business model Archives

Old school business model

I just saw a commercial for Rent-A-Center and thought to myself that their old-school business model is nearly a half-century ahead of the times.

Founded in 1974, Rent-A-Center is an American public furniture and electronics rent-to-own company based in Plano, Texas. The company was incorporated in 1986 and, as of 2014, operates approximately 2,972 company-owned stores in the United States, Canada, Puerto Rico, and Mexico, accounting for approximately 35% of the rent-to-own market in the United States based on store count.

“A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating.“
Rent the Runway CEO Jennifer Hyman.

As you may know, companies are taking a similar business model and expanding it to other consumer sectors, such as clothing and jewelry. This model has already been applied to transportation with Lyft/taxis/vehicle leasing and with housing with Airbnb/hotels/apartments and intellectual property with game rentals/public libraries. Entering into the fray are companies like Rent the Runway, which rents unlimited designer styles to subscribers, and Fat Llama, which rents electronics (in the UK).

A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating, according to Rent the Runway CEO Jennifer Hyman.

The spending habits of millennials, the largest single consumer group out there with 83.1 million (a full quarter of the U.S. population), was surveyed. The survey found that the main reason why they rent is to “test things before purchasing” at 57%. This makes sense with money being tight and space being limited, every purchase has to be scrutinized. The results of the survey are shown in the infographic below:

World Economic Forum: This is how millennials are fueling the rental economy

Old-school brands such as Play it Again Sports and Rent-A-Center are riding the boom of the change in consumer sentiment and behavior. Rent-A-Center’s revenue grew $9M between 2018 and 2019 to $2.6B, operating income ballooned an astounding $197M between 2018 and 2019 to $253M, helping net income to increase by $165M to $173M.

July 15, 2020

Adaptability is the most powerful trait

You have probably noticed the deluge of advertising that is targeted to the new reality of being at home. This is obviously a response to the global pandemic we are all being affected by. The following is a breakdown of what is happening and how your business can harness the post powerful trait: adaptability.

Adapt Through Marketing Strategy Marketing

Aired prior to the COVID-19 crisis but replayed recently Campbell’s realized that people are stockpiling canned food. Set to a wholesome and nostalgic soundtrack without pandering to panic buying, they capitalized on an opportunity to remind customers of a classic pairing. On a side note, the music choice was oddly relevant — Thank You For Being a Friend was the theme song to the ’80s sitcom The Golden Girls and the elderly are among the most vulnerable to COVID-19.

Also, more people are telecommuting and are realizing their home computers might not be suitable for work so Dell aired a commercial for one of their newest laptops. Peloton, home office chairs, etc. are all advertising the benefits of being healthy and productive at home. Also, mental health app Talkspace, Delta Airlines offering free flights for medical volunteers, online education, bidets, and more are using this opportunity to advertise their products and services.

Adapt by Seizing the Opportunity

Adaptability Charles Darwin - Your Startup Guru — Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)

When disruptions happen, it is important to consider alternatives in order to adapt to the new environment. I have advised a new restaurant client to pivot their business model from a brick and mortar location to a commercial kitchen or food truck and adjusted their ad hoc financial projection model to reflect the pivot. Of course, depending on the stage of a business pivoting to a commercial kitchen or truck is not an option; which is why I always provide tailored consultations to each client.

Many people have a lot of downtime now with not having to go into work. It is a good time to take a break from watching the news and start mapping out the idea that you’ve been mulling. Who is your target market? Where will you be located? What are your startup costs? These are all questions you should know the answers to or be actively seeking if you are serious about taking the next step. If you do not know the answers or want a second opinion on, I always provide free consultation so send me an email. Afterwards, those pushup challenges on social media are also a good healthy distraction too from all the dire news.

These are better practices than gouging prices like that hand sanitizer guy.

sanitizer price gouging guy

March 28, 2020

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 how the business will run: who the customers are, selling price of the product/service, who the competitors are, etc.

Business plans go further into depth than business models by including details of the operation, marketing, product/service, financial projections, investment ask, and other pertinent information specific to the industry/sector that your company will occupy. A business plan can then be presented to investors and lenders to raise capital to launch the business.

Also, a 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.

No matter where you are at the business development process, contact us to help map out the strategy for your business launch.

April 14, 2017 0

Competitive advantage and coffee

When you are asked what your competitive advantage is, 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, and 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 and asks your name. Over time, 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!

April 15, 2015 2

David vs. Goliath the story of Netflix vs. Blockbuster

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. This reminded me of David vs. Goliath the story of Netflix vs. Blockbuster.

So what do you do when you’re 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 was the proverbial Goliath with about 9,000 stores globally and revenues of over $6 billion. Netflix was David and 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 makes recommendations for other films that they might like, including movies that the viewer may have never heard of. This rating-based recommendation is very commonplace 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 increase, and money comes in.
Constantly Improve – One of Netflix’s criticisms is that DVD delivery is often slow. Creating a logistics and inventory management system that receives orders and quickly sends out products, 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 immitation. In 2005, they finally did away with late fees. In 2009, they introduced 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 offload their many stores.
- Additionally, Blockbuster did not consider the rapidly expanding prevalence of broadband internet in US homes. By 2009, 68.7% of US households had broadband internet. Also, in 2008, the Broadband Data Improvement Act, a bill to improve the quality of federal and state data regarding the availability and quality of broadband services was passed, ushering a digital highway for movie streaming.
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. They filled their stores with not just movies but video games, candies, and other goods. Unfortunately, all these stores require operating expenses. Operating expenses that were greater than the gross profit (i.e., Revenues minus 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. David had defeated Goliath.

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

Click to access BBI_10_K.pdf

April 8, 2015 1

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 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.

ADR 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.

DGAPlus 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.

H.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 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!

Skyview 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.

November 13, 2014 0

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.

June 15, 2014 0

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