IOE5100, Advanced Business Models
Exploriem.org’s Institute of Entrepreneurs presents IOE5100, Advanced Business Models for Entrepreneurs, Intrapreneurs and Artpreneurs, an MBA level course (For available dates and times as well as more information, please contact: Ms. Theresia Scholtes, tscholtes @ exploriem.org or @tclsholtes)
Come study with Prof Bruce, a leader in designing and building business models for the 21st century that allow you to compete and win in a tough competitive world.
Prof Bruce is best known as Founder of the Ottawa Senators, Scotiabank Place and Ottawa Senators Foundation but he has also participated either as principal or advisor in 168 other startups and counting. He has taught entrepreneurship, urban economics, urban design and real estate development at University of Ottawa, Carleton University and the Australian National University. He is a civil engineer from McGill University in Montreal and has his Masters of Engineering-Science from the University of New South Wales in Sydney and his PhD in Urban Economics from the Australian National University’s Urban Research Unit in Canberra.
He has been at times an engineer, a real estate developer, a hockey executive, University Prof, consultant, art collector and benefactor, broker, writer, columnist, futurist and novelist as well as Executive Director of not-for-profit Exploriem.org dedicated to assisting entrepreneurs and intrapreneurs everywhere.
In less than a week, he will help turn you into a creative, focused entrepreneur, intrapreneur or artpreneur with a world class business model that will allow you to compete with the best in the world.
“I’m really glad my partner (Josh Garellek) took this IOE course in the Dominican. I had been pushing him to do a couple of things and when he came back from the course, he had a business model that included all of them and more plus as a bonus we weren’t going after a huge amount of venture capital either so no undue stock dilution,” Avi Davis, Co-Founder, Artic Empire, April 13, 2012.
“Prof Bruce, I just wanted to take a couple minutes to thank you for the honor of sharing a classroom with you. Even though I will have to revisit some of the concepts that you shared with us during six intense days, I feel that I got more from your class than any other I have taken during my MBA and that there is no better time (probably in history) than today to be an entrepreneur. To tell you the truth, I had kind of lost that entrepreneurship spirit but what you did and said in class rekindled the entrepreneurship light in me. I wish you the best,”
David Serpa, April 2012.
Schedule and Content
In six lectures, you will learn/study and do the following:
L1, Business Modeling in the 21st Century—Integrating the Internet into the DNA of your Enterprise. Slide deck: PPT file, PDF file
(Lecture 9 am to Noon, followed by one hour workshop focused on producing first ‘draft’ 2-minute elevator video pitch for YouTube of your value proposition, public or unlisted, then lunch)
L2, Part 1, Case Studies of Self-Capitalized Enterprises—Creating Powerful, Innovative Value Propositions and Sustainable Competitive Advantage through Differentiation. Creating and improving new products and techniques in existing established companies. Slide deck: PPT file, PDF file
L2, Part 2, Self-Capitalization for the Modern Enterprise—You are never too big a company to use Bootstrap Financing techniques. Slide deck: PPT file, PDF file
(Lecture 9 am to noon, followed by one hour workshop focused on producing one page ‘draft’ pictogram of biz model and lunch)
L3, In-class review of biz models with Prof and reminder of all outputs to be produced by student entrepreneurs for L6.
