As a start-up you will eventually end up in a situation where you have to make a choice; do you spend your last money on improving the product, or do you spend it on launching your product and marketing it? Most marketers will tell you that you should always have a perfect product (you see the “product” is one of the four P’s in marketing). But I disagree.
Imagine that you have $1000, but you are afraid it will get stolen, the only way to avoid this, it seems, is to buy a safe. Unfortunately the safe cost $1000. Would you buy the safe? The same concept applies here, do you make a fantastic product that no one will hear about or do you make a mediocre product that many hear about? I would chose the latter and then use the money I make to improve the product later. This will grow your company quicker. And let’s face it, you have no idea what the consumer want in a product anyway. Just face it.
This is of course assuming this is a new product to some extent, you probably don’t know what people want, even if you think you do. Edison started rolling out electricity at an alarming rate, the killer application, was of course electric light. This meant that when people first got electricity, the outlet was a socket that matched the light bulb, not the socket we know today. Little did Edison know that washing machines and electrical irons would come along and that a socket where you had to screw in the cord would become dangerous. Everything, as we know now, worked out well for Edison, but he had no idea what electricity was going to be, or how big it was going to be. Start rolling out your product, make money and adapt your product to the feedback you get, who knows, maybe the technical improvement you have in mind isn’t what you should improve at all?
I also talked to a former product developer at Phillips once, he now runs his own company. He explained that Phillips, and the other big ones, never launch with their best product. Launch with your number two, price it in the stars, and then when your sales decline, introduce the next generation at the same price and lower the price of the last generation. And never launch a new generation until the next is in a drawer somewhere ready to launch
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Wednesday, 20 January 2010
Monday, 18 January 2010
Crowdfunding: An Idea for a Business
I recently came across a guy named Gijsbert Koren from Netherlands, which introduced this idea of “crowdfunding” to me. He explains:
“Crowdfunding, inspired by crowdsourcing, describes the collective cooperation, attention and trust by people who network and pool their money together (via internet) in order to support efforts initiated by other people or organizations.”
Though his question was more in the direction of what could go wrong, I started thinking about it, and realized this could be made in to a lucrative business.
Mission: To bring together people that want to invest small amounts of money in entrepreneurial firms and entrepreneurs that need early stage funding.
Concept: A webpage with an auction-like system that allows entrepreneurs to post their business together with funding needs, and let small time investors “bid” on pieces of a company. For example an entrepreneur would say what his company was doing, at what stage it was, how much funds it needed, how much of the company it would be willing to give away for that amount and other relevant information. Let’s say he needed $50k and would be willing to give away 30 % of the company, an investor willing to invest $100 would then be able to post a bid for 0,06 % of the company. When and if the entrepreneur reached $50k, the bid (along with the other bids) would get accepted.
Business model
There are many ways to make money on this, some alternatives are:
- 1 % of the money invested or the of ownership of the start-up could be retained by the site
- 1 % of the returns could be retained by the site
- The site could provide services, like board members, to help develop the firms that are invested in
- Books and other relevant material could be sold in a related webshop (it is likely that not only those that use actual the services of the site would visit the site)
- Posting a firm could cost a small amount
- Placing bids could cost let’s say 0,1 % (so $10 out of $10 000 should be bearable)
- If you receive funding it cost 0,1 % of the funds received ($ 50 in the case above)
- Public support?
Marketing
Would you need investors or entrepreneurs first? And how would you reach and recruit them? This is of course a difficult issue, maybe you need some funds? (Can it be crowdfunded?) I’m sure that getting in touch with entrepreneurs should be easy enough, you can use personal contacts with incubators and such, most entrepreneurial districts have emerging technology funds, technology transfer offices and incubators that can point you in the right direction. Investors would maybe have to be reached through some sort of viral marketing? Or would ads in newspapers do for this kind of service?
Problems:
Some issues deserve some attention here, even if I don’t like to consider the problems the first day of a new idea.
How would you avoid scams?
In a small country like Norway it would be possible to only allow entrepreneurs to post after meeting them, and talking to them, a sort of due diligence light. In larger countries, like the US, this would of course be difficult, but maybe you would have to send in some paperwork or letters of recommendation?
