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business model

Business PLAN vs. Business MODEL

Control Leave Mark Production Planning Marker Hand
Image courtesy of Max Pixel

 

Sometimes my clients ask for a business plan but aren’t yet seeking funding or aren’t beyond the ideation/conceptualization stage.  This is where a business model is helpful.

“I have an idea for a product/service.  How do I monetize?”

At this stage, you don’t need to exactly know the details of marketing strategy, distribution channels, location, etc. unless it is crucial to your business model.

At the ideation/conceptualization stage, you need to know who your market (i.e. customers) is, growth rate of the industry, who your competitors are, the major costs to bring your product/service to market, and any other major hurdles (e.g. regulatory) that might be a barrier to entry.  Business models are 30,000 foot views for seeing if the business is feasible and viable.  Why decide on the color the napkin if you’re not sure if there’ll be a wedding, right?

Once we have a good understanding of IF the business is likely to succeed, then we can investigate further and do a feasibility study.  Feasibility studies go even deeper to include details of the operation, marketing, product/service, and other pertinent information specific to the industry/sector that your company will occupy.  Feasibility studies can be easily adjusted into a business plan by adding revenue projections and investment asks.

Business model should not be confused with revenue model.  Revenue model is a piece of the business model.  In other words, how the company generates revenue:  production, subscription, advertising, commission, etc.

 

 

Competitive advantage and coffee

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When you are asked what is your “competitive advantage” what do you think?  Processes?  Patents/Intellectual property?  Cutting-edge algorithms and data-analytics?

Those are all valid ways to have a leg-up on your competition.  However, not all competitive advantages are high-tech and modern.  Some are old-school.  Tried-and-true methods for (in this case) building customer loyalty/satisfaction/based and making the sale.  There are many areas in which a company can improve effectiveness, but that is for another post.

One of 7-Eleven’s competitive advantages allows one location to sell over 2,500 cups of coffee a day.  2,500 cups. A. Day.  This location sells the most coffee out of any other 7-Eleven location in the world.  Think of every single 7-Eleven you’ve ever driven by in your life.  This 7-Eleven sells more coffee than that one.

How?

Store manager Delores Bisagni.  Delores, who is on kidney dialysis, has been working at her location in Shirley, NY 7-Eleven for 18 years.  Delores’s secret is knowing virtually every single customer’s name.  That’s it.  You go there, she greets you (by name if you’re a regular) sometimes with a hug, you get your coffee and get on your way.  If you’re new, she greets you asks your name.  Overtime, she’ll remember you, make you feel welcome for coming to her store, and causes you to come back.  That is it!!!  That is how she sells 2,500 cups of coffee a day!  No traffic flow algorithm, CRM software, etc.

Delores might have profound name memorization skills and whatnot.  However, I believe it’s more that she cares about her customers.  “Care for our customers” is a slogan most businesses don’t understand and/or believe in.  However, if you can truly understand and apply that concept, I think it will help you.  Maybe not make you the #1 seller in your field, but will help you nonetheless. That is why I offer my services at a deep discount, give free editing for the life of your business, often give free advice, will work with clients that can’t pay right away, and follow-up on how your start-up is doing.  So far it’s been working very well!

David vs. Goliath

Over the weekend I was doing some industry analysis for a client. She had a great idea and a novel one at that. Well it turns out that there was one other company in the same niche. A direct competitor…that has the early mover advantage.

So what do you do when your the new kid on the block?  Like anything else, with lots of hard work and a great deal of luck.  Let’s look at the case of Netflix vs. Blockbuster for guidance.

In 2004, Blockbuster had about 9,000 stores globally and revenues of over $6 billion.  Netflix had started just 7 years prior.  Fortunately it had several things going for them:

1.  Hard work

  • Competitive Advantage – Netflix’s algorithm takes user ratings on movies they rented and then make (i.e. compute) recommendations for other films that they might like, including movies that the viewer may have never heard of.  This rating based recommendation is very common-place now (seen everywhere from Pandora to Amazon), but in 1997, Netflix’s algorithm was a competitive advantage.  Viewers get recommendations they really enjoy, customer retention & satisfaction increases, money comes in.
  • Constantly Improve – One of Netflix’s criticisms is that DVD delivery was often slow.  Creating a logistics and inventory management system that receives orders and quickly sends out product, in addition to receiving returns and repackaging for reshipment was key to customer retention & satisfaction.  Netflix is still staying current by moving from DVDs to streaming VOD.