(Workshop 9 am to 1 pm, followed by lunch and afternoon adventure tour)
L4, Turn Selling into Buying—Effective Customer Acquisition using Negative Cost Selling, Guerrilla Marketing, Social Marketing and Earned Media. Slide deck: PPT file, PDF file Assignment (Blue Heron Storage Case Study): http://dramatispersonae.org/NegativeCostSellingBlueHeronStorageExercise.doc. Blue Heron Storage Corp Blank Spreadsheet: PDF file, Blue Heron Storage Corp Answer Spreadsheet: PDF file, XLS file
(Lecture 9 am to Noon, followed by one hour workshop focused on negative cost selling assignment, IRR, Internal Rate of Return, calculation, CCC, Cash Conversion Cycle, calculation and CPM, Critical Path Methodology (for advanced product managers) and lunch)
(All assignment materials can be found in the following folder: http://www.eqjournal.org/Assignments/)
L5, Corporate Organization and Structure for Entrepreneurs, Intrapreneurs and high level management—Creditor Proofing Yourself. Slide deck: PPT file, PDF file
(Lecture 9 am to Noon, followed by one hour workshop focused on presentations and lunch)
L6, Student presentations 9 am to Noon, celebratory lunch with prizes/surprises
“These IOE courses are a great addition to the education scene, connecting young entrepreneurs and intrapreneurs to world class MBA-level courses presented by global leaders in business; they are a must for any up and coming businessman or woman,” Matt Slaman, aka @CaptainMurky.
Next Available Dates:
Come to beautiful Strathmere (1980 Phelan Road West, North Gower near Ottawa, Canada) to study with Prof Bruce from Monday July 23rd to Saturday July 28th, 2012.
Strathmere near Ottawa
“This course was the most interesting and educational course to date in my MBA program. As a public sector employee, I took this elective to step out of my comfort zone, unsure exactly what I would learn. Wow! What an eye-opener to business opportunities that exist.
The focus on the ‘business model’ as the engine of the enterprise was an entirely new concept and took my understanding of business to a new level, beyond traditional focus of ‘mission statements’ and ‘business plan’ to truly understanding the central operating system.
Creative solutions exist to overcome barriers to becoming an entrepreneur; they were eye-opening to say the least. Moreover, this course opened doors to many resources and networks that I plan to tap into in the future. The handbook is an exceptional resource – clearly written (academic clutter put aside) and incredible value for $35!
Our group assignment forced an immediate application of the tools (all quite practical and easy to grasp) and encouraged creative thinking. I also appreciated Prof Bruce’s early feedback on our business concept and suggestions for altering our biz model which our team was able to integrate into the final product,” Tara Preston, April 2012.
Learning Outcomes
What we are going to do together in just under one week is to take you on a voyage to help you create the most compelling business models for the 21st Century. We are going to look deep into the past (as far back as the beginning of trading economies circa 10,000 B.C.) as well as show you models from the decade past and the new one we are currently in that may amaze you—ones that generate cash on three sides (not only getting cash from customers but from suppliers and marketers too).
You will learn how it is now possible to reverse out much of your work, to create mass customization in products and services, turn products into services and vice versa, engage in negative cost selling and negative cost marketing and much more.
We will give you the tools to take a larger share of the value you create so that ‘death isn’t a career move’ for artpreneurs and that creative entrepreneurs and intrapreneurs are rewarded; first, far more than if they just had a J.O.B. or, second, with a promotion and greater pay, benefits, responsibility and authority.
Outputs
You will complete these assignments:
A. Build/Improve/Adjust your Business Model (50%)
B. Produce and record your 2-Minute Elevator Pitch on YouTube (public or unlisted) (20%)
C. Present your Business Model with all outputs (30%)
Student entrepreneurs should refer to the following marking grid so they will better understand what is expected from their presentations: http://www.dramatispersonae.org/ElevatorPitchMarkingGrid.pdf.
For more on outputs, please see postscript below.
Ten Reasons to Attend IOE5100
Are you a talented entrepreneur, intrapreneur, 3rd, 4th or MBA-level student, product manager, executive, supply chain manager, high level manager/executive or enterprise founder? If so, here are ten reasons why you or someone from your organization should take this course:
1. Receive an IOE Certificate for course work in a condensed one-week period.
2. Create and improve your Business Model so the harder you work, the more money you make.
3. Craft and improve on your value proposition and then turn it into a fantastic elevator pitch and YouTube viral hit.
4. Learn and expand your knowledge about self-capitalization for modern enterprises, effective customer acquisition using Negative Cost Selling, Guerrilla Marketing, Social Marketing and Earned Media.
