I think bundling is going to be a big factor in terms of leveraging entrepreneurial ventures in this century. For example, Lululemon Athletica not only sells active wear they also have Yoga classes in their stores. In essence, they are housing two complementary businesses under the same roof. But there is no reason why they could not be offered by two different organizations.
The key here is for each entrepreneur or intrapreneur to view their enterprise as a platform on which they can build a community of interests. Obviously, it could be a technology platform but just as easily it could be a real estate play, a retail chain, a department store or almost any other kind of business. Ask yourself these questions: a. what services or products does it make sense for you to bundle with your core offering (i.e., they complement it) and b. can you unbundle/break apart your core offering to uncover separate services or products that could be offered by others?
If you can get others to use your platform, you can push some of your capital costs onto them—it becomes a form of bootstrap capital. What’s more, they may pay you both a rights fee and rent just to be part of your offering. If I were advising Lululemon, I would rent stores to Yoga professionals for classes by them and create two revenue streams that way—more clothing sales plus hall rental. It is also a form of negative cost marketing as well since Yoga studios would be paying Lululemon to bring their clients to Lululemon stores, a highly valuable proposition for Lululemon. It’s similar to co-branding and co-opetition.
We did something similar back in the day when we were operating TCCL, Terrace Corporate Centres, the largest mini office provider in Eastern Ontario with 164 offices in two locations in the 1980s and 1990s before selling it. We operated a word processing business for the convenience of our clients—but it lost about $3,000 per month. When we unbundled the business and spun it out to an independent entrepreneur (who paid us $50,000 to buy what was then a failing operation), she was able to turn it around in just six months and make a decent living for herself. In addition, she paid us rent every month and a percentage of her sales.
IBM under past President and CEO Lou Gerstner bundled outsourcing, consulting, software and other services onto an enterprise that was flailing back in the 1980s—its mainframe hardware biz was under assault by low end personal computers and mid-tier mini computers. Some thought IBM should be broken up and sold in pieces or wound up.
Gerstner did not agree and frankly he saved a great company from oblivion. Sometimes, you unbundle things and sometime you do the opposite. Entrepreneurship is like that—full of contradictions that somehow make sense. Nortel under CEO Mike Zafirovski failed to do this (they had a great opportunity to add services and outsourcing to their biz model and didn’t). So NT was led to the brink of extinction and then fell off the ledge.
Govindh Jayaraman, other-directed founder of Green Stop, is trying to bring quality food, grown locally to the c-store business. C-stores are notorious for selling smokes/alcohol/guns and snacks that can hardly be called food and which are certainly contributing to an obesity epidemic in North America.
I suggested to him that he bundle other services into his platform—like Yoga classes, fitness classes, health and nutrition classes, cooking classes to teach people, especially inner city folks, about wellness. He could, of course, contract out these services and turn them from cost centres to profit centres. Maybe he partners with many strategic partners—Lululemon and Yoga studios, exercise clubs like the one run by student entrepreneur Angella Goran called Cyclepathic which itself is an independent part of Ottawa Sport Performance Centre (http://www.train4sport.com/programs/spinning/). He might also consider creating online accounts for his customers so that he can form an Internet community around Green Stop—to create meal plans, monitor their calorie intake, order stuff, suggest things that could be added to their offerings and so forth.
In Ottawa, Mountain Equipment Coop which sells bikes, running shoes, kayaks, canoes, outdoor clothing, cross country skis and much more will be adding a new 500 square-foot space to their existing store in Westboro and making it available for community use by sports and environmental groups. They want to be more than a store; they want to be a central part of the community’s commitment to an active lifestyle. In other words, they get the concept of bundling services and events into what was previously mostly a retail environment.
Apple does some of this with their stores where you cannot only buy Macs, iPhones, iPads, iPods et al but also attend a free workshop, get stuff repaired, ask for assistance at their Genius Bars, get help setting up your computing and communications environment, learn how to use iTunes and their app store, get one-on-one training if you need it… It’s all about bundling services around your core offering and creating a platform.
All kinds of products and services are experiencing these types of changes. Bundling can also involve co-branding; e.g., marketing Brooks Brother’s suits with Audi cars and Rolex watches or, better yet, bundling them all together—buy an Audi and get a Brooks Brothers suit plus a Rolex thrown in! What’s interesting is that these three products can all become sales channels for each other. It’s quite synergistic.
Here is an unlikely duo: Xerox co-promoting Michelin in its advertising in Bloomberg Businessweek (March 11, 2012):
I suppose it is no more unlikely than Michelin (best known of course for its tires) starting its Michelin Guide in 1900 to help motorists find decent accommodation and restaurants. Anything that got more people driving further and more often was, indirectly, good for their tire company their thinking went. However, the Guides became their own profit centres; i.e, they stood on their own as well as providing negative cost marketing and co-branding for the tire company. So you can see these concepts are not new but are often forgotten by each successive generation only to be rediscovered once in a while. Everything old is new again…
Even the lowly dental floss is not immune; one brand has added baking soda/tooth whitener to its rolls of floss (a non trivial technical problem BTW) so while you get your gums massaged, you also get your teeth cleaned/whitened at the same time. Bonus!
If you build a platform that others use, you not only reduce your capital costs, increase your revenues and decrease your marketing costs, you also build a community around your enterprise/product or service which makes it both sustainable and doubly hard to knock off.
Postscript: bundling is gaining traction as a biz model tool witness the recent announcement by Chrysler that it will certify and sell used cars by OTHER manufacturers.
Why not extend their warranty program? After all, it is a profit generator. Plus having more people, some of whom are perhaps not interested in Chrysler but are in say Hondas and Toyotas, come to their stores means that, at least, now they have a chance to persuade them otherwise.
“Chrysler Group has announced a new certified used car program under which the automaker will guarantee cars built by any manufacturer.
So-called certified pre-owned programs are commonplace in the auto industry, but car manufacturers usually only certify their own cars for resale. For instance, under Honda’s program, someone who buys a used Honda from a Honda dealership will get warranty coverage in addition to the original manufacturer’s warranty, as well as roadside assistance. Used Toyotas and Chevrolets aren’t eligible for Honda’s program, though.
There are some certified used car programs that can be applied to any make or model of car, but those programs are run by third-party warranty companies, not automakers themselves.
The new Chrysler program is the first to provide additional warranty coverage for used cars made by another manufacturer…”
For more, please see: http://ca.finance.yahoo.com/news/chrysler-sell-used-cars-other-205500838.html.
Postscript 2: ‘Bundling’ is a term I would also use for anything that blurs the lines. It is not easy theses days to tell the difference between a hardware, software, consulting, outsourcing, products, services or app tech company. They are all using their biz models as platforms to poach on each other’s territories. It makes sense–it becomes counter cyclical, it makes more efficient use of their fixed costs caused by their underlying investment in office, lab and manufacturing space as well as administration costs, investment in staff and staff training, equipment and other basic requirements without which they cannot operate.
In the entertainment business, Bloomberg News’ Norm Betts reports that Netflix CEO Reed Hastings is meeting with cable operators to discuss a way for Netflix to be included with monthly cable bills. This would be a way for Netflix to add huge new numbers of subscribers by using existing cable networks as, in effect, Netflix resellers.
Netflix would then be on a more level playing field with Showtime, HBO and other specialty cable channels– more subscribers, steadier and higher committed monthly recurring revenues– and so be in a better position to compete for directors, screen writers, stars, talent, screen plays and so be able to offer more original content– series and films.
Bundling while developing reseller sales channels will make Netflix an even more formidable competitor.