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Business Model

Make your Competition Irrelevant

Use the right strategies to deliver on customer needs and stand out from the competition.

Ed Hatton

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Running businessman

Challenge

Alistair Davis, sales and marketing director and part-owner of Green Power Solar Systems, a fledgling solar water heating company, is looking to differentiate his company from the myriads of other ‘renewable’ energy companies currently springing up. He needs to manage his company’s growth and build a value proposition that works as a differentiator.

Solution

Solar is indeed a hot topic, and many see this field as a path to riches. The market is immature, and customers are relatively ignorant of the differences in technology. There are lots of small suppliers and limited thinking about long-term customer and supplier relationships.

Eskom lists over 200 accredited suppliers, ranging from industry giants with national footprints to local plumbers. How do these entrepreneurs grow their new business and differentiate themselves from the horde of ‘me-too’ suppliers in this industry? Ideally how do they develop a strategy to make competition irrelevant?

Customer concerns

The first key is to identify prospective customers and understand their needs, value concepts and pain points. This sounds too simple – everybody knows about uncovering customer needs. But how many really do find out?

Not just surface needs but issues like reservations about technologies and products, affordability levels, the basis of decision making, perceived value and all the other factors of a buying decision? How many businesses promote their own idea of what the customers should need rather than listening?

Understanding customers does not have to be either particularly difficult or expensive. Using a professional market research company is ideal, but simply plugging into appropriate chat forums and monitoring consumer columns is a good start. Asking customers by way of questionnaires or talking to them is the best – train your people to do this and record results.

New opportunities

Once these issues are really understood the entrepreneurs could look for non-customers and new markets. In solar heating the traditional markets have been seen as existing residential and commercial properties and new developments.

There are probably many opportunities waiting to be uncovered by canny marketers who are able to understand why those non-customers are not in the market, and develop offers to attract them. Some of these opportunities may be relatively simple, like focusing on long-term cost of ownership rather than price, or developing systems for particular segments like flat roofed houses or washing bays. Others will be more subtle and require lots of creative thinking and a visionary approach.

This creativity does not only embrace technologies and markets. Innovative distribution channels, pricing systems and customer communications can be created to develop new opportunities. Take for instance the technology-savvy individual buying an IT product for his or her own use. He or she learns about products through magazines, discussions with peers and questions in technical forums.

Advertising (other than price and availability) is deeply mistrusted, and the role of the salesperson is to be a peer nerd and discuss the latest reviews rather than to persuade the customer to buy the product. A whole new way of selling has been created by increased customer education.

Communicating with prospects

Creativity should definitely include how the entrepreneur communicates with prospective customers. If for instance saving money by reducing escalating electricity costs is the primary need (remember to ask them), why do so many solar heating companies communicate with advertisements that show ugly technology spoiling the aesthetics of a building?

Point-of-sale displays are the same. Look around – it is difficult to tell one supplier from another. There are better ways of communicating solutions to customer needs.

If the customer need is for cost saving, then what about synergistic products? Perhaps bundling the solar heater with more efficient swimming pool pumps, electricity usage monitors or water-saving shower heads could add to the customer’s perception of the value of the offer.

And lastly, remember that Kim and Mauborgne, the authors of Blue Ocean Strategy, suggested that a blue ocean state would mean that both low cost and highly differentiated products and services would be offered to the consumer. This means running a very tight ship to keep costs down and customer satisfaction high.

There is no place for ignorant or uncaring employees or inefficient processes in this scenario. By contrast the rewards for motivated and creative employees and entrepreneurs are potentially enormous.

Ed Hatton is the owner of The Marketing Director and has consulted to and mentored SMBs in strategy, marketing and sales for almost 20 years. He co-authored an entrepreneurship textbook and is passionate about helping entrepreneurs to succeed.

Business Model

4 Types Of Business Models

There are four main types of business models, see which one suits your business concept.

Alison Job

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17-types-of-business-models

Different types of business models suit different types of businesses. A business model is the way that a company sells products to its customers. It describes how a business creates, delivers, and captures value.

What type of business model should you adopt?

A business model defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit.

Related: How to Get More Innovative About Your Business Model

There are four basic types of business model that any for-profit business will fall into:

1. Manufacturer

A manufacturer takes raw materials and creates a product, or assembles pre-made components into a product (E.g car manufacturers). A manufacturer may sell its products directly to its customers, or it can outsource sales to another company.