5. Take advantage of personal mentoring by Prof Bruce during the retreat as well as a 6-month and 1-year follow up with Prof Bruce! Access to IOE Newsletter only available to former IOE students.
6. Surround yourself with competitive individuals who share your passion for entrepreneurship and intrapreneurship.
7. Learn the entire entrepreneur skill set—A to Z.
8. Take a one-week, learning, guilt-free ‘vacation’ and escape deadly routine.
9. It’s held in friendly, world-class resorts! Includes: adventure tour and cool takeaways, YouTube Elevator Pitch, Biz Model, Graduate Certificate and signed copy of Quantum Entity, We Are All ONE, a novel about an extraordinary group of young people who found, grow and then defend a globe-spanning tech company*).
10. It’s cost effective-special introductory price. It’s world class. It’s team building. It’s adventure. It’s fun. It’s networking.
(* To read the Foreword of Quantum Entity, We Are All ONE, please go to: http://www.eqjournal.org/?p=2932.)
Takeaways
Here’s what you will take away from IOE5100:
A. Entrepreneurs Handbook II (Read the Foreword here: http://www.eqjournal.org/?p=3179 Get a copy from: Lulu)
B. Student Entrepreneur Business Model
C. 2-minute Elevator Pitch video on YouTube (if public) or unlisted (if not)
D. Masters-level Certificate
E. Advance copy of Quantum Entity, We Are All One, a novel written by Prof Bruce to be released in June 2012 and signed by the Author.
Follow up Mentorship
IOE provides each of its students with 6-month and 1-year individual follow ups with Prof Bruce.
Course Pre-Preparation
1. Please get a free Twitter account and follow: @ProfBruce. We will be using the hashtag #IOE. Please read ‘Twitter Nation‘.
2. Take the ECQ Test. Send your score to tscholtes @ exploriem.org.
3. Give some thought to the Business Model you wish to build during this course. Please read: The Complete Business Model. The more of these elements that you can incorporate in a new or existing model, the more you are likely to prosper.
4. Practice using our online Business Model Generator: BMG
5. Get ready to make a 2-minute YouTube elevator pitch video (public or private) by reading ‘How to Make a Great Elevator Pitch’: Word Doc
6. Please also read: Should Every Person on the Planet have a Personal Business For Life (PB4L)? http://www.eqjournal.org/?p=421
More about Prof Bruce
Bruce M. Firestone
B. Eng. (Civil), M. Eng.-Sci., Ph.D.
Professor Firestone is perhaps best known as founder of the Ottawa Senators, Ottawa Senators Foundation and Scotiabank Place. In May of 2006, Dr. Firestone joined the University of Ottawa’s Telfer School of Management as its first entrepreneur-in-residence. He is now entrepreneurship ambassador there. In addition, Dr. Firestone is a real estate broker with Century 21 Explorer Realty Inc, a commercial and residential real estate group with six offices located in Ottawa and Eastern Ontario.
Dr. Firestone is also known for his work as Executive Director of Exploriem.org, a Canadian Registered not-for-profit corporation focused on educating and mentoring entrepreneurs and intrapreneurs in Ontario and around the world. He is also a columnist with Ottawa Business Journal and author. His most recent activity includes publishing Entrepreneurs Handbook II and Quantum Entity, a learning outcome novel, the first book in his new trilogy. Both are due out in May 2012.
Prof Bruce has been an operations research engineer, a real estate developer, a hockey guy, a professor of architecture, engineering and business as well as entrepreneurship, a real estate and mortgage broker, a leader of a not-for-profit organization, founder of a charity, author and, of course, peerless husband and father of five great kids and one handsome grandson.
