What is the value of a tweet? How much does Yelp value a review? As a participant in the social media economy, how much value does your participation create for companies like Facebook and LinkedIn?
These questions came to mind recently as we had a deep discussion at Backupify about the value of data in the cloud. Sometimes people ask me why they should backup their cloud data. The answer that I give comes from asking thousands of Backupify customers why they do it –because the data is valuable, and it is always important to protect valuable assets.
Quantifying the value of data to a business is relatively easy. For customers who use our Backup for Google Apps or Backup for Salesforce products to protect their corporate data, it boils down to three basic concerns:
How difficult it would be to recreate that data
How much revenue would be lost if the data was lost
How much productivity would be lost if important data could not be accessed
The value of social data (for both consumers and businesses) is a little bit harder to quantify. We decided to take a shot at it by building off some publicly available information to figure out what social data, which social media companies, and what social media actions are the most valuable. The results are in posted in the Backupify Social Data Value Infographic below.
Click Image To Enlarge
We plotted the data in two different ways. The first is by average per-user value, which of course has Facebook as king of the hill. The second plot shows how many users a service would require to reach a $10 billion valuation. As you can see, most of the companies are unlikely to ever get that big.
So take a look, and let us know what you think. Are Yelp reviews really worth more than tweets? Who should we have put on the graph that didn’t make it? Which pieces of social media are over or under valued? Leave a comment, write a post, or just tweet @backupify with your thoughts.
COMMENTARY: I've never totally subscribed to the theory that social networks should be valued based on the number of users they have times a value per user. It's a bit too simplistic to believe that this formula works for all social networks. Social networks are not created equal. This is true of social networks that earn the majority of their revenues from the ad-supported revenue model.
In a blog post dated March 20, 2011, I hypothesized that the ad-supported revenue model is highly flawed, that Facebook had reached a critical inflection point, and growth in the number of users was no longer exponential, and that user growth would continue to slowdown (and it has), and that ad revenues would also slowdown and eventually peak. Essentially, social networks or sites relying on an ad-supported revenue model are fighting for a fixed number of ad dollars, and that once the number of users in the aggregate peaks, it would be difficult to grow advertising revenues without resorting to predatory marketing tactics, and stealing market share from each other--the classic zero-sum game.
Sites like MySpace, Yahoo and AOL, sites which rely on the ad-supported revenue model have lost tremendous market share to Facebook and Google. The verdict is still out on Twitter. LinkedIn has achieved profitability because of its unique niche and lack of strong competition. Sites relying on the ad-supported revenue model operate in a "survival of the fittest," mode, and right now Facebook, Google and LinkedIn are winning that game. Sites like Yelp and Angie's List may have revenues, but both are unprofitable and I question whether they can attain sufficient growth in users to generate profitability.
Traditional business valuations are generally computed on the basis of revenue generating potential of the business. Revenues for businesses with the most sustainable business models and predictable revenue streams are much easier to forecast. The same thing cannot be said about social networks and sites relying on the ad-supported revenue model, the vast majority of them operating in the red.
In a blog article dated April 7, 2011, I told you how some social media marketing firms have concentrated on determining the value of fan generated content and brand loyalty instead of how much revenue a brand's social media programs contribute due to problems determing ROI.
Courtesy of an article dated April 5, 2012 appearing in the Backtify Blog
USING LEGOS TO VISUALIZE PRODUCTION PROBLEMS, GM CAN BETTER SEE HOW BIG THE ISSUES ARE AND WHERE THEY FIT IN THE GRAND SCHEME.
Most data we study is presented in 2-D. And as clear as a pie or line graph can be, it’s still a once-removed experience, just something else you see on paper or a computer screen. You can’t grasp it or reshape it. You can’t really play with it.
Dennis Pastor, Executive Director of Performance Excellent for WellsStar Health Systems collaborated with Tim Herrick, Global Chief Engineer at GM to design a 3D data visualization system using Lego chips (Click Image To Enlarge)
This bothered Dennis Pastor (executive director of performance excellence for WellStar Health Systems) and Tim Herrick (global chief engineer at General Motors). While their businesses were fundamentally different--one a health care nonprofit, the other a manufacturer of automobiles--the two former colleagues would consult with one another from time to time, and they both found themselves in need of a practical approach to visualization.
Dennis Pastor (left) of WellsStar Health Systems and Tim Herrick of GM (right) collaborated to design a 3D data visualization system using Lego chips (Click Image To Enlarge)
Pastor writes Co.Design.
“We discussed on a Friday afternoon our frustrations with some of our reports not showing us what we really needed to see. We came to the conclusion that our processes were three dimensional but our reports were only two dimensional. We needed to see them 3-D; hand sketches were exchanged over the weekend and within the following week, GM had the first Lego prototype in use.”
Now GM is using Legos for problem resolution tracking. If a transmission block breaks during durability testing, they’ll file a traditional paper report, but the case will also be added to a Lego board. Legos in various colors denote the area of the vehicle, and the block size denotes the severity of the problem.
Dennis Pastor, Executive Director of Performance Excellent for WellsStar Health Systems collaborated with Tim Herrick, Global Chief Engineer at GM to design a 3D data visualization system using Lego chips (Click Image To Enlarge)
Meanwhile, WellStar is using the boards to track on-time starts at the doctor’s office, and even manage its physician-payee relationships--which has led to a series of fixes projected to save the company $1 million.
Pastor explains.
“Aside from the 3-D rendering, the greatest impact is when teams come together daily or weekly to update the status of the board. Depending on the type of board the teams either want to see their Legos moving in a positive direction or have a solid action plan for addressing one that is red. It is the ultimate in transparency and accountability. Tim sums it up best, ‘Legos never lie.’”
But beyond their transparency, there may be a bigger advantage to Legos: they’re also fun. By mapping real world problems to an icon of our youth, each challenge must be approached with an inherent playfulness. And because Legos are, by their very nature, expected to be rebuilt, patterns don’t appear stuck in stone--or just as bad--printed in ink. Now, if only we could get the Lego pirate ship or a lunar rover in the mix, we’d really have something.
COMMENTARY: What a great idea, using Lego chips to create 3D data visualization systems that allow you to see 2D data reports in 3D. It's a powerful and transparent management system useful in project management, problem resolution, solving customer service issues and financial management and controls issues.
3D data visualization gives you the ability to track each problem or issue, visualize its magnitude and its present status. The higher the stack of Lego chips for a particular issue or problem the bigger the magnitude of the problem. The Lego chips 3D data visualization system uses a wooden control board with color-coded Lego chips that are used to identifying each problem or issue.
If you can convert the Lego 3D data visualization system into an app that you can use to drilldown into a specific project or issue and task, you will really have something, because then you could print some very impressive color-coded reports that show individual projects or a multitude of projects.
When it comes to understanding and creating effective business models, sometimes it’s just a matter of mapping the basics—and remembering that nothing is permanent.
There are a million business model tools (by our scientific estimate). The point isn’t which is best, but which are useful for you—either as built or as customized by you and your organization.
Alexander Osterwalder (Click Image To Enlarge)
Here, from business model design guru Alex Osterwalder, is another. The key is to create “a shared visual language” for your executive team.
“What is a business model?”
Osterwalder, an author and workshop leader in the field of business model design and innovation, asks this question wherever he gives talks. And he receives as many answers as there are people in the room. The differences of opinion drove him to create “a shared visual language to talk about business models.”
His creation, what he calls the Business Model Canvas, outlines nine building blocks essential to designing a proper model. The Canvas’s building blocks—foundational topics such as distribution channels, value propositions, and key partnerships—are hardly novel. But with each parameter arrayed on a single page, it’s easier to diagram and envision how a change to, say, your key resources might lead to a corresponding alteration in your cost structure. So when a patent expires, for instance, you can literally remove it from the key resources box and map out the ripple effect on the other eight building blocks.
Before you pull out your pen and get cracking, consider one final tip:
“You never write on the canvas.”
Osterwalder, in a video on his site, says.
“For every building block, you want to use Post-It notes.”
The reasoning: No business model is perfect—or permanent. They are ever evolving. You need the flexibility of removable reminders, not the stubborn residue of ink.
In the following YouTube video, entrepreneur and business model innovator Alexander Osterwalder discusses dynamic, yet simple-to-use tools for visualizing, challenging and re-inventing business models. Osterwalder articulates how to use the visual language of his business model canvas framework, and shares stories of how this approach helps organizations of all sizes to better create, deliver and capture value.
COMMENTARY: In a blog post dated February 6. 2012, Floodgate Fund co-founder Ann Muira-Ko says,
"Its the business model that matters the most, rather than the business plan."
According to Miura-Ko, business models do a better job of unearthing assumptions about a company's users, customers, pricing, demand creation, sales channels, supply chain, and overall logistics - all critical components to building a successful business.
A business model answers all the 4 W's (Who, What, Where and Why) and the all important How you are going to do it as it relates to the following:
Core marketing message.
Components of your brand identity.
Customer value proposition (CVP).
Industry or market.
Target customers.
Competitive landscape.
Industry life cycles.
Pricing model.
Value chain.
Operations.
According to Peter Drucker, the late Harvard management guru said.
"A business model is nothing else than a representation of how an organization makes (or intends to make) money."
But, a business model is far more than this. Mark W. Johnson, the Harvard professor and author of "Seizing The White Space," says that a business model consists of three components:
It identifies an important job a customer needs to get done and then proposes anoffering that fulfills that job better than any alternative the customer can turn to--in short, the customer value proposition (CVP).
A pricing model and profit formula that shows quantitatively that you can make a profit delivering on the CVP.
identifying which company resources and which processes are essential to delivering the CVP.
Use the Business Model Canvas (see below) to guide you in the preparation of your business model provides the answers to the four W's and the How. The business model canvas is divided into nine grids:
Strategic partners.