How would investors get their returns?
A bid could be posted in a number of ways, the entrepreneur could say that he accepted that people would bid for the company, and get a share of it. That way, the investors would get dividends and profit from a potential exit. The entrepreneur could also chose to look for loans, that way the investors would get their money back at a certain date with the interest that was agreed upon. If there are 500 investors that has invested $100 each and they all have different terms, this could obviously offer some difficulties, this could be solved by the site acting as a proxy. Meaning, the site creates a fund for each entrepreneurial venture that gets funded and the site technically owns the small-investors part of the start-up. The dividends and money from the exit is then paid to the site, which forwards each parties money back to them.
How would the investors get a voice in the company?
If, as suggested in the previous part, the investors are represented by the company, board decisions could be done through a proxy that is the site. By investing through the site you agree that the site, as the technical owner, has a representative on board whose job is to represent the small investors.
But what about taxes?
These laws probably are different between countries, and I’m not an expert. I would however imagine that this would be double taxed, first a tax when the site collects dividends, and then a tax when each investor receives their money.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
“Crowdfunding, inspired by crowdsourcing, describes the collective cooperation, attention and trust by people who network and pool their money together (via internet) in order to support efforts initiated by other people or organizations.”
Though his question was more in the direction of what could go wrong, I started thinking about it, and realized this could be made in to a lucrative business.
Mission: To bring together people that want to invest small amounts of money in entrepreneurial firms and entrepreneurs that need early stage funding.
Concept: A webpage with an auction-like system that allows entrepreneurs to post their business together with funding needs, and let small time investors “bid” on pieces of a company. For example an entrepreneur would say what his company was doing, at what stage it was, how much funds it needed, how much of the company it would be willing to give away for that amount and other relevant information. Let’s say he needed $50k and would be willing to give away 30 % of the company, an investor willing to invest $100 would then be able to post a bid for 0,06 % of the company. When and if the entrepreneur reached $50k, the bid (along with the other bids) would get accepted.
Business model
There are many ways to make money on this, some alternatives are:
- 1 % of the money invested or the of ownership of the start-up could be retained by the site
- 1 % of the returns could be retained by the site
- The site could provide services, like board members, to help develop the firms that are invested in
- Books and other relevant material could be sold in a related webshop (it is likely that not only those that use actual the services of the site would visit the site)
- Posting a firm could cost a small amount
- Placing bids could cost let’s say 0,1 % (so $10 out of $10 000 should be bearable)
- If you receive funding it cost 0,1 % of the funds received ($ 50 in the case above)
- Public support?
Marketing
Would you need investors or entrepreneurs first? And how would you reach and recruit them? This is of course a difficult issue, maybe you need some funds? (Can it be crowdfunded?) I’m sure that getting in touch with entrepreneurs should be easy enough, you can use personal contacts with incubators and such, most entrepreneurial districts have emerging technology funds, technology transfer offices and incubators that can point you in the right direction. Investors would maybe have to be reached through some sort of viral marketing? Or would ads in newspapers do for this kind of service?
Problems:
Some issues deserve some attention here, even if I don’t like to consider the problems the first day of a new idea.
How would you avoid scams?
In a small country like Norway it would be possible to only allow entrepreneurs to post after meeting them, and talking to them, a sort of due diligence light. In larger countries, like the US, this would of course be difficult, but maybe you would have to send in some paperwork or letters of recommendation?
How would investors get their returns?
A bid could be posted in a number of ways, the entrepreneur could say that he accepted that people would bid for the company, and get a share of it. That way, the investors would get dividends and profit from a potential exit. The entrepreneur could also chose to look for loans, that way the investors would get their money back at a certain date with the interest that was agreed upon. If there are 500 investors that has invested $100 each and they all have different terms, this could obviously offer some difficulties, this could be solved by the site acting as a proxy. Meaning, the site creates a fund for each entrepreneurial venture that gets funded and the site technically owns the small-investors part of the start-up. The dividends and money from the exit is then paid to the site, which forwards each parties money back to them.
How would the investors get a voice in the company?
If, as suggested in the previous part, the investors are represented by the company, board decisions could be done through a proxy that is the site. By investing through the site you agree that the site, as the technical owner, has a representative on board whose job is to represent the small investors.
