Expanding Beyond Your Core Business Model

History is laden with examples of businesses that have broadened their repertoire of products and services, yielding both remarkable successes and monumental failures. On the other hand, there is really no such thing as “playing it safe.” Just as many companies have foundered by deviating too far, too fast from their traditional business model, others have lost their edge by hewing too closely to convention, like old dogs that failed to learn new tricks. A famous example of the latter is Smith-Corona, which by the 1980s had firmly established itself as the world’s premier manufacturer of typewriters, only to watch its signal technology fade into obsolescence due to the advancement of the personal computer.

Of course, the prospect of expanding a business model is daunting, and the temptation of risk-aversion is strong. But the choice to “stick with the core” entails its own risks. There are no guarantees. But there are strategies companies can employ that will enhance the probability of a successful transition or expansion.

Assess your current capabilities. Where does your business excel? What can you do better?

If you’re running a profitable business already, it’s a sign that your clientele values what you have to offer. Take the time to realistically determine your strengths and weaknesses as an organization, and where they stack up against your major competitors. Equally important, stay abreast of any new techniques, technologies, and business opportunities that your competitors may be exploring.

In his influential book Understanding Media, cultural analyst Marshall McLuhan advanced the thesis that technology—including tools, vehicles, and furniture (which he broadly defines as “media”)—are effective extensions of the human body and mind, geared toward a particular purpose. Using this concept as a framework for analysis, we can infer that a successful transition from one medium to another requires organizations to first recognize a distinction between what they provide, and the means (media) by which they provide it.

For example, the best restaurants are not exclusively in the business of serving food; they afford customers a social, environmental, and gastronomic experience. The technology corporation IBM is not merely a manufacturer of computers and software; its primary purpose is to facilitate the storage and transfer of vast amounts of information. Computers are a medium which serves that end.

Think about the primary purpose of your business, and the experience you would like your customers to have. Are there easier, more efficient, or more cost-effective ways to achieve that goal? What are the tools, or media, at your disposal?

Seek out windows of opportunity.

Once you have a clear idea of the raison d’être of your business, you can think about broadening the range of products and services on offer. Amazon, which began as an online book retailer, now distributes DVDs, music, and even fashion accessories. Netflix, once a mail-order DVD rental service that came close to bankruptcy, is now a highly profitable video-on-demand website with an increasingly global customer base. Both companies recognized that they were in the business not only of moving product, but of catering to the lifestyles of busy professionals by providing easy, convenient gateways for shopping and entertainment.

Do your research first.

 

Occasionally, the opportunity to open up a niche or neglected market presents itself, if you are fortunate or imaginative enough to find prospective customers who are underserved, or to devise a technique that hasn’t been tried yet. But in most transitions or expansions to new markets, you’ll find an established group of firms with a strong foothold. Invariably, those competitors will tenaciously resist your attempts to siphon away their clientele, and will have the advantages of experience, skill, infrastructure, existing relationships, and inside knowledge on their side.

This is why advance research is so important. Before you embark upon a new endeavour, survey the terrain. Get to know your prospective customers and their needs and habits. Identify and examine the most prominent incumbents in the industry, and understand why they are successful.

If you’ve done your homework, feel confident that you can offer a better deal than what’s already on the table in your target market, have a viable business plan, and have secured the capital and cash flow you need, then you’re ready to make a move.

Changing the Online Advertising Business Model

The recent flameout of Facebook's introduction to the stock market should be a cautionary tale to any online

business. One the main reasons that the Facebook stock tanked was that days before they went public, GM pulled its advertising because they weren't getting a return on their investment.

This sent a shock wave throughout all corners of e-commerce cyberspace. How can you not benefit from having access to over a billion Facebook users?

The answer is simple: The online advertising business model doesn't always work... and it shouldn't be the main business model for your startup.

The Big Fail

On many levels, the fail of online advertising is paralleling the fail of traditional television advertising. Thanks to DVRs, viewers are able to zap through commercials with ease. There are even devices being specifically marketed that will "hop" over commercials.

Naturally, this has the broadcast networks in an uproar. How can they justify ad rates if no one is watching the ads?

The same thing is happening online.

When a user logs on they're on a mission. They have a specific activity they are engaging in whether that's sending an email, playing a game or checking their friend’s newsfeed. More than anything, the internet is becoming a social networking site that is equal parts global and local community based.

Anyone who is spending their free time on the internet doesn't want to be advertised to.

A New Way to Brand

Foisting a message onto an internet user who hasn't asked for that message is destined to fail.

Why?

Because we don't need a message we can find for ourselves. A company brand can no longer be built by specific messaging alone.