Key activities.
Value proposition.
Customer relationship.
Customer segment.
Key resources.
Distribution channels.
Costs.
Revenues.
The Business Model Canvas (Click Image To Enlarge)
In summary, think of a businesss model as the DNA code for your business. Every business has a different business model. Like the DNA strand that makes up a human being, there are countless business model combinations. Understanding the inter-relationships of the nine components of the business model canvas for your business startup or company are paramount to developing a successful business model that won't become obsolete quickly or end in business failure. Remember, you may have the greatest product idea in the world, but a poorly developed business model can never the less lead to failure.
"WE HEAR A HUGE INFLUX OF PEOPLE SAYING, 'HOW CAN I GET SOMEONE TO HELP ME CREATE AN INFOGRAPHIC OR A DASHBOARD OR AN INTERACTIVE VISUALIZATION?'"
Visual.ly founder and CEO Stew Langille says.
"Before PowerPoint, you had to go find a designer to create a custom presentation. Even though everyone hates PowerPoint now, it was really helpful when it first came out."
Visual.ly founder and CEO Stew langille (Click Image To Enlarge)
Now Langille’s startup, Visual.ly, is attempting to do for infographics what Microsoft did for presentations. Today, the company launched a new platform to allow virtually anyone to create data visualizations. By tapping into data APIs--from Facebook Insights, Twitter, Data.gov, and so forth--Visual.ly enables users to plug predetermined datasets into premade designs, offering a stable of templates and themes that will continue to grow thanks to the startup’s in-house team and community of roughly 4,000 freelance designers.
Langille says.
"We hear a huge influx of people saying, 'How can I get someone to help me create an infographic or a dashboard or an interactive visualization? People can’t afford it: It’s $5,000 to $7,000 for a graphic, and prices are going up. But now, if you want data-viz, you don’t have to start by wondering, 'Where am I going to get the data? And where can I find a designer?'"
The startup, which has raised $2 million in VC funding to date, unveiled the self-service platform at SXSW today. With just a few clicks, users can choose a theme, select a dataset from a drop-down menu, and create an infographic with little or no effort. For example, plug in a Twitter hashtag or Facebook account, and you can watch Visual.ly spit out various metrics represented visually--basic statistics about growth, location, demographics, engagement, and so on. Langille says.
"If I’m a marketing manager, and want to go present [this data] to my boss, all I have to do is authenticate [with Facebook or Twitter]. I don’t have to do anything. I don’t have to find a designer. If I don’t like a theme, I can just swap it out in one click."
Currently, Visual.ly offers a small range of what Langille calls "WordPress-like themes," and a short list of datasets. But the startup imagines adding more templates as time goes on, and more datasets to import, such as Gallup polls or Pew reports. (The startup used to accept user-uploaded data from Microsoft Excel, but it became too difficult to import such data in any uniform way.)
Click Image To View Homepage
The service is free, though Visual.ly does offer premium accounts. The startup imagines brands, ad agencies, and publishers will be interested in taking advantage of the platform, and connecting with the community of designers who contribute to the site. In turn, Visual.ly expects designers will want to contribute free themes to the public in hope of catching the attention of potential premium clients. Langille says.
"If you want something totally new, we’re servicing that too. We will be charging for the premium accounts, so if someone wants a premium theme, they pay the designer for that, and then we collect a small percentage."
The company is already working with The Economist to service its infographics; additionally, it envisions brands such as Louis Vuitton or Virgin will want to create sponsored themes for public consumption.
There is both a strong downside and upside to automating infographics. On the one hand, by automating the technique of data visualization, a skill few possess, do well, or can afford, Visual.ly risks causing infographic genericide. Infographics are meant to represent the beautiful marriage of data and visualization--to tell a unique story visually, in a way that no numbers or statistics could capture on their own. Automating this process almost defeats the purpose of an infographic--such a tool seems more intent on making data look pretty than accessible; cool and colorful versus necessary and effective.
On the other hand, Visual.ly does help democratize data-viz, for better or for worse, just as Microsoft had done before with presentations and spreadsheets. Though Langille does acknowledge that not all of the startup’s generic themes will be as powerful as a totally custom-built infographic, he believes it serves a need--for both users and publishers alike--and will be satisfying enough.
He says.
"It makes the process so much easier and faster than if you do it from scratch. You don’t have to have that wow factor with everything you publish."
COMMENTARY: I just love data visualizations and infographics because they are a very impressive and professional way to present information and data.
I don't think that infographic technology is a gamechanger and capable of replacing PowerPoint, which is a much more robust system and integrates with the other Microsoft Office applications. The ability to embed Office documents would be a plus.
I did signup for Visual.ly's online inforgraphic service, but their servers are down since this morning. I checked their Tweets and this has been an ongoing problem due to unusually high demand which is a big concern if you are an existing user. Here's what I got when I click on Signup.
Click Image To SignUp
It's difficult to evaluate Visual.ly if you can't even signup for the service, and their servers are down. This is not a great way to get their new service off the ground.
Visual.ly is not the only company in the online data visualization and infographic services space. There are at least a dozen and a half startups competing in this space. The space is quickly becoming crowded judging from the list of data visualization tools and software services:
Piktochart – Transforms your information into memorable presentations.
Infogr.am - Create interactive charts and infographics.
Gephi – Like Photoshop for data. Graph visualization and manipulation software.
Update: Shortly after 1 p.m. ET on Thursday, February 23, 2012, Twitter hit 500 million users, according to Twopcharts.com. Naturally, the analyst company is on to the next benchmark — the countdown to 600 million registered users. The estimated time until the next Twitter celebration is only 108 days away. There were an estimated 922,000 users accounted for in the past 24 hours.
The countdown for Twitter’s for the 500 million milestone began on Wednesday, February 22, 2012. The new figure comes from Twopcharts.com, a third party Twitter analysis company. New accounts registered per second is constantly above 13 on Wednesday, according to the official countdown board.
Click Image To View Twopcharts Official Countdown Board
There are skeptics who challenge these figures. Twopcharts has noticed fluctuations with the Twitter accounts it has been checking while keeping track of the countdown to 500 million. In a blog post, the company states that out of 100,000 accounts it has looked at, many have been suspended or closed. Others are inactive, still showing the default egg profile picture. It’s disheartening to some that 53% of the sample the company is analyzing is inactive.
The blog post concluded.
“Based on a sample of 100,000 accounts that were registered about three months ago, one has to be very cautious to draw any general conclusions. It is however likely that from the huge amount of new accounts that have been registered in the last year, the statistics will not differ greatly from what we found here.”
Regardless, Twopcharts is encouraging social networking enthusiasts to put on their party hats with a to-the-minute countdown on their website. A graphic also displays how many Twitter users have signed up in the past 24 hours. At 11 a.m. ET, more than 50,000-plus new tweeters were accounted for.
What does Twitter have to say about these numbers? Twitter’s official page lists stats as 100 million-plus active users. At New York’s Guardian Activate Summit In April 2011, Twitter announced its user base in the 200 million-range worldwide. Katie Stanton, vice president of international strategy at Twitter, stated more than 70% of tweets comes from outside the U.S.
Mashable has reached out for Twitter to confirm the report.
Twitter announced on Tuesday that iPhone and Android app users should be expecting some updates that will expediate finding friends, better copy-and-paste options and a “Read Later Service.” Perhaps these improvements will help push user sign-ups.
Let us know in the comments if you will be celebrating with virtual fireworks or do you expect a big Fail Whale in terms of reaching 500 million users.
COMMENTARY: In a blog post dated January 21, 2012, I commented on The Walls blog post that Twitter would reach 500 million users by February 25, 2012. This was based on Twopcharts tracking of Twitter's estimated registered users. According to Twopchart, Twitter reached 400 million users in Autumn 2011, 465 million users in mid-January 2012, and would hit the milestone 500 million users on February 25, 2012. Well, if their tracking is correct, Twitter is not slowing down one bit, because as of today, they have nearly 508 million users.
However, just how many of those 500 million users are actually using Twitter is anybody's guess. A hint could in a sampling of 100,000 accounts by Twopcharts. They claim that 53% were inactive, suspended or never used. That's a very high percentage. If we applied that 53% across the board to all 500 million users, this would mean that only about 250 million are being used. Twitter claims that they had 100 million active users at the end of last year, which is 20% of the total. Facebook claims 485 million active users. That's 57% of Facebook's total registered users (845 million). So what is causing so few Twitter users to engage on Twitter? That's a question that only Twitter CEO Don Costolo can answer, and he's not tallking.
Courtesy of an article dated February 22, 2012 appearing in Mashable
If you are the founder of a new startup or an existing business it's highly recommended that you develop a roadmap that will get you from where you are today to where you want to be tomorrow, six months from now, or a year or longer down the road. The roadmap is a guide to help you overcome roadblocks, prevent costly mistakes and eliminate time-consuming detours that can prevent you from attaining your goals, and reaching your ultimate destination. We typically refer to this roadmap as a marketing plan.
A marketing plan should be a formal written document, not recalled from memory or something scribbled on a napkin. To take your business to the next level requires preparing a written marketing action plan. There are 12 recognized marketing planning models in use today. The Top 5 most popular marketing planning models include:
7 P's Marketing Matrix - The seven elements of the marketing mix: Product, Price, Place, Promotion, People, Process and Physical evidence, form the core tactical components (see below) of the marketing plan.
Segmentation, Targeting and Positioning - This three stage process involves analysing which distinct customer groups exist and which segment the product best suits before implementing the communications strategy tailored for the chosen target group.
SOSTAC® - This acronym stands for Situation, Objectives, Strategy, Tactics, Actions and Control and is a very popular classic marketing planning framework for creating marketing plans. SOSTAC is more comprehensive and borrows elements of several of the other popular marketing planning models.