Prof Bruce has launched, helped launch or contributed to more than 168 startups. He has studied or taught at McGill University, Laval University, the University of New South Wales, the Australian National University, Harvard University, University of Western Ontario, Carleton University and the University of Ottawa.
You can follow him on Twitter at @ProfBruce and read his blog at www.EQJournal.org. His current motto is “Making Each Day Count”.
Special Introductory Price
Costs for the course, meals and adventure tour as well as all takeaways and outputs are:
Course cost is $585 for students or not-for-profits/charities/NGOs and $835 for everyone else + HST.
A limited number of scholarships are available.
Pre-Admission and Pre-Preparation
To apply for admission and prepare, you need to do the following:
1. Provide us with two reference letters; one personal and one from a past employer.
2. Take the ECQ Test (http://dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm) and send us your score.
3. Please read: Twitter Nation (http://www.eqjournal.org/?p=2080), Personal Business for Life, PB4L: The Road to Financial Security and Independence (http://www.eqjournal.org/?p=2020) and The Complete Business Model (http://www.eqjournal.org/?p=692).
4. Run your preliminary business model (the one you would like to work on during the course) through our online utility, the Business Model Generator (see: http://dramatispersonae.org/BusinessModels/BusinessModelGeneratorLandingPage.htm and http://www.dramatispersonae.org/bmg/) and bring the outputs with you.
5. Provide us with a link to your Twitter/Blog/YouTube/Business/Facebook/LinkedIn and other relevant social media tools. If you don’t have one, get a Twitter account and follow @Prof Bruce and @exploriem as well as @tclscholtes. Twitter is the fastest way to integrate you to a worldwide, learning network of entrepreneurs and intrapreneurs.
6. Record a 2-minute Elevator Pitch* and put it on YouTube (public or unlisted) Your pitch is the product/idea you or your company would like to develop and launch to complete or improve your business model and increase revenue. To improve your value proposition and elevator pitch, please read: How to Make an Elevator Pitch (http://www.eqjournal.org/?p=339) and Elevator Pitch Workshop (http://www.eqjournal.org/?p=361).
(* You will compare your preliminary business model and your initial 2-minute Elevator Pitch with the final ones you will create during the course—to measure your progress and evaluate outcomes.)
Testimonials
“Basically, you can’t be running a startup in Ottawa and not have benefited from Prof Bruce’s wisdom in some way. His credentials would take a whole page to write but in a nutshell, he is Founder of the Ottawa Senators, is Executive Director of a business incubator called Exploriem.org and with his knowledge and experience he is one of the best advisors I ever had!” Vahid Jozi.
“This course filled a hole in the MBA program – business modeling is an essential skill for all MBA grads regardless of whether he/she is an entrepreneur or manager. The experience was enhanced by Prof. Bruce’s innovative teaching style. Of the 20 MBA courses I’ve taken, this one is in the top two!” J. Krenosky.
“Startup DNA was different from any MBA course I have taken to date. It provided me with both a practical understanding and creative outlook on the how to’s of building a business model. Prof Bruce equips you with the knowledge and the courage to stop ‘thinking’ about entrepreneruship and start ‘doing’ it – all the while reviving your entrepreneurial spirit. Thank you Prof Bruce!” Ziad Geagea
“Entrepreneurialist Culture is invaluable to anyone interested in becoming an entrepreneur, intrapreneur or wants to create a start-up and reap the benefits. It forces you to think in business models, relationships and ecologies, to take ideas and turn them into strong value propositions for individuals, and to stand alone; looking at a market and measuring yourself in the success you create with your ideas, determination and leadership. You don’t only learn how to work hard, but how to reverse out the work as well. It changes the way you think about business and the possibilities beyond just a carrier, but a way of life and thinking,” Craig Schoen.
