Tag: business model

Everything as a Service

Pic: source
 
Over the past decade, the business world has had a real attraction to making everything a service. And rightly so. Would you rather struggle to repeatedly sell your product to the same customer? Or would it be better to offer it on a subscription model where you can keep improving it over time, and charge users a regular fee for using it? From furniture and tech products to cars, web hosting and food apps. I’m all for the services model.
 
However, you can’t help compare the process of buying good ol’ products whenever you would need them, to subscription based services. Let me know what you think..
 
In FMCG products, larger SKUs are more expensive, but (almost) always cheaper per unit than smaller quantity SKUs.
Increased manufacturing, distribution costs, and profit margins affect the price of a product. But that price applies to all customers, new or loyal ones. As does any promotion, that does not differentiate between old and new customers.
 
Compare that with technology and web service companies. You pay a monthly, quarterly or annual fee for services they offer. Technology companies, like any other business, have costs that tend to grow over time. And their discounts to convert free-, or non-users to paid users are far more tempting than consumer product discounts. Rightly so.
 
But these discounts strain the operations of many of these tech companies, forcing them to create lean models of operations. That’s the upside! Is anything more fascinating than Uber needing only a 3-member team to manage every new location it expands to?
 
But once that discount period is over, fees of many tech services companies goes up, year after year. And similar to consumer product customers, there is no growing advantage of staying loyal (apart from a superior offering itself) to a brand. While customers of consumer products still benefit from any benefits offered to new/ non-paying customers, that often does not happen with tech services companies.
 
And therein lies the anomaly. Alert consumers of a tech service would find themselves reviewing the service and its benefits, comparing with competitors, or even just weighing the pros and cons of retaining any such service, each time it is up for renewal.
 
I’ve been using the MS Office 365 service for almost 8 years, and the older MS Office software before that. And while my subscription was on auto-renewal for many years, at one point I realized how the fee had steadily risen. While new users were still getting it at a price almost 40% lower (and as a friend mentioned, even lower on Amazon on festival days). It seemed unfair, and there was nothing stopping me from simply registering as a new user with a new email id, and simply moving files from one cloud to another.
 
Similarly, hosting is a ruthless market for service providers. All service providers offer heavy discounts on new subscriptions, but those fees skyrocket once that initial period is over. And in many cases, you don’t want to avail the heavy discount and commit to many years subscription without knowing the quality of the service and support.
 
I wonder if this anomaly seems more in price-sensitive markets like India, or it is a pattern across the world.
 
And I wonder if there is a better model that might help fix this apparent anomaly (for customers) and challenge that service companies face. One that is adequately fair to the service companies that work hard to bring incredible services our way, and to stand apart from the competition. And that is also fair to the average user of those services who is not thrilled about being fleeced for a service he or she has been using loyally for sometime, and then finding out that it is being offered to newcomers at a fraction of the cost they pay – with no extra benefits to show for the loyalty.
 
The ideal model would be one that adequately compensates tech service companies, while also avoiding the highly skewed pricing between newbies and loyalists. And tech companies need to lose any fat.
 
I am always reminded of Uber and Ola. It is popularly known that Uber just needs a 3-member team to expand to a new city. And in 2012, I remember forgetting an empty gym bag in an Ola cab, and ended up being sent to two of their sprawling offices in Mumbai!
 
The business model that extends from the founders’ vision and extends to become part of the culture of the organization, will determine how soon and how much profits your business can and will make.

Choosing Business Opportunity to Avoid Change

Choosing Business Opportunity to Avoid Change

As an individual, if you have a habit your core doesn’t fully approve of, you’d find a disconnect that you might, either align with, or from time to time try to fix.

It could be diet, fitness or even ethic related.

And often, between control or restricting something for your own benefit (like a diet restricts the irresistible food), and something you could buy to compensate ( like a pill), most people would be inclined to buy (and take) the pill as opposed to the challenge of resisting tempting, unhealthy food.

It’s amusingly similar with governments and businesses.
Choosing business opportunity to avoid change.

Consider school shootings for instance.
The obvious solution is the curb the sale of guns to the masses. But that’s bad for business and apparently against civilian rights (of all the ancient rights to desperately hold on to). So instead, while gun sales continue, you get interestingly innovative products being created to combat the inability to restrict gun sales.

Like unbreachable door barriers for schools. Now they’re toying with installing microphones in school. To monitor conversations, and use machine learning algorithms to preempt a shooting based on tone and words used. Imagine the pointlessness of that.

From what I’ve read about school shootings and behaviour, it is more like an excuse to become more intrusive. Not so much to actually solve the problem.

We reflect human weakness in our inability to directly tackle a problem. And also when we allow it to thrive while we build business models around the growing problem.

And this business opportunity to avoid change comes in different sizes:

https://www.instagram.com/p/B0FIh1onjCt/?igshid=12hxwpiucwfta

What Inspires Your Startup?

Along their entrepreneurial journey, some entrepreneurs constantly think of better and simpler ways to describe their business. This is an evolutionary process, as their business model undergoes refinement. So, when they meet new people or investors, they can often quickly describe what their startup exactly does.

Then of course, there are others, who build their business identical to another already-successful startup. Or, their business model is similar to a successful startup in another domain.

While taking inspiration from innovative businesses is one thing, it is dangerous if you only look that far. It is amusing and unimaginative to hear things like, ‘my startup is an Uber in the ABC industry’. Or, ‘ours is an Airbnb’d Samsung.’ Wait what!