‘Quality’ to give SA manufacturers a globally competitive edge

Portia Molefe shared her thoughts about small enterprises and their growth into Africa after interviewing the finalists who stood in line to win the ‘Think Big’ prize of R 1 million to back into their business.


2. Distributor

A distributor is any business that purchases products directly from a manufacturer for resale either to retail outlets, or directly to the public. For example, a car dealership would purchase vehicles directly from the manufacturer and sell them to the general public.

Related: How would I set up a “distributorship” with a large company in South Africa?

3. Retailer

A retailer purchases product from a distributor or wholesaler, and then sells those products to the public. A retailer usually has a physical location, but may also be an online retailer such as Amazon or Kalahari.


3 Ways Retailers Should Accommodate the Mobile-obsessed Customer

The new smartphone-centric status quo isn’t such a bad thing for retailers, especially those willing to adapt their strategy. Find out how retailers can accommodate the mobile-obsessed customer.


4. Franchise

A franchise can be a manufacturer, distributor or retailer, depending on what type of franchise you purchase. Here the franchisee adopts the business model of that franchise.

Under these four types of business, there are various other ways of structuring your business model.

  • A company that integrates a physical and an online presence. An example would be a retailer who allows customers to order products online, but lets them pick up their order at their nearest store.
  • A company that deals with customers directly via the internet without engaging an intermediary.
  • Direct selling to consumers making use of product demonstrations in the person’s home, for example. There are several cosmetic and jewellery companies that use this model in SA.
  • The Freemium business model works by offering a basic Web service or product, for free, while charging a premium for advanced or special features.
  • Online auctions, which are held over the internet.

Related: Owning A Franchise – Good Idea Or Bad Idea?

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Business Model

How To Pick The Business Model That Works For You

So, you’ve picked your lane.  You’ve decided what you want to do and why you want to do it.  You’ve picked something you’re good at.  You’re convinced the world needs and values it.  You now need to decide how to make money.  That’s where business model design comes in. 

Anthony Miller

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There are plenty of business model options for the same idea.  For example, let’s say your idea is to offer historic tours of Cape Town.  You could either do it yourself or hire professional guides to do it.  Or you could use mobile technology to provide DIY walking tours.  You could charge per tour or you could charge a membership fee.  There are so many options.  How do you pick the model that works for you?

The Lean Canvas is a great tool for entrepreneurs who are faced with this question. Adapted from The Business Model Canvas, it provides a simple, one page framework for brainstorming possible business models, prioritising where to start, and tracking ongoing learning.  It walks the entrepreneur through the business model process logically and ensures the key elements of a successful business are considered.

Related: Business Model Design – Picking The Business Model That Works For You

My co-founders and I have used the Canvas extensively at Simply – for designing our business model, and for communicating it to partners and investors. The only thing you know with certainty when you start a business is that it’s not going to turn out as you expect it to.  The Canvas evolves as you go – it was, and continues to be, a very useful guide in our journey.

Recognising an opportunity for disruption

We figured there was an opportunity to do something disruptive in the SA life insurance space.  It was clear to us that lots of people were either not covered or getting a rough deal.  Guided by the Canvas, we defined our first Customer Segment as adult South Africans, aged between 25 and 45 and earning between R5k and R30k monthly.

We then identified the 3 big Problems – specific to that segment – that needed solving:

  1. Most of the people in our segment have some form of funeral cover, but very few have life or disability cover.
  2. The cover they do have is often expensive relative to the benefits provided (i.e. a very small % of the premium goes towards the risk costs).
  3. There is no simple, intuitive way to buy good value life, disability and funeral cover online.

Developing a value proposition

Next came the Value Proposition.  We believed we could use technology, digital marketing and human-centred product design to deliver simple, online life, disability and funeral insurance at a great price.  We felt we could be for life insurance in South Africa what Takealot has been for retail.

We thought the world was moving far faster than incumbents realised; that millennials were ready to buy life insurance online; that we could build for the digital world and be in the right place at the right time.

