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.

Good news - more rules

One of the single biggest things many new businesses and entrepreneurs find very challenging is the way their target markets behave. Even with our knowledge and experience, there are moments when it looks like everyone in a market has given their brains the day off.

However there is good news, there are rules and all markets follow them. This makes it much easier for you to understand why your target markets are not doing what you expect them to. We call them the Market Rules and if you have read through the website, you already know rule number one. If not you can always read about it here - http://bit.ly/YmuuIr 

Here is another one for you consideration – Its not your product customers buy, it’s the outcome the product delivers they buy.

This rule is like rule one, in that it is unbreakable and if you think about it pretty obvious. The reason I want to mention it on this blog is to discuss new or disruptive products and how to use this rule to your advantage.

If you are selling a known product in a known category like a watch for example, you don’t have to describe what the product does – unless your target market is an as yet undiscovered tribe of Amazonian natives who might not know what a watch is. Why, because we all know what watches do, its just a question of positioning it in the market to attract your target market.

On the other hand if you are selling something completely new that no one has ever seen or used before then how would they know what the outcomes are?

Those situations are where going through a proper commercialization process is vital if you want to get the market and enjoy the volume of sales you are aiming for.

Think of it this way, a long, long time ago when someone invented the wheel how did they get the message out there that wheels were the best product for people wanting to move large or heavy objects any distance? The inventor would have had to explain what the product does and the outcome it delivers - faster movement with fewer people required for example.

Without that what would people think – “ooh that’s a big plate,” or “wow that would make a great coffee table when they invent coffee.” 

I am being frivolous, but I also hope the point is coming across for an entirely new product, you have to find a way to get the message across about all of it, but most importantly you have to be able to demonstrate to your target customer that your product outcomes will benefit them.

By Tim Sandford

All Lawyers are the Same

All lawyers are the same.

Not true - or at least I hope not. However the statement illustrates an important point that we were working through at the end of last week for Triple X

We know what the market wants to buy and Triple X is making some early sales with little or no marketing, which is very encouraging. However there are alternative offerings in the market that their target market believes compete with the Triple X proposition. (We’ll cover the challenge of categorization in a different entry tomorrow, but it is something you need to know about). We expected this and as a result we have worked with Triple X to identify its true unique – that thing that sets it apart from its competitors.

The reason we make the statement about all lawyers being the same is that part of the process of developing a unique proposition, is being able to demonstrate something that your market values and is unique to your offering.  

Here’s what we mean. Speak to a lawyer and ask him or her what makes their firm so special and they’ll probably say something like, “We have the best lawyers.”  If they all say it, then it certainly can’t be unique and because it’s virtually impossible to prove, its probably not something the market will value or respect.

This is not a trivial thing. it is a key part of what helps you stand out and win business, so we would suggest this is an exercise you should not skimp on.

For Triple X it is measurable return. No other company in its industry can demonstrate the same level of return when helping its customers address a very costly issue in the industry. What is even better is that Triple X’s customers recognise this and value it.

Even better still, it can be defended and developed over time to increase the return its customers get.

So what is your unique? What is it that makes your business special and most importantly do your customers understand it and value it?

By Tim Sandford