Or the fact that Ola has invested/committed a little fortune towards the acquisition of food delivery service Foodpanda’s India business from DeliveryHero to be able to compete with UberEats. While Uber would have understood (hopefully) a customer need, and worked to build it into their business model and possibly the very soul of what they do, seems like Ola simply reacted and followed suit. Something that could prove disastrous in the long term, considering all the financial burden Ola already bears.

But there is a deeper concern. While your business or the revenue model takes inspiration off of another business, it can lead to a short-sighted strategy approach. Because your focus remains that startup or company you take inspiration from. You might not have much of an idea about where that company is getting is inspiration from, and therefore innovating toward.

For instance, am sure a lot of startups must have taken inspiration of some sort or the other, from Netflix, a visionary entertainment company. But who would have guessed, till when its co-founder and CEO, Reed Hastings announced that Netflix doesn’t exactly compete with the likes of Amazon, but rather with with their customers in general, and specifically with their customer’s sleep. How cool was that!

Which means Netflix has far greater clarity on present and future strategy, compared to companies who are simply modeling their growth strategy based on what they see or read about Netflix.

It completely transforms how you see the customer and therefore, how you evolve and grow. Better than being reactive with something like, “Prime’s launching a show around XYZ, what can we do ASAP!”

What inspires your startup?

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Way to go, Alok! The Venture Capital Differentiators

Way to go, Alok! The Venture Capital Differentiators

A few years ago, I came across this interview with Alok Mittal on the internet. Alok is the Managing Director at Canaan Partners, one of the leading VCs in the technology and healthcare businesses, the world over. And in that interview, Alok was talking about their investment in techTribe a few years earlier. techTribe, by the way, happens to have a job referral service offering, similar to the incentive based job referral business model of the company I wrote about earlier.

Alok had publicly agreed that the incentive driving referrals was not going as expected. And that they have been planning to sell the company as the business model didn’t seem to work. I did feel a sense of pride and satisfaction that my gut feel and reasoning was in a way being backed by someone, who is to me, something of an authority in the field.

Then, something struck me. Here was a world where everything that everyone spoke about publicly was, like the Americans popularized, “good”. And amongst them was someone as knowledgeable, intelligent, and capable as Alok Mittal. It took someone humble, grounded, and true to his work, to openly talk about his mistakes. Literally in Rudyard Kipling’s words, he could ‘meet Triumph and Disaster, and treat those two imposters just the same‘.

Hats off to your humility and honesty towards your work, Alok.!

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Models that Puzzle Me

Models that Puzzle Me

If you came here expecting some scoop on Gisele Bundchen or Miranda Kerr, I suggest you hit the ‘Back’ button. This one’s more about the ‘less figure, more strategy’ business models. I’ll work on a post on real models sometime soon though, I promise.

A few years ago, on a random day at office, I received a call about an investment opportunity. At the time, I used to take an average 2.5 inquiry calls per day, speaking to a wide assortment of people. From second and third generation businessmen to entrepreneurs working on their second or third successful venture. And even some final year students who had budding dreams about what could as well be the next big thing. And every once in a way, I’d get a venture who’s business model was confusing. Here’s one of a few business models that puzzle me.

Anyway, so this call, Mr. Promoter of a company that was into the job portal business that was based on referrals. Simply put, the usual job portals work on the model that companies that hire from a particular site would have to pay them certain fees which would give them access to a filtered set of numerous candidates, and perhaps if some of them were hired, the portal would get another x amount of money per candidate hired.

Now that model, as we know, perhaps works just about fine, as demonstrated by the popularity of naukri.com, monster.com, timesjobs.com, and several thousand others.

This particular business model Mr. Promoter told me about, seemed to be based on a reward system. How it works, is as follows. You are  a good friend of mine. I know you’re looking for a job, so I get in touch with this company, and give them your cell number or perhaps your mail id. They get in touch with you, tell you that they’ll help you with getting a job. They ask you for your resume, and for the particulars of the kind of job you’re looking for, etc.

Now suppose they find a suitable opening for you. They put you across to the company, and in case you’re hired, obviously this firm would get their fee for helping them find a suitable candidate. Of that fee they receive, I would get a small percentage for the lead. Thus incentivizing me to refer more friends of mine for more requirements.

I tried discussing with Mr. Promoter, almost to the point of arguing. I just couldn’t see the future of such a business, and I wanted to make sure he saw my perspective. It appeared simple to me. I could of course, be totally wrong. I mean, that’s what the VC business, just like anything else, is about. It’s about perspective. I could have my views, Mr. Promoter would have his. The market and success or failure of the company would prove one of us wrong.

Anyway, so my points of argument were, that the higher the post, the higher the pay the firm, and in turn the person referring someone would receive. But, in the real world, you don’t really find a VP or CEO of a company referring someone to a firm. Right? I mean, who would have the time or the inclination for something like this. And at that level, one would have bigger things to worry about that trying to find people in order to make some quick bucks by way of referral.

So that leaves us with entry-level all the way to perhaps lower or mid-management candidates. Now most of them would anyway be registered on all the top job sites, where many if not most companies, would be tapping into, as one of their many sources for finding candidates. So that being the case, we can’t really expect a group of students from a college to refer each other to this firm in the hope of supplementing their pocket-money, eh?

So, anyway, I turned down Mr. Promoter’s investment proposal and even called him later to try to reason out that somehow, the business model didn’t seem to hold. He however, seemed convinced.

So much for one of the business models that puzzled me. The promoter and I have not been in touch since. And while I do hope he’s doing well, I am curious to know how his business worked out for him.

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