Ansoff's Growth Strategy Matrix - Ansoff’s Growth Strategy Matrix identifies alternative growth strategies by looking at present and potential products in current and future markets. The four growth strategies include: market penetration, market development, product development and diversification.
Porter's Five Forces - In a blog post dated November 21, 2011, I covered Michael E. Porter's Five Forces marketing planning model. The Five Forces are Rivalry, Supplier Power, Threat of Substitutes, Buyer Power and Barriers to Entry and are used to analyse the industry context in which the organisation operates. Porter's Five Forces are required reading in any graduate course on Marketing or Strategic Planning.
For my money, the SOSTAC® marketing planning model is the model I use the most when developing marketing plans. First, let's begin by defining what SOSTAC is:
What is SOSTAC®?
SOSTAC® is a marketing planning model, originally developed in the 1990s to help with marketing planning by PR Smith, who together with Dave Chaffey co-authored Emarketing Excellence.
SOSTAC® stands for:
Situation – where are we now?
Objectives – where do we want to be?
Strategy – how do we get there?
Tactics – how exactly do we get there?
Action – what is our plan?
Control – did we get there?
SOSTAC has been used to develop marketing plans for a broad range of industries. Here’s how SOSTAC is used to summarise the main issues to consider within a digital marketing strategy:
You can see it gives a logical order for tackling your plan (with iterations) and a great way to summarise the main elements of each.
Why is SOSTAC® useful?
SOSTAC® has become very popular since it’s simple, easy to remember and covers all the main issues which you need in a marketing plan or business plan.
Tips for using SOSTAC®
Here are some tips on how to use SOSTAC® based on Chaffey's experience applying the model in companies and in academia.
Use SOSTAC® to review your process - Before looking at how you apply SOSTAC® at each step to create a marketing plan, use it to review your planning process and how you manage your marketing. Ask yourself what you and your organisation are good at. Maybe you spend too much or too little time reviewing the situation. Perhaps you’re not so good at setting SMART objectives, or developing strategies to support them or the control stage of assessing how effective your strategies and tactics are and adjusting them?
Get the balance right across SOSTAC® - Oftentimes, there is too much time spent on analysis within a plan and not enough on setting the strategies. So as a rule of thumb, this is how your balance of content could look: Situation Analysis (20%), Objectives (5%), Strategy (45%) and Tactics (30%) = 100%
Summarise your Situation in a SWOT Analysis - To give focus to your situation analysis it is recommended that you utilize this form of SWOT analysis. This helps integrate SWOT with strategy. I also recommend that you read my blog post dated November 29, 2011 on how to prepare a SWOT analysis to plan for the future of your company.
Integrate the different elements of your SWOT Analysis - Oftentimes in a plan or report there isn’t good flow relating sections. To help this I recommend summarising your entire SOSTAC® plan within a table.
It's important to note that a marketing plan can be for a product (the iPhone), a series of similar products (e.g. mobile devices) or an all-encompasing plan for a company.
General Rules For Creating A Killer Marketing Plan
There is no shortage of general rules for developing marketing plans, but if you want to create a killer marketing plan I have found that the following general rules work the best:
Stay focused- Don't try to "boil the ocean" by going overboard or overstate the case with too many ideas, products or services. Know what your core business is going to be. Focus on one product or service at a time.
Where Are You Today - You must know where you are today in order to develop a roadmap to where you want to be in the future.
Keep Things Simple - Less is better. Avoid long sentences. Be brief. Avoid geeky tech terminology and acronyms. Use bullet points. Embellish with graphs, charts and images.
Be Realistic - Set realistic and measurable goals. Don't try to conquer the world. Set goals that you can reasonably accomplish.
Know Your Strengths and Weaknesses - Take an inventory of your individual and management teams strengths and weaknesses.
Do Your Homework - Before you do anything do your research. Know your market, your ideal customers, market niches, your competitors, latest trends, barriers-to-entry, methods of opeation, distribution channels, pricing models, and promotions and advertising methods used in the industry.
The Key Steps To Develop A Killer Marketing Plan Using SOSTAC®
For large corporations it is not too unusual to see 100 page marketing plans. For a small startup, a marketing plan should be between 10-15 pages in length including graphs, charts and tables. The Apple iPhone launch marketing strategy provided above is a great example. Before you start preparing your marketing plan make sure that you have completed sufficient market research to determine if your idea, product or service is viable given all that you know about the marketplace you are entering.
Situational Analysis – Where are we now?
This is where you take inventory of where you are right now. I recommend that you conduct your market research before you prepare your marketing plan. The Situational Analysis should include the following:
Product or Service - Describe the product or service in simple terms. Describe the market need filled or problem your product or service solves. Identify the total value proposition your produce or service offers customers.
Market and Competition - Describe the type, size and geographic location of the market in which your product or service will compete, competitive landscape including the number of competitors, major competitors, direct competitors, market shares, market niches, stage of development and market trends.
Target Customers - Identify the individuals or organizations ("target market") and customer segments you are targeting. In some cases, you may have more than one target market. Determine the following:
Who needs your product or service and why?
What is the profile of your ideal customer and what are their attributes?
How many potential customers are there?
How many different customer niches are there?
Is the target market or market niches underserved?
Describe your customers by their shared characteristics for individuals and organizations.
Individuals - Describe them by demographics: age, income, geographic location, and lifestyle.
Organizations - Describe them by number of employees, sales, geographic location, and industry.
SWOT Analysis - Identify your competitive strengths and weaknesses, business opportunities and potential threats. Arrange your strengths, weaknesses, opportunities and threats into a four-quadrant grid like the one below: The purpose of a SWOT Analysis is to help you build on your business' strengths, minimize and correct the weaknesses, and take the greatest possible advantage of potential opportunities while formulating a plan to deal with potential threats. Think of a SWOT Analysis as a checkup for your business. Be honest with yourself, if you lack a strong marketing and sales team, list it as a weakness. I also recommend that you read my blog post datedNovember 29, 2011 on how to prepare a SWOT analysis to plan for the future of your company.
Management Team - List the key members of your present management team and very brief description of their business and industry experience and education. If you believe you will need to add key individuals to the management team list their position, title and duties.
Milestones Accomplished - Elaborate on significant milestones that have accomplished to date. Include major new customers, revenues, no of unique visitors, downloads, new patents, major personnel additions and awards.
Objectives – Where do you want to be?
Goals and Objectives - Set realistic goals and objectives. Make sure your goals and objectives are measureable and achievable. Measure them against your own efforts and abilities, not your competitors. There are two types of goals and objectives:
Quantitative – Those with specific, measurable results and numbers.
Qualitative – Those that increase value, like improving image or visibility.
Strategy – How do we get there?
Your marketing strategies answer the big question: HOW do you get from where you are today to where you want to be tomorrow? Be creative and brainstorm with your team. Don't think in terms of what other organizations or individuals have done, but how you are going to get it done. Your marketing strategies should include the following:
Core Marketing Message - Your core marketing message is a short description of your business, products and services, employees, core values, business philosophy, mission and value proposition you bring to the customer relationship. Your core message should project what makes you unique and be conveyed in a manner that instantly connects with your ideal customers.
Define Your Brand - Your brand isn’t just your corporate identity like your logo, tag line, motto or its visual associations such as unique design, colors or packaging, but the relationship you have with your customers. Your brand's value proposition includes everything you have promised your customers: quality products, great prices, better selection, great service, more locations, moneyback guarantee, free delivery, etc.
Positioning Statement - How you intend to position your company in the marketplace. Will you compete on the basis of differentiation (e.g. technology leader, quality, durability, broad selection, etc.), target a specific market niche (e.g. Affluent, professionals, SMB's, management, etc) or compete on the basis of price (e.g. luxury, premium, medium, bargain or low price). Explain why you have chosen this particular market position.
Business Model - According to Peter Drucker, the late Harvard management guru, "A business model is nothing else than a representation of how an organization makes (or intends to make) money." But, a business model is far more than this. Mark W. Johnson, the Harvard professor and author of "Seizing The White Space," says that a business model consists of three components: 1) It identifies an important job a customer needs to get done and then proposing an offering that fulfills that job better than any alternative the customer can turn to--in short, the customer value proposition (CVP), 2) A pricing model and profit formula that shows quantitatively that you can make a profit delivering on the CVP, and 3) You can identify which company resources and which processes are essential to delivering the CVP. To develop your business model I highly recommend that you read my blog post dated November 5, 2011, January 26, 2012, and February 26, 2012.
Pricing Model - Describe the methodology you will use to set prices for your products and services. Prices should reflect competitive factors, economic conditions, nature of the market and how you intend to position yourself in the marketplace. Pricing should take into account fixed and variable costs associated with each product or service, so that you can generate a sufficient gross profit. Prices and profit margins should be determined by distribution channel. Describe if you will use different price levels depending on quantities ordered and type of customer.
Launch Strategy - Describe your go-to-market strategy for your product or service. Describe when, the method used to announce your market entry, and how you will manage your market entry during the first 30-to-90 days.
Distribution Strategy - Describe the distribution channels you will utilize to get your product or service to your target market (e.g. direct-to-consumer, ecommerce, retail stores, dealers and distributors, infomercials, mail order catalog, direct mail, email, etc.) and specific reasons you are using each channel.
Sales Strategy - Describe who is actually going to sell your product or service. Will you be using inside sales personnel, inbound or outbound sales personnel, outside sales personnel, manufacturer's representatives, independent salespeople or network marketing personnel.
Advertising and Promotions Strategy - Determine what media channels you will use to market and promote your products and services to your target market (e.g. print ads, television, radio, direct marketing, ecommerce, social media and events). The types of media channels you will use will depend on your unique requirements, budget constraints, and practices within your industry.
Public Relations Strategy - Describe the methods you will utilize to inform, communicate and educate your public (e.g. customers, media, vendors, academia) about your company and its products and services.