But what about taxes?
These laws probably are different between countries, and I’m not an expert. I would however imagine that this would be double taxed, first a tax when the site collects dividends, and then a tax when each investor receives their money.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Tuesday, 5 January 2010
What is a business model and why should you care?
How are you actually going to make money? Way to often I, and others in the innovation field, see entrepreneurs and experienced business owners that do everything right, except ask that fundamental question; How am I going to make money?
Many books and gurus on marketing or entrepreneurship push this idea that you have to follow the needs of your customer, why do they bother to use this product or service? While this is a good question to start with when you have new idea for a business or a product, another question that should be one of the first five you ask yourself is how you are going to make money. This is your business model. That consumers need your product is a good thing, obviously, but are they going to pay for it? How much will they buy? How many will actually buy it? Are there any alternative ways to make money on this? Consider the video below, this is a clip from Southpark in which Tweaks discover the underpant gnomes, the gnomes have a secret plan: they steal underwear, but what are they going to do with it once they stole it?
Clip from: Soutpark season 2 episode 17: Gnomes
As you can see the gnomes got it all figured out, well, to the same extent that most businesses do anyway. Phase 1 is always easy, you figure out a clever product or new technology or a concept for a new nightclub or whatnot, the difficult and often neglected part is part 2, what happens between you steal the underpants and profit? How do you turn underpants (or a nightclub or whatever it is) into profit?
I wish there was a simple answer that I could give you, unfortunately there’s not. But know that no matter what you think of first there’s bound to be a hundred other ways. Underpants for example could be resold, that’s the first idea of course. They could also be remade into cloth and resold; maybe the gnomes should focus on celebrity underpants and market them to creepy stalkers? For this particular example, probably the correct answer, unless someone smarter than me figures out something, well, smarter, is to discontinue this idea and find something that has a viable business model.
The point about considering your business model is that with all the effort that goes into figuring out how to make the perfect product, why don’t take the effort to figure out the perfect business model. Let’s say you want to start a newspaper, what are 10 ways to make money? Think about that for a while, write down your ideas and continue reading.
Ok, good, hopefully you have some ideas, I used a few minutes myself to think about the same thing, at first it’s hard to think about anything but the obvious, like selling the paper at stores and 7-Elleven and so forth, or you could have a subscription obviously. That’s two ways to make money. You could have ads, classifieds is one way to make money, and big display ads from major brands is one way. But now I really started to enter a bit of a pickle, what other six ways can you find? You could let companies pay for editorial content, or product placement (which is by the way highly unethical), you could have people pay to be a journalist for a day, you can use the paperboy to deliver other newspapers in addition to yours, or ads. You could sell the leads you uncover to tv-stations or other media. You could have puzzles, like crosswords with the price of $1 to participate and the lucky winner gets a mug or a t-shirt. You could use the paper to get visitors to your online site, where you really make your money, you can sell lists of customers to data warehouses, or you could sell printing services to others since you already have the facilities and they may not be operational for your purposes all the time anyway. There, ten ideas! Admittedly not all are excellent, but if you keep going I’m sure you can find 10 more and 10 more, and finally you are bound to stumble on to something that may actually work well!
The final issue that I want to address is that you may notice that some of these ways to make money may be mutually exclusive or just hard to combine. Maybe if you charge consumers for the paper they tolerate less ads than if you give them the paper for free, and if you sell ads, the advertisers would certainly be willing to pay more if more people read the paper, which they would if the paper was free. The point here is that when you have lots and lots of ideas on how to make money on your idea you have to start putting together combinations that you think will work. The combination of smart ways to make the most money that you are left with in the end is your business model. The business model that you choose will have a dramatic effect on your business in many effects. Maybe it will require you to change the product in some way, maybe you have to suit your marketing to the model? If you choose to focus on subscriptions you can probably benefit from having a callsenter from which you call prospects and try to sell the paper, however that would be stupid if you sell one paper at a time! If you do wish to sell one paper at a time through stores or Starbucks or whatnot that will affect your organization to, now you have to build relationships with the distribution channels, to ensure your paper gets a good spot as well as so many locations that you reach the desired number of sales each day. In addition you may have to focus your first page in a way that lures consumers to buying it spontaneously, while a subscription may be different. The point here is that the business model affects your business in so many ways that it should be considered as one of the very first questions you ask.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Many books and gurus on marketing or entrepreneurship push this idea that you have to follow the needs of your customer, why do they bother to use this product or service? While this is a good question to start with when you have new idea for a business or a product, another question that should be one of the first five you ask yourself is how you are going to make money. This is your business model. That consumers need your product is a good thing, obviously, but are they going to pay for it? How much will they buy? How many will actually buy it? Are there any alternative ways to make money on this? Consider the video below, this is a clip from Southpark in which Tweaks discover the underpant gnomes, the gnomes have a secret plan: they steal underwear, but what are they going to do with it once they stole it?
