Shareholder Value 4 - The Business Model Fluctuation

Last one in this series and we’ve deliberately saved this one to the end, because it is the one variation where modern shareholders and customers are in complete harmony - usually.

You already know that the way people buy and use products is very different to the way it was ten years ago:

1. iTunes changed the music industry with downloads
2. Software as a service changed the software industry
3. Amazon changed the way the market publishes and buys books
4. The Internet changed the way people look for information on products from holidays to cars before they visit an outlet to make the final purchase.

So here is the point of this last entry in this series. Is your business model the best one for your customers or the best one for your shareholders?

Software is a good way of covering this. Much of the software on the market is now being bought by customers on a software as a service basis. 

This is a big change from the old up front license cost which was great for shareholders because it meant recovering the cost of development faster, not to mention being able to sell upgrades when a new version was launched. 

However the market wanted something a different so when technology permitted the industry responded with software as a service which enables buyers to subscribe to a piece of software on an open ended contract paid for usually on a monthly basis. This keeps the up front cost down and provides constant updates and upgrades. Most markets like this a lot.

It is also very good for your cash flow and ultimately your profitability as over the long term you will probably get more from each customer than you would selling a traditional license. If you are selling software you already know this, but what if you are selling cups of coffee, how does this help?

Well here’s a thought, what if you sold a monthly coffee club membership that included your customer’s first cup of the day and a ten percent discount on every other cup of coffee they buy? How many customers would buy into that? What other benefits would your customers see in this? Would it make it easier to predict your cash flow and your stock requirements?

The point is this. There have been more changes to the way that markets buy in the last 20 years than ever before so don’t just assume that the business model you have always used is the one the market wants or indeed the one that is best for you or your shareholders. 

As always I hope this helps and I'd love to hear your thoughts and experiences on this.