Strategic Alliances - Describe the nature and type of third-party alliances you anticipated will be needed in order to compete effectively in the marketplace.
Word-of-Mouth - Describe how and the methods you will utilize to create word-of-mouth.
A few final pointers about developing marketing strategies:
Think strategic first - Too many individuals believe that the marketing tactics -- the newsletters, press kits, trade shows, banners, 800-numbers, display advertisements, logos and giveaways -- comes before the marketing strategies. Those promotional, publicity and advertising tactics should be contained within a well-orchestrated marketing action plan. But first create your marketing strategy items that will generate leads, build awareness and enhance credibility.
Make the first the last. The executive summary consists of a one-page, top-level summary of the entire marketing plan. It's placed at the front of the document, but it's the last thing you'll write. Its purpose is to convey the gist of the plan to stakeholders, investors and anyone else who needs to know these facts in a hurry:
The scope of the plan in an outlined paragraph.
The product or service being marketed.
For whom the plan is being prepared.
The time period the plan covers.
The geographic area where the implementation occurs.
The strategic messages and the tactics to get them to the target markets.
Tactics – How exactly do we get there
This is where you list the specific action steps or programs to achieve each marketing strategy (see above). If you are going to use billboards to advertise your product, indicate the name of the outdoor advertising company, the number of billboards, their geographic locations, cost per billboard and total amount. If you will be conducting focus groups to conduct market research and get feedback about your product, indicate the name of the research firm, dates focus groups will be conducted, cost per focus group and total amount. You should include deadlines and key dates for executing all of your marketing activities.
Media Tactics - If you will invest in different types of media to communicate your core marketing message and product or service offering divide your media into paid, non-paid and non-traditional media.
Paid media: direct mail, newspaper, radio, TV, billboards, direct sales.
Non-paid media – Referred to as public relations because it is exposure through traditional media without paying for advertising in that media.
Non-traditional media: includes everything else — sponsorships, ad specialties,shows/events, electronic media and the Internet.
Action – What is our plan?
Your business model is the one piece of the marketing plan that puts it all together for you. In a blog post dated February 6. 2012, Floodgate Fund co-founder Ann Muira-Ko says,
"Its the business model that matters the most, rather than the business plan."
According to Miura-Ko, business models do a better job of unearthing assumptions about a company's users, customers, pricing, demand creation, sales channels, supply chain, and overall logistics - all critical components to building a successful business.
A business model answers all the 4 W's (Who, What, Where and Why) and the all important How you are going to do it as it relates to the following:
Core marketing message.
Components of your brand identity.
Customer value proposition (CVP).
Industry or market.
Target customers.
Competitive landscape.
Industry life cycles.
Pricing model.
Value chain.
Operations.
According to Peter Drucker, the late Harvard management guru said.
"A business model is nothing else than a representation of how an organization makes (or intends to make) money."
But, a business model is far more than this. Mark W. Johnson, the Harvard professor and author of "Seizing The White Space," says that a business model consists of three components:
It identifies an important job a customer needs to get done and then proposes an offering that fulfills that job better than any alternative the customer can turn to--in short, the customer value proposition (CVP).
A pricing model and profit formula that shows quantitatively that you can make a profit delivering on the CVP.
identifying which company resources and which processes are essential to delivering the CVP.
Use the Business Model Canvas (see below) to guide you in the preparation of your business model provides the answers to the four W's and the How. The business model canvas is divided into nine grids:
Strategic partners.
Key activities.
Value proposition.
Customer relationship.
Customer segment.
Key resources.
Distribution channels.
Costs.
Revenues.
The Business Model Canvas (Click Image To Enlarge)
Establishing a marketing budget allows you to establish quantitative goal and measure actual performance against those goals. Here's how a marketing budget can help assist you manage, control and measure the return-on-investment (ROI) from the execution of your marketing plan:
Marketing budgets allow you to put a quantitative value to every strategy, tactic or program built into your marketing plan.
Marketing budgets allow you to establish specific budget line items, including sales and related marketing expenses.
Marketing budgets allow you to evaluate and make the best marketing decisions.
Marketing budgets place a cap on every budget line item forcing you to work within those budget constraints.
Having a marketing budget in place allows you to evaluate marketing decisions such as advertising in the yellow pages, hiring sales reps or conducting a PR program based on the amount of business a particular initiative generates. Track each initiative and evaluate what worked, what didn’t.
Marketing budgets should be established by month, quarter and year so that you can gauge your performance and make adjustments to insure you are within budget. This allows you to determine if you are meeting your stated quantitative goals monthly, quarterly and yearly.
Sample Marketing Plan Budget
Here's an excellent of an annual marketing plan budget for a software business:
Click Image To Enlarge
Apple's iPhone Launch Marketing Strategy Analysis Example
Here's a great example of the Apple iPhone launch marketing strategy by Borislav Kilprin:
I often use Steve Jobs' "Digital Hub Strategy" (see my blog posts dated August 31, 2011and January 20, 2012) for inspiration and as a great example of a grand vision and all-encompasing marketing strategy for a company.
On January 9, 2001, Steve Jobs gave a great presentation at MacWorld where he introduced the public to the concept of the Digital Hub, when he said that the PC was not dead, but was evolving. Steve Jobs declared that the Mac would become “the digital hub for the digital lifestyle,” an emerging digital trend driven by the internet and an explosion in digital devices: digital camera's, videocam's, portable music players, PDA's and DVD video players. Steve's idea was to use the Mac as a way to add value to those devices by making them more useful by allowing users to share digital files and be able to combine text, images, video and sound to heighten the overal digital experience.
Steve Jobs' 7 Success Principles
When you stop and analyze the Digital Hub Strategy you will discover that Steve Jobs' 7 Success Principles are evident everywhere:
Do what you love. Steve Jobs once told a group of employees, “People with passion can change the world for the better.” Jobs has followed his heart his entire life and that passion, he says, has made all the difference. It’s very difficult to come up with new, creative, and novel ideas unless you are passionate about moving society forward.
Put a dent in the universe. Passion fuels the rocket, but vision directs the rocket to its ultimate destination. In 1976, when Jobs and Steve Wozniak co-founded Apple, Jobs’ vision was to put a computer in the hands of everyday people. In 1979, Jobs saw an early and crude graphical user interface being demonstrated at the Xerox research facility in Palo Alto, California. He knew immediately that the technology would make computers appealing to “everyday people.” That technology eventually became The Macintosh, which changed everything about the way we interact with computers. Xerox scientists didn’t realize its potential because their “vision” was limited to making new copiers. Two people can see the exactly the same thing, but perceive it differently based on their vision.
Kick start your brain. Steve Jobs once said “Creativity is connecting things.” Connecting things means seeking inspiration from other industries. At various times, Jobs has found inspiration in a phone book, Zen meditation, visiting India, a food processor at Macy’s, or The Four Seasons hotel chain. Jobs doesn’t “steal” ideas as much as he uses ideas from other industries to inspire his own creativity.
Sell dreams, not products. To Steve Jobs, people who buy Apple products are not “consumers.” They are people with hopes, dreams and ambitions. He builds products to help people achieve their dreams. He once said, “some people think you’ve got to be crazy to buy a Mac, but in that craziness we see genius.” How do you see your customers? Help them unleash their inner genius and you’ll win over their hearts and minds.
Say no to 1,000 things. Steve Jobs once said, “I’m as proud of what we don’t do as I am of what we do.” He is committed to building products with simple, uncluttered design. And that commitment extends beyond products. From the design of the iPod to the iPad, from the packaging of Apple’s products, to the functionality of the Web site, in Apple’s world, innovation means eliminating the unnecessary so that the necessary may speak.
Create insanely great experiences. The Apple store has become the world’s best retailer by introducing simple innovations any business can adopt to create deeper, more emotional connections with their customers. For example, there are no cashiers in an Apple store. There are experts, consultants, even geniuses, but no cashiers. Why? Because Apple is not in the business of moving boxes; they are in the business of enriching lives. Big difference.
Master the message. Steve Jobs is the world’s greatest corporate storyteller, turning product launches into an art form. You can have the most innovative idea in the world, but if you can’t get people excited about it, it doesn’t matter.
Apple's Five Key Pillars For Product Success
When you dig down into the roots of the Digital Hub Strategy it is all about the product. I have identified five key elements or pillars of strength that have been important in Apple's product successes:
Creating products that disrupt existing industry paradigms.
Creating products that Apple engineers themselves would love to use.
Creating products that customers don't know they need yet.
Creating elegant, simple and minimalist products that "people will lust for."
Controlling every aspect of the product, including the design, engineering, intellectual property, components, operating systems, applications software, manufacturing, distribution, customer service, advertising and pricing.
The Digital Hub Strategy has endured the test of time and every new product launched by Apple represents a "spoke" in the Digital Hub. In essence, the Digital Hub Strategy has not only become Apple's core business strategy, but also its grand vision.
Courtesy of an article dated March 21, 2011 appearing in Smart Insights, an article dated March 15, 2011 appearing in Smart Insights, an article dated February 23, 2012 appearing in CBS News and an article titled 10 Steps To An Effective Marketing Plan appearing in Scrib and an article dated September 8, 2011 appearing in PRLog
FLOODGATE Fund co-founding partner Ann Miura-Ko believes it's the business model that matters most, rather than the business plan. A well-thought out business model that is data-driven and scenario-focused will be seriously considered. According to Miura-Ko, models do a better job of unearthing assumptions about a company's users, customers, pricing, demand creation, sales channels, supply chain, and overall logistics - all critical components to building a successful venture.