It will be built by the number of "likes" on a Facebook page or amount of Twitter followers. Now that everyone gets to share their opinions on places like Yelp, a good review is often more important than a traditional ad.

We share what we like and that's how the popularity of a product, a movie, a book or a restaurant grows.

Finding Information in the Cyber Age

The greatest tool on the internet is also the great undoing of the advertising model. That would be the search engine. Whether you are a fan of Google, Bing, Chrome or any other search engine, we know how to get information.

If you want to shop for a new car, a pair of shoes, an appliance or just about anything else, the first stop will always be a search engine. The next stop could be one of the many review sites such as Yelp or Consumer Reports.

Nowhere in that search is advertising needed or wanted. We're becoming a society of information gatherers. That's good for the consumer but not so good for the business, unless they find a way to improve their search engine rankings.

We're also becoming very sophisticated when it comes to blocking or ignoring ads. Don't want a re-targeting pop-up ad? No problem... just delete your cookie history.

The more advertisers try to insert their messages the more the Internet user will find a way to block the ads.

Build Out the Social Network

So, what is a hapless company supposed to do to find new customers? Don't fight the internet but put it to work for your brand. If this is a social medium then find a way to engage your customer base by starting a conversation.

Suppose you're selling a cleaning product. Perhaps you can start a conversation by asking folks "What's the worst mess you've ever had to clean up?" That's not selling your product directly but allowing folks to join in on a conversation.

Once they are engaged they can be invited to try the product. In other words, think less about reaching the masses with a single message and instead redirecting that message as part of a two-way conversation. That's the power of social media networking. 

How to Create a Successful Freemium Business Model

You've heard the warning, "You get what you pay for." When it comes to freemium business models, getting something for free could actually be the ticket to a lucrative business.

The internet is crowded with thriving freemium type of sites like LinkedIn, Dropbox, Skype and others. The goal for those companies is not to completely give away services for nothing in return. The hope is that through paid upgrades, companies can convert loyal users into paying customers after trying out basic services.

If you’re considering in creating a freemium business model, understand these factors:  

Make your product your number one priority.

That might seem like an obvious tip but you'd be amazed at how many developers begin with the premise "I've got to make a lot of money fast with an application" as opposed to "I've got to make an application that serves a need."

Your product has to be easy to find and to use with the kind of adaptable features that today's internet user is drawn to. Like most successful products, you need to identify a need then provide a solution. What are you offering that other sites aren't?

You also have to consider the complexity factor as in don't make your freemium complex! You want your potential customers to be able to click over and start using without very little effort. If your site requires lengthy training or tutorial sessions it might turn off potential users.

Make sure you understand the value of free users.

You're going to be spending a lot of capital and development time to get your freemium company up and running. The initial start-up phase is not going to generate any substantial revenue. However, if you appreciate the value of building up your user base then you can easily translate high volume into potential revenue streams through service upgrades.

Do you know your cost per acquisition (CPA)? Do you know your break even point? Are you realistic about how long it will take to achieve that goal? Those factors should all be part of your business model.

Test, test, test.

Make sure that you test every aspect of your business model, from conversion testing to how users consume your service. You can improve your service offerings, tweak your ad campaigns or even determine who your ideal customer is. Without testing, your business can be left behind by fast moving competitors who can snap up your unsatisfied customers.

While starting a freemium service is not always the right model for every industry, used wisely - it can be extremely powerful. Before you start, remember that all start-ups should begin by creating a product that solves an important need for users. 

Is Buying a Shelf Company a Good Strategy?

As a startup business owner you might find yourself overwhelmed by all the new information you need to assimilate. This is especially true if you have designs incorporating your business and eventually taking it public. Just because you’re starting a business doesn’t automatically mean you need a business degree, but it will help to familiarize yourself with the basics. One business model concept you should be looking into is whether or not to buy a Shelf Company as part of your business strategy.

So, what exactly is a Shelf Corporation?

A Shelf Corporation or Aged Corporation is an official corporation that has been created but is not being used by that creator. There are many reasons why a corporation could still be idle but that doesn’t mean they don’t have any inherent value. Think of these as “instant” corporations as it pertains to helping your business start up. How can your business benefit from taking over a Shelf Corporation? Consider the following:

·         Time Saver

Buying a Shelf Corporation allows your business to get up and running a lot faster. The incorporation process can often drag on for months. With a Shelf Corporation that work has already been done. It would be like stepping into a franchise business. All the equipment and supplies have been purchased; you’re just taking over control.

·         Faster Access to Credit

Many vendors would prefer to do business with an established corporation. Therefore, a new startup might find obtaining lines of credit a challenge. An additional hurdle for a new business is being asked to provide a personal guarantee for loan. That could greatly hinder your chances to secure immediate financing. A Shelf Corporation can establish the kind of corporate longevity that can open up a lot more credit possibilities.