What Steve Jobs and Sam Palmisano Think about Biz Models
Steve Jobs
Steve Jobs figured out how important biz models are before he launched the iPhone when he insisted that AT&T* give him a share of their subscriber revenues in return for a two year exclusivity on the device. With that, he revolutionized yet another industry’s biz model. Cell phone manufacturers went from selling a ’shrink wrapped’ gadget for a one-time payment in a brutally competitive market with poor margins that was racing to the bottom to an industry with multiple sources of revenues (ads on the iOS platform, iTunes downloads, app store sales and revenues, search fees, streaming, subscriber revenues, sale of the device itself), some of which are recurring: the holy grail of techdom.
(* Wired.com (http://www.wired.com/gadgetlab/2012/01/iphone-att-q4-sales) reports that the iPhone represented 80% of all AT&T smartphone activations in the last quarter of 2011 during which they added 9.4 million new subscribers, 50% more than in any previous quarter in company history. We estimated that the iPhone is returning a phenomenal 288% p.a. to Apple making the platform and the device perhaps the single greatest tech profit generator ever. Please see: http://www.eqjournal.org/?p=1714.)
Sam Palmisano
Sam Palmisano, when he was CEO of IBM told BusinessWeek (April 3rd, 2006) why he places a great deal of emphasis on the importance of business model innovation. He said: “…with product innovation, it’s a certainty that your competition is shortly going to copy what you have done. With business-model innovation, though, if you can come up with a unique way of doing things, it’s much tougher to react to.” Mr. Palmisano spent approximately 40% of his time as CEO on IBM business models.
For More Information about the Course about IOE
Ms. Theresia C.L Scholtes
Assistant Manager
Exploriem.org
LINCOLN FIELDS SHOPPING CENTRE, 2525 CARLING AVE, SUITE 23, OTTAWA ON K2B 7Z2
Tel.: 613.422.6757 ext. 204 Fax: 613.422.2807
Internet: Exploriem.org/about-us/institute-of-entrepreneurs-mission/ioe/
Twitter: http://twitter.com/tclscholtes
Comparables from Schulich Executive Learning Centre
Masters Certificate in Business Analysis/Program Fee: $9,450 CDN + applicable taxes
Program fee includes full 9-module program tuition, all teaching materials, iPad 2, lunches, and refreshments. Schulich Executive Education Centre’s liability is limited to reimbursement of paid tuition fee.
Masters Certificate in Supply Chain and Logistics Management/Program Fees:
• SCL members: $10,550 CDN + Applicable taxes
• Non-members: $10,950 CDN + Applicable taxes
• Program fee includes program tuition, teaching materials, lunches and refreshments.
• It also includes a six-month membership in Canada’s leading supply chain & logistics association – SCL Canada – for non-members who register.
• Schulich Executive Education Centre’s liability is limited to reimbursement of paid tuition fee.
Location: Schulich Executive Learning Centre, 4700 Keele Street, Toronto, Ontario
Postscript: More on Biz Model Outputs
Your Complete Business Model should include:
1. A one page Business Model Flow Chart. Start by using our online Business Model Generator, BMG (http://www.dramatispersonae.org/bmg/) to get a sense of what your final model might look like. Then improve it and let it evolve to describe using a pictogram the entire ecosystem that your new enterprise will live within. Your Business Model will show your ECQ Test Score, your ‘Pixie Dust’, source of Bootstrap Capital and Guerrilla Marketing/Social Marketing ideas, your Guerrilla Marketing Test Score and your Business Model Test Score. The BMG will lead you through this process. Try to select the right idea for your next startup (read Ten Things Startups Forget to Do: http://www.eqjournal.org/?p=335). Create a business model for the 21st Century that will produce great results so that the harder you work, the more money you make and so you can compete effectively with hard charging entrepreneurs from China, India and other Tigers by having a business model that can not be easily duplicated or dislodged and gives you a lasting, sustainable competitive advantage and concession or franchise.
Understand not only your clients and suppliers but the whole network or ecosystem: clients of your clients and suppliers to your suppliers.