Floodgate Fund's Ann Muira-Ko
Business Models Matter
"I believe that at this stage of development the seed stage for a company, it's the business model that matters not the business plan. So send me a 50 page business plan, I probably won't read it. But send me a picture of your business model all the hypothesis that you have around your business model and I'll take a really good look. And the reason why that's really important is that business models will enable you to understand exactly what your assumptions are and there are a lot of diagrams that we've put out that show what my version of business model/diagram looks like and Steve has that on his blog. Alexander Osterwalder also has a book on business model generation and so there are different frameworks now that exist out there where you can use them to figure out what your business model looks like."
"The business model is then really, really important because what we have our startups do is they'll go through each component of a business model. In my mind those would be your users, your customers, your pricing which also includes your customer lifetime, how you do customer demand creation, your sales channel, and then on the backend if your producing something or if you have inventory your whole supply chain that could all your components, design, manufacturing, and inventory warehousing. You should have assumptions around your entire business model of how you relate to all these different entities in your ecosystem."
+ How do the customers view you, what's your value proposition to them?
+ What's your value proposition to the manufacturers?
+ What's your value proposition to the sales channel?
+ How do you do demand creation?
+ What's the cost of customer acquisition?
"These are all questions that you should be constantly thinking about. And if the dollars in are not greater than the dollars out, then you need to rethink your business model right then and there. "
A successful startup does not flower solely from a great product or idea, says Ann Miura-Ko, partner at FLOODGATE Fund. She argues that success stems from the ability to grow a business around that great idea. The venture ecosystem, a flush customer base, accessible distribution channels and manufacturing - all of these factors must converge into a business model that is both viable and scalable. Fortunately, the Internet allows companies to rapidly test business models, for example, through the use of social media leveraged with demand creation and flexible pricing structures.
Rapid Business Model Testing
"The second element of the democratization of innovation is the fact that we could very quickly test business models. And the reason why this is important is because a startup is ultimately about whether or not just an idea or a product works, it's about whether or not you can actually create a business around it. Whether or not the ecosystem will support it, the customers will buy it, if the channels will support it and if the manufacturers will actually create it. Because of that we need to be able to test all of these different facets of our business model and do so quickly."
"The beauty of the Internet is that first of all you can have a direct dialogue now with your customer. In one of my classes if I ask my students to test out a web start up. They can go out and interview 300 people in a bat of an eye and be able to tell you if that product was attractive to that group of people or not. And it's not unusual for our students to do so. Think of the people who have actual resources to put to bear on that."
"The second thing is that you could also do is demand creation leveraged with social networks and few companies have really proven this out. A simple example is Groupon where they'll come back and have people post on to their Facebook walls the offers that they have and then that spread the word to all of their friends. There are incentives for others to compact in and sign up for those offers. And most of the Groupon traffic actually comes from Facebook. We've also seen this in one of my portfolio companies ModCloth where we put various Facebook fan pages and the women who actually shop on Maude Cloth will also post things to their Facebook wall. As a result we see a lot of traffic coming in from Facebook. This ability to do crowd generation of customer acquisition is extraordinarily powerful; something that hasn't existed until very recently."
"The third element of the speed of testing our business model that I've seen most recently is the flexible pricing structures that I see. And one example might be in the idea subscription pricing. The reason why subscription pricing is actually has been really interesting because you can change it. And you can change it for half of your customers and for another half of your customer you can have a totally different pricing structure and you can AB test. This kind of infrastructure has never existed before. And then also the fact that subscription pricing is so low, you can now directly have the user purchase your products instead of going out and having to go through a CIO or an executive to buy your products. You could go directly to the people who are interested in using your product. And now even with an enterprise that's user has a power to purchase your products. Because of that the buying cycles have actually been decreased."
COMMENTARY: In a blog post dated January 1, 2012, I commented on how to develop successful business models, business model building blocks, the business model canvas and having a big vision which is encapsulated within your business model.
In this post, Floodgate Fund's Ann Muira-Ko argues that business models matter more than business plans, and she is dead on. Unfortunately, very few entrepreneurs fail to develop a successful business model that will address all the key issues necessary to market a new idea or product. If you cannot build a case that gives investors confidence that you can actually make money off of your great idea or product, it will never get funded.
Having said this, building successful business models is not easy to do for most entrepreneurs because it requires stripping away preconceived notions and prejudices that they have about their idea or product. Many entrepreneurs will say, "We have a winner. Just give us the money, and we'll make money." Unfortunately, this is too simplistic and a receipe for disaster when pitching investors. The investors will want to know the four W's: Who, What, Where and Why.
The Business Model Canvas provides the answers to the four W's. If you look at the key elements of a business model canvas, it's about the four W's:
Click Image To Enlarge
The Business Model Canvas asks:
What do we need to do and Why?
What things will we need and Why?
What is the value proposition (what are the key value components of our business, product or service offering)?
What are the costs and prices?
What is the distribution plan?
Who are the target customers?
Who are the key competitors?
Who are the strategic partners and Why you need them?
Where do you intend to manufacture and Why?
Where will the product be distributed?
Why is customer service, quality, price, distribution so important?
The Business Model Canvas forces founders and their management teams to conduct a thorough analysis and understanding of their business and entire value chain associated with that business including:
Key activities (what must be done).
Key resources (what will you need to get it done).
Value propositon.
Customer relationship management.
Customer segments.
Distribution channels.
Strategic partnerships.
Costs.
Prices.
Once you know the four W's, this leaves that all important How? How are you going to do it? What are your specific plans, strategies and programs to accomplish the four W's. This is where you layout your operations, expansion, launch, sales and marketing initiatives, strategies, media channels and specific programs. It is here where you formalize things like:
How you will position your company in the marketplace (i.e. how you want to be perceived by the public) such as low prices, premium prices, high quality, low quality, high-tech, low-tech, less features, more features, available everywhere, limited distribution, broad selection, limited selection, green or eco-friendly, socially responsible.
How many people will you need? Staffing and personnel requirements, including the total number of employees, contractors and part-timers you will need to start, year 2, year 3, including members of the management team and key managers.
How will you market your company's products and services, including your sales and marketing plan, marketing strategies, promotions strategies, specific programs and media channels utilized to reach your target customers.
How will you keep prices low or high, quality high or low, and keep selection high or low.
How you intend to launch your business (beta-test A/B, by invitation only, limited launch, formal launch, and when etc.).
How you intend to acquire customers (advertise, sales promotions, direct mail, infomercials, outbound/inbound marketing, social media, viral, etc.).
How do you intend to distribute (direct-to-public, dealers, distributors, direct-to-retailers, etc.)
Ann Miura-Ko says business models matter more than business plans, but don't believe for a single second that you won't need a business plan. Your business plan provides the "meat and potatoes" that drive your entire business.
DO prepare an executive summary of 1 to 2 pages in length max. The executive summary should include:
Brief history and present status of the business.
Management team (names, titles and very short bio).
Product or services offered.
Industry and size of the market.
Value proposition.
Business model.
Competitive landscape.
Capital required and uses of funds.
Business valuation.
Investor offer (ROI and payback period).
Exit strategy.
Contact information.
Be brief and concise, write short sentences, avoid too much technical jargon, use bullet points, and a few charts, graphs and images if space permits. NOTE: Instead of an executive summary, you may prefer to prepare a PowerPoint presentation deck. Keep the deck to 10-12 slides max laid out similar to the executive summary.
Everyone in the tech world talks about business models. But I’ll bet that if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is. I did just that with my students at UC-Berkeley. Most raised their hands, and MBA student Blake Brundidge’s attempt to answer the question was a valiant one—but none of them really had a clue. The only one who got the answer right was Lionel Vital, a Stanford student gatecrashing myiSchool class.
The reality is that a business model is like the old saying about teenage sex: everyone talks about it all the time; everyone boasts about how well he or she is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are are fumbling their way through it incompetently. (Yes, I know things have changed.)
I’ll tell you what a business model is, in case you are quizzed by your investors.
But first, let me answer the big question that is surely on your mind: what is a Stanford student doing at Berkeley? It may be that our classes at Berkeley are much better than those at Stanford. That is probably why Lionel approached me at the beginning of the semester and begged to be allowed to audit my class. To Lionel’s credit, he scored better than any of the Berkeley students. So perhaps some Stanford kids are a little smarter, but Berkeley students get better education? I know that our students certainly have a lot more fun. You just have to visit the campuses to note the stark difference.
Now let’s discuss business models. Sorry, the teenagers reading this will need to get their sex education somewhere else. I teach only entrepreneurship and globalization.
Step one in building a successful business is to learn what products or technologies your customers really need and are willing to buy. This is an iterative process that I explained in this piece. The vast majority of technology startups fail because too few customers buy or use their products. So don’t underestimate the importance of validating and testing your ideas.
Developing the right product is hard. But what is harder is building a good business model. Fortunately, there’s nothing magical about a business model. It’s simply the nuts and bolts of how a business plans to generate revenue and profits. It details your long-term strategy and day-to-day operations.
Entrepreneurs put together elaborate business plans showing optimistic market-share projections. Even 1% of a billion-dollar market seems lucrative, right? Wishful thinking is great, but when it comes time to create your business model, you need to be realistic. The challenges differ from industry to industry, but here are seven basic components of a business model:
Reaching customers. Ralph Waldo Emerson famously said, “Build a better mousetrap, and the world will beat a path to your door.” The reality is that even if you did, no one would find you. Even when you know who your prospects are, it’s usually difficult and costly to reach them. You have to find them via the Internet and e-mail, or the old-fashioned way—through broadcast media, print ads, direct mail, telemarketing, or references or by cold-calling. And these potential customers are not likely to be waiting to hear from you and may not respond to you. So be sure you know how you are going to find and reach them.
Differentiating your product. You think you’ve got the very best solution, but so does the other gal (or guy). There’s always competition, whether you realize it or not. Smart marketing executives know how to develop unique product-positioning strategies that highlight a product’s true value. You need to thoroughly understand the competition and effectively communicate the unique advantages of your product.