2.  Lots of luck

  • Competition was Flat-footed – Blockbuster kept the same mentality of a 1985 video rental shop.  They held on dearly to their late-fee revenue source, and its high fees and strict enforcement soured customers’ views of the business.  The late-80s/early-90s business model put them behind.  All they did was copy.  In 2005, they finally did away with late fees.  In 2009, they introduce Blockbuster Express, a DVD rental kiosk designed to compete with Redbox.  By now customers are streaming videos and renting DVDs at kiosks, while Blockbuster is trying to off-load their many stores.
  • Competition Thoughtlessly Expanded – Blockbuster rapidly expanded adding its 1,200th store by June 1990 and 9,000 stores worldwide by 2004 .  They wanted to be the biggest.  And fast.  The filled their stores with not just movies, but video games, candies, and other goods.  Unfortunately, all these stores require operating expenses.  Operating expenses that where greater than the gross profit (i.e. Revenues – Cost of sales).  Also, among many stumbles (which is much too long for this post but I put some references below so you can read to your heart’s content) is they failed to anticipate how media consumption will change.  From analog to digital.

Fast forward to today, Netflix has a share price of over $400, revenues of $4.37 billion USD, and over 2,000 full-time employees.  Blockbuster is bankrupt.

netflix v blockbuster

However, like most engaging stories, the end is never the end.  Dish Network purchased Blockbuster and its remaining 1,700 stores on April 6, 2011 for $233 million and took over Blockbuster’s $87 million in debt and liabilities.  Dish now continues to license the brand name to franchise location, and keeps its “Blockbuster on Demand” video streaming service and the “Blockbuster@Home” television package for Dish subscribers.  Maybe this strategy to resuscitate a nearly-dead brand  sounds foolish.  However, so did mailing out DVDs.

For more info:

http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html

http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants

http://www.fastcompany.com/1690654/blockbuster-bankruptcy-decade-decline

http://www.getfilings.com/o0000930661-02-000951.html

http://www.lundholmandsloan.com/Case%20Materials/12.%20Netflix/BBI_10_K.pdf

Clients

Over the past few years I’ve had the great pleasure of helping many clients create and expand their business.  Here are a few projects I have been fortunate to work on.

9 bar

9 Bar Roasting is a coffee kiosk in one of the busiest intersections in Los Angeles — Hollywood Blvd. and Highland Ave.  I wrote a business plan for 9 Bar Roasting so they could move into an existing business.

 

adrADR Solar Solutions is a solar panel installation company based in Woodland Hills, CA.  Among their many projects they are credited with the largest residential installation in the world — at the 6,000 sq. ft. house of esteemed green architect Mr. Carl Harberger.  I wrote a business plan to help ADR expand their current operations to a retail space in Calabasas.

 

dgaplusDGAPlus is a specialty firm providing innovative strategies and solutions that meet the many requirements of enterprise utility companies and agency partners.  I created a business proposal for DGAPlus to present to partnership targets to incorporate their patented systems. 

 

 

her houseH.E.R. House is a private women’s only lifestyle club in Newport Beach, CA.  I made a business plan so that H.E.R. House could find the startup capital and equity investors needed to launch this rather large operation.  Coming soon.

 

maitri Maitri Yoga Store is a yoga clothing  and accessories specialty store based in Culver City, CA.  I wrote a business plan for Maitri so it could attract startup capital from lenders and investors.  Open Feburary 2015!

 

 

 

 

hakeemSkyview Consulting Group is an advisory firm based in Beverly Hill, CA, specializing bringing foreign companies into the US.  I wrote several business proposals for Skyview to help them with a roll-up strategy for multiple business sectors in the Antelope Valley, Santa Clarita and surrounding areas.

Once you have a rough idea of what you want to do…

It’s time to hash out a business model. What’a business model? Glad you asked!

It’s a (generally) one-page chart that addresses key elements of your business: Key partners, Key activities, Key resources, value propositions, Customer relationships, Channels, Customer segments, Cost structure, Revenue streams.

Each element takes a considerable about of work to define, refine and establish but that comes later in the business development process.

Before diving head-first into a business plan or into all the many many MANY pages of info on starting a business, start out generally and work down to the details.

Here’s an example of the Nespresso business model.

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