·         Instant Credibility

A Shelf Corporation allows your business to obtain instant credibility. This is important to potential investors. You’re not fooling anyone because the history of the corporation will be a matter of record. Instead, you’re stepping up your professional game and establishing your credentials.

·         Access To Government Contracts

Depending on your business, you might have the opportunity to do work for the government whether that is a local municipality or on a national level. These can be a very lucrative asset for your business. However, some government agencies require a business to be already be operational for a specific amount of time. You can meet that requirement with a Shelf Corporation.

Key Components of a Manufacturing Production Plan

If you’re in the business of manufacturing a product then you need to develop a thorough production plan. That applies to everything from making “widgets” to sandwiches. The type of effective production plan depends on your business model. It will help if you can hone in on what type of manufacturing production will be most beneficial to your business. Based on that answer, you’ll be able to make informed decisions about inventory, material purchases and transportation. Consider which of these production plan strategies apply to your business:

The Demand Matching Strategy

This type of manufacturing applies to a company who is only making a product to exactly match the demand for that product. A restaurant only makes a single meal when a customer orders that meal. They have all the ingredients on hand for the meal but don’t go into “production” until the order is placed.

The Level Production Strategy

In this plan, a company will make an average number of products to match a projected demand for those projects. This is a consistent approach based on tangible order numbers. If that restaurant sells an average of two dozen chicken dinners every night then it makes sense for them to prep two dozen chicken dinners every night in anticipation of the orders.

The Stock Making Strategy

This strategy involves making product before a customer would place an order. The benefit of this plan is the ability to make a master production schedule that will determine a specific set of goals per manufacturing run. You’re going to make 100 widgets every day to meet any anticipated demand over the year.

Once you have settled on the type of manufacturing strategy you’ll be adopting, you should plan out a production schedule. Don’t guess as how much time or labor would be involved in making a product. You should conduct test runs of the manufacturing process to get a baseline for those facts. That will help you estimate what a typical run of a product will cost in terms of time and work force.

The test run can also help you develop a schedule for ordering supplies. If it takes a single day to create a product and you plan on having a consistent five day run then you can figure out how much materials you need on hand to complete an order. It all comes down to a matter of organization and scheduling. Don’t leave anything to guesswork.

Is owning a franchise right for you?

In the last few years, the popularity of the franchise business model has skyrocketed. Many people are attracted not only by its proven business model but also the ease in owning one. While the success rate for franchises is somewhat higher than owning independent businesses, there is still the possibility that an individual franchise won’t succeed. So, before purchasing a franchise opportunity, ask yourself these six questions:

Are you ready to run your own business?

As an entrepreneur, you can be expected to work more than 60 hour weeks, doing all the dirty work; such as mopping floors, emptying the garbage and handling upset customers. If you are willing to put in the work in the early stages, and see it through, you have a higher chance of success.

Are you willing to completely follow the franchisor’s system?

The most important part of a franchise’s success is the brand consistency that customers find from one franchise to another. By being a franchise owner, you are following a particular system determined by the head office. If you’re an entrepreneurial person, think twice before purchasing a franchise as you may not like to conform to a formula and may chafe against the restrictions.

Are you able to afford it?

Understand what your financial requirements are going to be and then double it! One of the major causes of failure for franchises is being poorly capitalized. Do your research – ask your franchisor what your start-up costs will be, including any detailed expenses such as equipment financing and rent. You will not only need money to open your franchise, but also to manage it until it becomes profitable. And for some franchise businesses, it may take up to a year to break even.

Does the corporate headquarters have a history of success?

You should do your research into the owners of the company, including their business background and successes. Work with an accountant and review the finances of the franchise. Is it solid? Don’t be afraid to ask questions, as it’s their support and experience which will guide your success.

Do you like the franchisor’s staff—those people with whom you will be working?

A chain is only as good as its weakest link. Which means that you should investigate the staff that provides support for your franchise. Make sure that you’re comfortable with them and are able to build a good relationship.

Is your family behind you?

This applies to all entrepreneurs – starting a business, be it a franchise or an independent, will require a lot of sacrifices. Especially in your personal life. For this reason, communicate clearly to your family that you will be busy, and set some boundaries. They will need to be supportive of your decision and are willing to compromise.

Finally, hire the expertise of professionals, such as an accountant and a lawyer. By creating a team, you’ll be well prepared to face any challenges that may come upon you. By evaluating the franchise you want to purchase and your own strengths and weaknesses, you’ll have a pretty good picture whether you’re ready to take the next step in owning a franchise business.