Pricing. One of the most basic decisions you have to make is how much you’re going to charge for your product or service. Giving your stuff away is the way to go on the web, but remember that you still need to figure out how you are eventually going to make money—you can’t make it up on volume. Start by understanding how much customers value what they’re gaining from you. Then you need to estimate your total costs, analyze the competitive landscape, and map out your long-term strategy. For your company to survive, your product’s price must be greater than its overall cost.
Selling. Persuading customers to buy a product that they need is one of the most important skills an entrepreneur must learn (read It’s All About Selling for Survival). You’re going to be selling at every juncture. So you have to understand what it takes to close a deal and put together the necessary sales process. And this process has to be perfectly conceived. Be sure you test your selling strategy as you would your product.
Delivery/distribution. This is easy on the Internet. But for big-ticket items, you usually require a direct sales force; for mid-range products, distributors or value-added resellers; and, for low-priced items, retail outlets or the Internet. It’s different in every industry and for every type of product, but you have to get this right. Your products need to be designed and packaged for the channel through which they will be distributed to customers.
Supporting Customers. In addition to teaching customers how to use your product, you need to ensure that you can deal with defects and returns, answer product questions, and listen to and incorporate valuable suggestions for improvement. You may need to provide consulting services to help customers integrate and implement your products. If your product is a critical component of a business, you may also need to provide 24/7 onsite or web support.
Achieving customer satisfaction. The ultimate success or failure of a business depends on how much it helps customers achieve their objectives. Happy customers will become your best sales people and buy more from you. Unhappy customers will become your biggest liability.
All the pieces have to come together like a jigsaw puzzle in your business model. The good news is that you don’t have to start from scratch when formulating it. You can give yourself a head start by learning from competitors and other markets. It is not only the successes that provide valuable lessons; it is also the failures.
You can innovate as much in your business model as you do in your products. Be prepared to evolve your innovation strategy as you gain experience and as your market changes. Like your products, it will probably take several versions to get your business model right; you get better with practice.
COMMENTARY:
The Business Model Canvas
Developing a business model requires that you identify the basic building blocks of the business model that create value innovation. Alexander Osterwalder's work and thesis (2010, 2004) propose a single reference model based on the similarities of a wide range of business model conceptualizations. With his business model design template, an enterprise can easily describe their business model
Strategic Partners - In order to optimize operations and reduce risks of a business model, organization usually cultivate buyer-supplier relationships so they can focus on their core activity. Complementary business alliances also can be considered through joint ventures, strategic alliances between competitors or non-competitors.
Key Activities - The most important activities in executing a company's value proposition.
Key Resources - They are considered an asset to a company, which are needed in order to sustain and support the business. These resources could be human, financial, physical and intellectual.
Value Proposition - The collection of products and services a business offers to meet the needs of its customers. According to Osterwalder, (2004), a company's value proposition is what distinguishes itself from its competitors. The value proposition provides value through various elements such as newness, performance, customization, "getting the job done", design, brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability.
Customer Relationships - To ensure the survival and success of any businesses, companies must identify the type of relationship they want to create with their customer segments.
Distribution Channels - A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective. An organization can reach its clients either through its own channels (store front), partner channels (major distributors), or a combination of both.
Customer Segments - To build an effective business model, a company must identify which customers it tries to serve. Various set of customers can be segmented base on the different needs and attributes to ensure appropriate implementation of corporate strategy meets the characteristics of selected group of clients
Costs - This describes the most important monetary consequences while operating under different business models.
Revenues - The way a company makes income from each customer segment.
I often site the need for a company to establish a grand vision or central mission for the business. This is the foundation upon which business models are built and take root. Mark Johnson did not address this in the above videos, but I believe it is very important to establish a grand vision or central mission before developing a business model. If your grand vision or mission statement and business model are not congruent then something is wrong. Steve Jobs established a grand vision for Apple by developing the Digital Hub Strategy, a subject I wrote about in a blog post datedOctober 6, 2011and mention quite regularly in many of my blog posts about Steve Jobs and Apple.
According to Steve Jobs the personal computer would become the Digital Hub for the Digital Lifestyle, an emerging digital trend driven by the internet and an explosion in digital devices: digital camera's, videocam's, portable music players, PDA's and DVD video players. The PC would serve as a Digital Hub that would allow consumers to store, share and playback digital images, music and video files.
Click Image To Enlarge
In the following video, Steve Jobs introduces the Digital Hub Strategy at MacWorld 2001. That was the key moment in history that defined Apple's purpose and the basis for its present business model. The Digital Hub Strategy accounts for the overwhelming string of successful consumer electronics products, including the iPod, iPhone and iPad.
Blue Ocean Strategy
I also recommend that you read Blue Ocean Strategy by W. Chan Kim and Renee Mauborque.
Companies have long engaged in head-to-head competition in search of sustained, profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation.
Yet in today’s overcrowded industries, competing head-on results in nothing but a bloody “red ocean” of rivals fighting over a shrinking profit pool. In a book that challenges everything you thought you knew about the requirements for strategic success, W. Chan Kim and Renée Mauborgne contend that while most companies compete within such red oceans, this strategy is increasingly unlikely to create profitable growth in the future.
Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries,Kim and Mauborgne argue that tomorrow’s leading companies will succeed not by battling competitors, but by creating “blue oceans” of uncontested market space ripe for growth. Such strategic moves—termed “value innovation”—create powerful leaps in value for both the firm and its buyers, rendering rivals obsolete and unleashing new demand.
Blue Ocean Strategy provides a systematic approach to making the competition irrelevant. In this frame-changing book, Kim and Mauborgne present a proven analytical framework and the tools for successfully creating and capturing blue oceans. Examining a wide range of strategic moves across a host of industries, Blue Ocean Strategy highlights the six principles that every company can use to successfully formulate and execute blue ocean strategies. The six principles show how to reconstruct market boundaries, focus on the big picture, reach beyond existing demand, get the strategic sequence right, overcome organizational hurdles, and build execution into strategy.
I would read Blue Ocean Strategy because it represents a new paradigm for developing business strategy.
What is Blue Ocean Strategy? Ten Key Points
BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).
BOS is the simultaneous pursuit of differentiation and low cost.
The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant.
While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers – as argued by Schumpeter and his followers – BOS offers systematic and reproducible methodologies and processes in pursuit of blue oceans by both new and existing firms.
BOS frameworks and tools include: strategy canvas, value curve, four actions framework, six paths, buyer experience cycle, buyer utility map, and blue ocean idea index.
These frameworks and tools are designed to be visual in order to not only effectively build the collective wisdom of the company but also allow for effective strategy execution through easy communication.
BOS covers both strategy formulation and strategy execution.
The three key conceptual building blocks of BOS are: value innovation, tipping point leadership, and fair process.
While competitive strategy is a structuralist theory of strategy where structure shapes strategy, BOS is a reconstructionist theory of strategy where strategy shapes structure.
As an integrated approach to strategy at the system level, BOS requires organizations to develop and align the three strategy propositions: value proposition, profit proposition and people proposition.
Red Ocean Versus Blue Ocean Strategy
The vast majorities of companies, regardless of industry sector, compete in "red oceans." They are basically competing based on the rules established by their industry sector. Many of them are me-too competitors. We are seeing this in many of today's industries including mobile devices (cell phones, tablets and digital music players) and consumer packaged goods. In some industries commoditization has began to set in. I have seen this in smartphones, tablets, PV solar panels, toys and consumer packaged goods.
The differences between red oceans versus blue oceans become clearer when you compare them side-by-side like in the above chart. Blue Ocean Strategy requires a whole new different way of management thinking about establishng business strategy.
Courtesy of an article dated January 8, 2011 appearing in TechCrunch
B2B social media is gaining wider adoption. We are past arguing if B2B companies can use social media like we did in the early days of this blog. With the gradual adoption of social media marketing for B2B companies, some misconceptions and myths about B2B social media have been born. That’s okay, because myths are a part of change in any aspect of life. Heck, when people started using microwaves one of the big myths was that they leaked electromagnetic radiation. Change and myths go hand-in-hand.
Let’s squash some of the most ridiculous B2B social myths now before they spread any further!
B2B Social Media Isn’t About Selling - This is likely the most common myth. Since social media marketing started to emerge there has always been a misperception that selling is off limits. This is wrong. Spaming people in social media is always off limits. Giving someone what they want when they want it is always a great thing. This is what selling in social media is about. It isn’t about endless product tweets. As we cover in The B2B Social Media Book, it is about providing relevant content and conversion opportunities through the buying cycle using social media.
B2B Social Media Doesn’t Have a Clear ROI - In the world of social media, some purists, or “treehuggers” as I call them, will say things like “B2B social media doesn’t have an ROI. It has a return on emotion.” That is absolute crap. As marketers we are in business to generate revenue. Social media can be a valuable part of B2B lead generation. When B2B social media has a lead generation component calculating ROI is a simple math problem. You simply look at the revenue from the leads generated from social media and the cost it took to acquire that revenue. B2B social media has a clear ROI. Don’t listen to the treehuggers.
B2B Social Media Can Replace Offline Marketing - Social media is only one piece of an integrated marketing effort. It is unlikely that social media can replace all of your current traditional marketing efforts. The truth is that to go cold turkey from traditional marketing is stupid. Instead, social media and traditional marketing efforts should be combined to amplify each other. Doing a direct mail campaign? Why not try testing including your LinkedIn Company Page URL? Don’t ignore offline. Figure out strategies for online and offline marketing to work together.
B2B Social Media Is About Narrow Targeting - This might be the myth that bothers me the most! In B2B marketing it has always been thought that it is all about extremely focused and targeted marketing. The problem is that in a world of social media marketing is no longer linear. Everyone has the potential to influence another person or spread your content. For the first time a non-customer can actually have monetary value to your business. While someone may never buy your product or service, they can easily refer someone else that will. In the world of B2B marketing building an ever growing social media reach has never been more important. Forget targeted! Take a cue from the B2C folks and work on pumping up your social media reach.