And the rest flowed from there.  I don’t have the time or the space to walk you through the other elements of the Canvas here, but you can probably fill in the blanks.  Suffice to say, the process was invaluable and enabled us to build our business around a clearly considered business model.  It’s early days, but the signs are good – we’re making a positive impact, having fun and keeping our investors happy.

Creating a Lean Canvas

So, how should you go about sketching your own Lean Canvas?  The team at www.leanstack.com suggest the following approach:

  1. Sketch a canvas in one sitting. While a business plan can take weeks or months to write, your initial canvas should be sketched quickly.
  2. It’s okay to leave sections blank. Rather than trying to research or debate the “right” answers, put something down quickly or leave it blank and come back to it later.
  3. Think in the present. Business plans try too hard to predict the future which is impossible. Instead, write your canvas with a ‘getting things done’ attitude.
  4. Use a customer-centric approach.  You may need to sketch one Canvas per customer segment.  Start with the Customer Segment and go in sequence.

The Canvas has brought clarity and a common language to our business model design process.  It’s enabled us to agree upon and communicate our business model effectively – both internally and externally.  It’s also allowed us to tune and adjust our model as our story has unfolded – an inevitability for entrepreneurs.  I highly recommend the Lean Canvas as a tool for designing your business model.  Give it a try – I think you’ll like it.

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Business Model

Want To Change Your Business Model? Answer These 3 Questions

Here are a few pointers on figuring out the best way to grow your business and keep it sustainable for years to come.

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To grow sustainably, is it better to take on projects that are frequent and reliable, or sparse but lucrative?

Q: I own a film and production company, and I shot 100 videos last year – 70 weddings and 30 corporate, totaling $330,000 in revenue. The corporate videos are more profitable, but weddings are always happening. I don’t want to turn off a constant source of revenue, but should I spend more time pursuing corporate events to grow my business? – Trevor R.

Welcome, Trevor, to the entrepreneur’s struggle! You build a great product or service, make good money and the next thing you know, you feel like you have to change your model. It’s the age-old question of scale: What’s the best way for your business to grow, and does that mean making less revenue now in order to have more sustainable growth for years to come?

Related: 4 Types Of Business Models

With the bulk of your time being spent on wedding videos, you probably feel stuck in the slow lane, watching better profits pass you by. But remember that scale is not just about margins.

Numbers can be deceiving, and you control what you charge for your services. While your corporate videos are more profitable right now, going all-in might not be the long-term answer.

To figure out the best route for your business, start with a clear vision of your ideal final destination. How much money – and profit – do you want to make per year? It might sound like a frivolous question (who doesn’t always want to make more?), but it will allow you to reverse-engineer your business model and help determine a practical answer.

Let’s say you want $1 million in gross revenue per year. At this time, it sounds like you charge about $5,500 per corporate video and about $2,400 per wedding video. That means you’d need to sell either 182 corporate videos or 417 wedding videos. (That’s a lot of videos!) Use those numbers to guide your vision. Next, consider scale, which depends on a number of growth factors.

First, creating value: Make sure you’re charging the appropriate amount for your services in order to reach your goals.

Second, anticipating growth: Where is the greatest opportunity, not just at the moment, but in the future?

And third, limiting expenses: How can you keep costs down so spending doesn’t outpace revenue?

Related: 3 Types Of Ecommerce Business Models

Answering honestly will help you create several business models. For you, Trevor, those models are (a) weddings and corporate, (b) weddings only or (c) corporate only. As a case study, let’s consider “weddings only.”

Last year, you worked 70 nuptials. Before you consider hitting pause on that side of your business, revisit those growth factors to figure out if you can make it more profitable.

  • Should you charge more for each video?
  • How many clients did you turn down last year?
  • Could you have taken them on if you had extra help?

Weigh the costs, and consider adding another videographer to the staff. If that seems financially impossible, look for ways to at least maintain your current output while trimming production costs.

For a small business, profitability is a mad science of focus, projections, and getting out of your own way. What makes the most money on a per-item basis is not necessarily what will make you the most profit in the long run.

Related: How to Make Your Business Model Go the Distance

Consider Amazon: It created scale by focusing on smaller margins. It’s a helpful reminder that there are different ways to succeed.

Understand what you can charge, how you should save and who is most likely to buy from you in the future. By simplifying the complicated challenge, you can jump on the fast track to growth.

This article was originally posted here on Entrepreneur.com.

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