceries to flowers by merely tapping an app.

But these business models have proven much more challenging than they seem. Several have closed shop, and many of the remaining ones are now making significant adjustments in the search of more sustainable businesses—and hopefully, someday, profitability.

With investor appetite for these startups seemingly declining, according to data published in July by CB Insights, it’s no surprise that many are looking for an exit from the venture capitalist subsidy-driven growth that was once popular.

The only remaining question is whether the startups can do it without hiking the price of their services and alienating customers who are not young, Silicon Valley dwellers with a lot of disposable income.

 

At some stage you have to be able to monetise

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Currently, there are a lot of rumours in the market about who is going to buy twitter. names such as Salesforce, Alphabet and Disney are the most frequently mentioned.

Personally I am a massive fan of twitter as I find it a quick and easy source of articles and knowledge – it is probably the social site that I use the most.

While twitter has a great reach, the problem is that a viable commercial model has never been established. And while readership volume is seen as important, in the end it is only valuable if you can monetise the user base.

To me it is a valuable lesson in the development of any start-up or even creating the digital channel of an incumbent. People often fall in love with the concept or the technology and don’t spend enough time really understanding the commercial model – what customers are willing to pay for, how much are they willing to pay or is it monetisable through some other medium such as subscription or advertising.

Sounds simple doesn’t it?

But there has been an enormous amount of money spent without really spending the thinking and analysis time up front to answer the ultimate question.

Our human bias will (negatively) impact our business?

What was life like before we could ‘Google it’ to find an answer, get direction on our smartphone from various map apps or connect with friends around the world on Facebook?

Most of us forget that Google, Facebook, apps and social media sites have been around for less than 10 years. Although we marvel at the rate of change, we have trouble remembering what life was like just a short time ago.

The trouble is that despite knowing the huge change we have just been through, we tend to believe that how we do things now will be the norm (with marginal adjustment) going forward.

Most of us have a human bias towards the status quo. We don’t prepare to change until either we have no choice or the weight of the market or population forces us to adapt.

In business, the rate of change can render our business obsolete very quickly, particularly if we are set on retaining our current way of working.

The answer?

We have to prepare by creating far greater optionality in our strategy, systems and business models. Having a number of ‘bets’ that allow us to be flexible; to more readily adapt if the market or competitors take a different path than the current way of working.

I found the recent Forbes article interesting on ‘technologies that will blow up business’. To me it is not these technologies per se, but how they (and others) will impact the way we do business in 2015 and beyond.

Enjoy

http://www.forbes.com/sites/quickerbettertech/2014/12/22/5-technologies-that-will-blow-up-my-business-and-yours-in-2015/

Opportunity or ‘paving the cow patch’?

Over the past twelve months there has been a lot of talk about disruption and online, brought about by the penetration into the Australian market of companies such as Amazon, Uber and AirBnB.

Most companies are now creating online channels to better service customers and interact with suppliers. In the main, however, Australian corporates have been slow to the digital race – counterparts in the US and UK have developed online models and channels for up to 10 years

While building an alternative channel to better service existing customers and suppliers is a worthwhile aim, the risk is that it becomes a ‘website development’ that ‘paves the cowpatch’ – puts the current physical business model online.

The real opportunity is to redefine the business model to create a more efficient and effective business. When we were taught strategy, it was seen that we had a binary choice; to be either better or cheaper. In today’s digital world the opportunity is to be both better and cheaper.

The Deloitte publication, “Digital Disruption; Stories from the Front Line” talks about companies like Telstra and NAB that have built digital and crowd sourcing models to transform part or all of their business model. The Telstra example is one of my favourites – using customers to help solve the problems of other customers.

Are you thinking laterally enough about the opportunity to transform your business model?