B2B Social Media Is Only About Lead Generation - Yes, Jeff and I wrote an entire book about social media lead generation, but that isn’t the only application of social media for B2B companies. In fact social media has applications across most aspects of a B2B business. For example, Lead management, is a post lead marketing process where social media can be extremely valuable. You might want to use data from social media to help better sales qualify a leads. You might want to send a custom product focused email to anyone who is an existing lead and mentions your product on Twitter. This is a simple example, but social medi can be a valuable source of data to determine which of your leads are sales-ready.
Did a miss any B2B social media myths? Which B2B social media myth do you think is the most widespread?
COMMENTARY: Although I agree in principal to most of the above, I would like to add the following:
#1 – I agree that social media can be used for B2B, but disagree that it is not about SELLING. It sure is hell is. I call it social selling. Good salespeople do not sell. They first try to establish a rapport, and develop trust, before closing the sale. You need to use these same techniques in the digital realm. Social selling is particularly important in B2B situations because there are typically several decision-makers and influencers, long sales cycles involving demonstrations and presentations and multiple layers of corporate bureaucracy. This is particularly true for high ticket items and unproven new products and services.
#4 – Marketers should target B2B leads to decision-makers and influencers. Don’t use a shotgun approach.
#5 – social media is the biggest focus group in the world. If used properly you can gain valuable knowledge about your products and service and what people are really thinking.
I am still not entirely sold on whether social media is effective for generating sales. Promotions seem to work well, and have for some brands, but they seldom lead to future incremental sales or even brand loyalty. The research I have done bears this out. You can read about it here: http://xurl.at/6bl.
Courtesy of an article dated January 6, 2011 appearing in Social Media B2B
The surest way to develop successful new businesses – especially in transforming industries – is to focus carefully on an unmet market need and tailor a business model to meet it. This means developing business models for "getting the job done." This sounds straightforward but in practice it is devilishly hard because established, successful companies so often let structure (read: organizational baggage) drive strategy, rather than making strategy – choices about where to play and how to win – dictate the right structure.
Here’s something most companies are bad at:
Moving beyond their core — beyond what they’re good at, beyond what they’re comfortable with, beyond what they know.
“White space” is what Mark W. Johnson, co-founder and Senior Partner of Innosight calls this unchartered territory. White space is the potential that demands different business models to exploit.
Innosight co-founder Mark Johnson and author of Seizing the White Space: Business Model Innovation for Growth and Renewal
In his 2010 book Seizing the White Space: Business Model Innovation for Growth and Renewal(Harvard Business Press), Johnson argues that businesses’ habit of failing to capitalize on growth opportunities that didn’t seem to fit and businesses’ tendency to erect borders around what he terms their “core operating spaces” mean that what companies have to do is commit to reconfiguring. Commit to figuring out wholly new ways to act on opportunities that
Serve new customers or existing customers in fundamentally different ways.
Be ready to address the fact they may be a poor fit for the company’s core business.
Business model innovation isn’t a new idea, but it’s a hard one to implement. Johnson, a cofounder and senior partner at the innovation and strategy consulting firm Innosight, notes in his book that a 2008 IBM survey found that nearly all of the 1,100 corporate CEOs polled reported the need to adapt their business models. At the same time, no more than 10 percent of innovation investments at global companies are currently focused on business model innovation. Why the disconnect?
Innosight's chairman Mark Johnson discusses seizing the white space through business model innovation in this Business Innovation Factory interview.
Johnson writes.
“Companies can’t pull it off because, as familiar as the term is, very few people really understand what a business model is (and what it isn’t) or what model their organization is actually operating under, much less how they would go about creating a new one and why or when they should.”
In an interview with The Build Network’s managing director for new venture development George Gendron, Johnson talks about how companies need to look for the unmet jobs not getting fulfilled, see the business from the outside in, and think about developing a portfolio of business models.
GENDRON: Let’s start with an example. Towards the end of your book is the summary about Amazon. If you said to me, “Name a company I don’t ever want to read another word about,” it would be Amazon. And yet its history in terms of business model innovation made me think, what an astonishing story.
JOHNSON: It is. The amazing thing about Amazon is this idea of the user experience. What Jeff Bezos, Amazon’s founder and CEO, said was, “I’ve got to get good at what my customers want, regardless of whether I’m able to do it or not.” He didn’t let things get in the way of being able to make that happen. The company was able to focus on figuring out what is it exactly that its customer is trying to get done and how to put together the pieces of the puzzle that would allow the company to serve that customer.
GENDRON: Amazon starts in the retail arena, selling books online, selling consumer goods online, setting up a commission-based brokerage system for used books, opening its storefront to third-party retailers. And then, suddenly, they’re in IT services, creating online services for other sites and client-side applications for web developers. And then they’re building an e-reader, the Kindle. Those last ones are jarring, right?
JOHNSON: They are. And remember, Bezos and Amazon were pummeled. I have the picture of Jeff on the cover of Business Week when they came up with Amazon web services in 2006, and the cover line is “Amazon’s Risky Bet. ”
What Bezos and Amazon figured out was how to design around the job to be done, not their capabilities. Everybody focuses on their capabilities, how they can use their capabilities, and of course that’s important. But it has to be broader. What’s the job? What’s that user experience? Wrap the business model around that job, especially if you want to seize opportunities beyond your core business
Bezos put it this way: he said,
“If you want to continuously revitalize the service that you offer your customers, you cannot stop at what you’re good at. You have to ask what your customers need and want. And then no matter how hard it is, you’d better get good at those things.”
The Amazon story is that it’s built to transform. It had one profit formula at the beginning when it was just an online bookstore, then it went into this whole eBay-like brokerage thing of selling used books, then its web services, which was a huge, huge departure.
This serial process of business model innovation that Amazon has done, by the way, hasn’t really been repeated.
GENDRON: You also have looked at the way that Apple has been creative in business model innovation.
JOHNSON: Of course, in Apple’s case, the MP3 player was so powerful because you could customize your music. That was in place, and there were a whole bunch of MP3 player companies, and people said,
“Hey, this is really cool.”
Apple just blew it out of the water when it combined the hardware with the software with the service with iTunes to not only customize but make it extremely user friendly. It was easy to buy and download music onto your iPod. They made the experience seamless, they made it idiot-simple.
Apple is clearly not beholden to their existing structures. They’re figuring a way to not let the existing structure get in the way. They focus on the consumer and his or her experience and making it amazing, convenient, and simple. All the heavy lifting is behind the scenes, combining product with service with technology with software. The customer didn’t care about how hard it was behind the scenes.
GENDRON: Let’s step back. Why do you think this concept of business model innovation got so hot in the first place?
JOHNSON: I think it started with the whole dot.com wave, when the Internet began to allow for a different way to make money and a different way to operate as part of serving a customer. I talk about a four box business model framework, meaning the blueprint for how a company delivers value, at a profit, to a set of customers. It’s got four parts: the customer value proposition; the profit formula; the key resources needed to deliver that value proposition at a profit; and the key processes needed.
The Internet really turned things upside down. It created such a wave and a multitude of different businesses, and things were getting financed without any real way of making money
I think that caused a reflection, where people started to say,
“We need to think about ‘What is the business model?’”
Also, with the speed of information technology, the life cycles of businesses are, I think, shrinking more dramatically than ever. That leads again, intuitively, for people to say,
“We’ve got to get to the actual fundamentals,”
which is why is the business a business in the first place. What are the underpinnings of that? Let’s get beyond just the measurement and the norms and the culture of how things run to more fundamental questions, which goes back to the business model.
A true business model is an interdependent cross discipline set of pieces that are intertwined in a very unique way, developed over years. It’s not just about the financials. It’s tied to the operating model and how people organize people and processes.
GENDRON: We launched Inc. in 1979, and when we did our first Inc. 500 we were often dealing with CEOs who had started their businesses in the mid ‘70s. And we were seeing what I would describe as the last generations of cowboy capitalists. Real old style entrepreneurs. Many of them would say “business models are forever,” meaning that they had looked for a niche in the marketplace, found one, and they went off to operate that business with the expectation that they’d die behind the desk with the same model that they had started 20, 30, 40 years earlier.
JOHNSON: Established companies run a huge risk in becoming rigid. They think, well, our established profit formula and our established operating model — which we have honed and used all these years with the overriding rules and norms and metrics — will obviously work for serving a new customer in a new way. They think this because those things are so embedded in how the organization turns a profit and how it operates.
Financial people have a formula, and if new products don’t meet these growth margins, they’re not interested. It’s counter to the nature of business to say we’re going to entertain changes to the profit formula.
Instead, people have to be prepared to be open and diagnostic about how the ways that they turn a profit might change. I’m thinking about incumbents, mid-tier and large companies. They have to be willing to say, “Hey, we’re going to serve a new customer a new way. Is it possible that the way we turn a profit has to be different.” Or, “We may need to change our overhead structure to go after this new value proposition.” Or, “We may have to change the velocity with which we drive through products. We may need to become a high volume type of company as opposed to a high margin, low volume type.”
Companies can no longer continue to say, “We’re going to be a branded product company.” As soon as they say to themselves, “We can’t just think about breakthrough products,” then they open up the scope of innovation to say, “We have to think about the whole business model.”
GENDRON: How do companies do this? What’s your prescription?
JOHNSON: We talk all the time about how, if you’re trying to grow, it’s one thing if you’re sustaining your core business and you’ve been with the customer a long time and you’re doing incremental innovations to improve the product. You can get away with being “inside out,” as they like to say — with your focus from the inside, looking out. But if you’re really trying to create new growth, whether you’re a new entrepreneur or you’re an established company moving into new places, you’ve got to be so “outside in.” You really have to understand what the critically important unmet job is that’s not getting fulfilled. Because at the end of the day, what the customer does is hire the product to get a job done.