Clip from: Soutpark season 2 episode 17: Gnomes
As you can see the gnomes got it all figured out, well, to the same extent that most businesses do anyway. Phase 1 is always easy, you figure out a clever product or new technology or a concept for a new nightclub or whatnot, the difficult and often neglected part is part 2, what happens between you steal the underpants and profit? How do you turn underpants (or a nightclub or whatever it is) into profit?
I wish there was a simple answer that I could give you, unfortunately there’s not. But know that no matter what you think of first there’s bound to be a hundred other ways. Underpants for example could be resold, that’s the first idea of course. They could also be remade into cloth and resold; maybe the gnomes should focus on celebrity underpants and market them to creepy stalkers? For this particular example, probably the correct answer, unless someone smarter than me figures out something, well, smarter, is to discontinue this idea and find something that has a viable business model.
The point about considering your business model is that with all the effort that goes into figuring out how to make the perfect product, why don’t take the effort to figure out the perfect business model. Let’s say you want to start a newspaper, what are 10 ways to make money? Think about that for a while, write down your ideas and continue reading.
Ok, good, hopefully you have some ideas, I used a few minutes myself to think about the same thing, at first it’s hard to think about anything but the obvious, like selling the paper at stores and 7-Elleven and so forth, or you could have a subscription obviously. That’s two ways to make money. You could have ads, classifieds is one way to make money, and big display ads from major brands is one way. But now I really started to enter a bit of a pickle, what other six ways can you find? You could let companies pay for editorial content, or product placement (which is by the way highly unethical), you could have people pay to be a journalist for a day, you can use the paperboy to deliver other newspapers in addition to yours, or ads. You could sell the leads you uncover to tv-stations or other media. You could have puzzles, like crosswords with the price of $1 to participate and the lucky winner gets a mug or a t-shirt. You could use the paper to get visitors to your online site, where you really make your money, you can sell lists of customers to data warehouses, or you could sell printing services to others since you already have the facilities and they may not be operational for your purposes all the time anyway. There, ten ideas! Admittedly not all are excellent, but if you keep going I’m sure you can find 10 more and 10 more, and finally you are bound to stumble on to something that may actually work well!
The final issue that I want to address is that you may notice that some of these ways to make money may be mutually exclusive or just hard to combine. Maybe if you charge consumers for the paper they tolerate less ads than if you give them the paper for free, and if you sell ads, the advertisers would certainly be willing to pay more if more people read the paper, which they would if the paper was free. The point here is that when you have lots and lots of ideas on how to make money on your idea you have to start putting together combinations that you think will work. The combination of smart ways to make the most money that you are left with in the end is your business model. The business model that you choose will have a dramatic effect on your business in many effects. Maybe it will require you to change the product in some way, maybe you have to suit your marketing to the model? If you choose to focus on subscriptions you can probably benefit from having a callsenter from which you call prospects and try to sell the paper, however that would be stupid if you sell one paper at a time! If you do wish to sell one paper at a time through stores or Starbucks or whatnot that will affect your organization to, now you have to build relationships with the distribution channels, to ensure your paper gets a good spot as well as so many locations that you reach the desired number of sales each day. In addition you may have to focus your first page in a way that lures consumers to buying it spontaneously, while a subscription may be different. The point here is that the business model affects your business in so many ways that it should be considered as one of the very first questions you ask.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
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