GENDRON: When you think about all of the material that you covered in the book, material that you put into practice every day, what’s the one aspect that you wish you knew more about?
JOHNSON: I have two. The first is that I’m still trying to figure out the right way to think about how much separation there needs to be between operating the core and coming up with a new growth opportunity and a business model. What’s the right interface between that new incubation growth group that is going to white space and the people executing the core competency?
GENDRON: That is a great question.
JOHNSON: There’s so much literature on it now, but I don’t think we’ve cracked it. New incubation groups are totally separate, they’re isolationist, but they can get crushed. It’s like this dance, and I haven’t seen it really nailed to a level that people can understand it and say, “This is how we’re going to do it.”
The second thing is a kind of the corollary to that, and it’s this question: Can a business unit operate two business models at the same time? I’ve always said no. I don’t think it can. But I don’t have all the data to know that that’s a hundred percent right.
GENDRON: I think you know intuitively that most people would agree with you, right?
JOHNSON: Yeah. I think most would. But I was just at a client who said, “Oh yeah, we’ve got a bunch of different business models.” I’m not sure if it’s truly a different business model or a nuance off of the existing model.
GENDRON: The way you talk about “design around the job to be done, not your capabilities,” sounds so right and appropriate. On the other hand, there are generations of leaders who grew up with the notion of core competence. It’s just been drilled into them, it’s part of their DNA. You’re talking about a huge change in thinking and framing.
JOHNSON: It is a big change, but I think it has to be framed the right way. It’s an “and” statement. Of course you want to leverage your capabilities and say,
“How do we have things that are consistent with our capabilities to continue to move the train in a forward direction, to move it along.”
Nobody disagrees with the core competence of the corporation to drive those things. Nobody, I think should disagree with that — it’s better to try to do things that are nearer in, if there are opportunities, as opposed to further out.
But on the periphery, you can have small innovations. You can have entrepreneurs that are looking at unusual opportunities that come at the intersection of different industries and disciplines that are too good to pass up. Or at least they’re too good to not at least investigate, to find out how it would fit with what your customers might want.
A company could be 90 percent, 95 percent focused on its core competence. But why not take five percent? If you’re talking about a big company, with $100 million of discretionary investment ability, that’s $5 million dollars. I think it’s more a sophisticated portfolio theory for companies.
GENDRON: Large companies as a collection of business models.
JOHNSON: Yes. A more sophisticated way to bet for the future.
COMMENTARY: For those of you who truly embrace strategic thinking, creative innovation and business modelling, the second video titled, "BIF Interview of Mark Johnson" really gets to the "core" of creating business models because its much more professorial.
Seizing The White Space is really about trying to leverage new opportunities and new places that require where the company has to change its existing business model in order to succeed. This means developing a new value proposition, revenue model, profit model and operating model.
In order to capitalize on new opportunities means managers need to venture into adjacent spaces, but you have to be careful not to venture to far off of your core competencies and end up in unfamiliar territories.
How does a company create, capture, and deliver value. That's the essence of what a business model is in the first place. If managers understand the basics, the underpinnings of business then they can venture beyond their core competencies and take advantage of new business opportunities.
Mark Johnson divides business model innovation into a four box matrix as follows:
Customer Value Proposition - How important an unmet job is going to be addressed by a company through a new offering, both through what they are going to sell, how they are going to sell it, the method of payment, and so forth
Profit Formula - How the company captures value and generate a profit for itself from the new business opportunity. The profit formula defines how the company is going to make money, including the price strusture, cost structure, target profit margins, target unit volumes, inventory turnovers, and so forth. Developing the profit formulat is giggest stumbling block for a company, because managers must understand their cost structure (fixed, variable, one-time and sunk costs costs, etc.), and competitive landscape, in order to develop a pricing model that results in a sustainable business model.
Operating or Delivery Model - This is what makes up the structure of an organization at a fundamental level. Consists of resources, processes, coming together in the right way for a company to capture repetitive value for itself. Transitioning from a high margin to a low margin business or going to a low volume from a high volume business can be difficult to change. The goal is how to best reach economies of scale and maximize value. This often requires fefining the manufacturing process, or bringing in new resources (new technologies, equipment, more knowledgable personnel). It's difficult to chanage a lot of the pieces in the operations model because they are systemic in nature. Manager's are stuck within their systems. They feel comfortable within the systems they have created. Latencies take foothold and managers feel boxed into existing systems.
Overlays of Business Models - These are the rules, norms and metrics, that guides the procedures, the rules that are in place so that people will adhere to a certain way of doing business that protects the underlying new business model so that business risk is minimized to achieve ultimate success.
How does a company go beyond the rules, norms and metrics and why leaders need a common language business model?
1) Ask yourself: Where is your business right now? Where are you in the first place? Managers must understand their existing business model, because without that knowledge, how can managers know where they want to go next, or how will they know that the new business opportunity they are pursuing really requires a new business model. What you don't want to do is create a new business model, just for the sake of creating a new business model.
2) Ask yourself: Is the new business opportunity something that leverages the core business in a real way that can be controlled and kept inhouse? Or, is it really a fundamentally different way of turning a profit and operating by which we need to manage things totally different. Without having a baseline understanding of what our existing business is, it is going to be really difficult to know what we are doing, and how new it really is.
Linking disruptive thinking to business model innovation.
Disruptive innovation or disruptive thinking is a strategic way of thinking. It's really about how you view a new business opportunity of having the best potential for success in the marketplace as it relatates to creating new growth. It's really an external management viewpoint.
When a company is disrupted by the disruptive opportunity, the reason why they are being disrupted, is that their business model is being negatively impacted in some major way by a new market entrant or existing competitor (the attacker). The attacker enters your market with a new business model that is disruptive to the company's existing business model. Examples: Steve Jobs disrupted the portable music player market and ultimately how music was delivered and priced by introducing the iPod and iTunes and incorporating digital music (mp3) as a viable competitor to existing CD music, music distributors and consumer electronics producers.
Steve Jobs and the Apple iPod and iTunes
When Steve Jobs introduced the iPod and iTunes, he was competing headon with Sony, the established leader in portable music players and a leader in music recording. Sony made the portable music player the accepted standard for storing and playing back music, which was primarily stored on music CD's, the existing standard at the time that had replaced music tape diskettes.
The iPod disrupted Sony's business model by not delivering music on CD's, but by allowing music lovers to download individual digital music files or MP3 files from Apple's iTunes online music store to their computer via the internet, then transferring those files to their iPod.
The iPod and iTunes disrupted the entire music entertainment industry value chain: recording studios (music CD's), distribution chain (retail music stores) and the consumer electronics industry (CD portable music players).
Steve Jobs changed Apple's business model and culture from a pure play computer company to one of the leading consumer electronics companies in the world. In so doing, he convinced his customers to pay for digital music, something they were not accustomed to do. He also convinced the music recording industry leaders to sell their music through Apple's iTunes online music store for 99 cents per title. Both of these were major hurdles for Steve Jobs, but Steve was very persuasive. Today, Apple is the dominant force in digital music streaming and consumer electronics products.
The Necessity For A Bigger Vision or Mission
I often site the need for a company to establish a grand vision or central mission for the business. This is the foundation upon which business models are built and take root. Mark Johnson did not address this in the above videos, but I believe it is very important to establish a grand vision or central mission before developing a business model. If your grand vision or mission statement and business model are not congruent then something is wrong. Steve Jobs established a grand vision for Apple by developing the Digital Hub Strategy, a subject I wrote about in a blog post datedOctober 6, 2011and mention quite regularly in many of my blog posts about Steve Jobs and Apple.
According to Steve Jobs the personal computer would become the Digital Hub for the Digital Lifestyle, an emerging digital trend driven by the internet and an explosion in digital devices: digital camera's, videocam's, portable music players, PDA's and DVD video players. The PC would serve as a Digital Hub that would allow consumers to store, share and playback digital images, music and video files.
In the following video, Steve Jobs introduces the Digital Hub Strategy at MacWorld 2001. That was the key moment in history that defined Apple's purpose and the basis for its present business model. The Digital Hub Strategy accounts for the overwhelming string of successful consumer electronics products, including the iPod, iPhone and iPad.
Mark Johnson Bio
Mark Johnson is a Co-founder and Senior Partner of Innosight, a strategic innovation consulting and investing company with offices in Massachusetts, Singapore, and India, which he co-founded with Harvard Business School professor Clayton M. Christensen. He has consulted to the Global 1000 and start-up companies in a wide range of industries—including health care, aerospace/defense, enterprise IT, energy, automotive, and consumer packaged goods—and has advised Singapore’s government on innovation and entrepreneurship.
Mark’s most recent work has focused on helping companies envision and create new growth, manage transformation, and achieve renewal through business model innovation. This work is the subject of the McKinsey award–winning Harvard Business Review article, “Reinventing Your Business Model,” as well as his new book entitled Seizing the White Space: Business Model Innovation for Growth and Renewal, published in 2010 by Harvard Business Press. He is the author of the Harvard Business Review article "New Business Models in Emerging Markets" with Matt Eyring and Hari Nair. Mark has published articles in the Sloan Management Review, Business Week, Advertising Age, and National Defense.
Prior to co-founding Innosight, Mark was a consultant at Booz Allen Hamilton, where he advised clients on managing innovation and implementing comprehensive change programs. Before that, he served as a nuclear power–trained surface warfare officer in the U. S. Navy.
Mark received an MBA from Harvard Business School, a master’s degree in civil engineering and engineering mechanics from Columbia University, and a bachelor’s degree with distinction in aerospace engineering from the United States Naval Academy. He currently serves on the board of SemiLEDS, an LED manufacturing company, and the U.S. Naval Institute.
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