Becoming part of your business ecosystem is one of the keys to longterm sustainability for your enterprise. Add some differentiated value, innovation and ‘pixie dust’ to your business model. Self-capitalize (bootstrap) your new enterprise so that you end up owning it and not a VC firm or other investors or partners (please see Bootstrap Capital, the Last Word: http://www.eqjournal.org/?p=1162). And use some smart marketing (guerrilla marketing and social marketing) so you can acquire customers and clients cost effectively (please read Guerrilla Marketing Basics: http://www.eqjournal.org/?p=643).
2. You will also need to develop a one page spreadsheet showing how value is created for one individual client or customer. Here are some examples of how to demonstrate your Value Proposition: Value Proposition of a Residential Realtor, the spreadsheet, Value Proposition for a HR Professional, the spreadsheet. You are demonstrating in a clear and concise way how your new enterprise/product/service/division creates either lower costs or higher revenues (or hopefully some combination of both) for one customer.
3. A second spreadsheet is required that provides you with a Financial Model of your enterprise. Having done quite a bit of work in the field of urban economics, it has always amazed me that most cities, for example, don’t have a financial model that can tell them what the fiscal implications are of one more resident or, for that matter, one more firm locating in their town. Most cities have budget processes that are a mess. I produced a financial model for a backorder domain name service that you can use online: http://public.sheet.zoho.com/public/profbruce/backorderdomaincorpfinancialmodel. From this model, the firm can see what impact each additional client has on the top line of the firm. The firm is also able to test the sensitivity of its top line to changes in the success rate of backorder capture, changes in its COGS (Cost of Goods Sold) and other variables.
Your value proposition for your clients and their impact on your business (which is measured in your financial model) are mirror images of each other. We complete the business ecosystem when your suppliers provide you with their value proposition and you also insist that they have a financial model of how your business impacts them. Why should you care if your supplier’s have a workable financial model? Well, the long term viability of your firm depends in part of a stable supply chain and it won’t be stable if your suppliers are failing on a frequent basis.
4. Make sure you also understand what a Cash Conversion Cycle is and how to calculate it for your enterprise. Please read Cash Conversion Cycle, CCC: How the CCC Affects Your Internal Rate of Return, The Power of Leverage to Work for You and Against You, and Effectively Manage your Enterprise by Measuring your Cash Position. Here is a spreadsheet example for calculating the CCC: http://www.dramatispersonae.org/BusinessModels/CashConversionCycleMeasurement.xls.
5. You will produce and record a 2-munite video of your Elevator Pitch and load it to YouTube ( public or private) for viewing in class. See: http://dramatispersonae.org/HowToMakeAGreatElevatorPitch.doc and http://dramatispersonae.org/ElevatorPitchWorkshop.doc. Here is a sample elevator pitch given by student entrepreneur, Daniel Beachamp: http://blog.avitu.com/2010/07/30/elevator-pitch-time/. Sean Wise has a humorous but useful take on what makes a good elevator pitch: http://www.youtube.com/watch?v=Tq0tan49rmc&feature=related.
6. If you can build leverage into your business model, a means to multiply the force exerted by your own efforts, time and brains, you will have a greater opportunity to succeed. Leverage in your business model comes primarily from these principal sources:
i. great HR,
ii. using OPM,
iii. forced savings,
iv. innovation,
v. capital equipment,
vi. location,
vii. network effects,
viii. marketing channels that reduce the problem from one to many to one to a few,
ix. branding, co-branding, co-opetition and co-creation,
x. inflation.
Test your biz model: ask yourself do you have great HR, are you using OPM, benefiting from forced savings, innovating, do you have a great location or brand, does your enterprise benefit from network effects or marketing channels that allow you to connect cost effectively with your clients or customers and reduces that task from one to many to one to a few and is your capital equipment top notch/best-of-breed & do you benefit from inflation? If so, you are probably maximizing your leverage.
Readers of this blog will know that I think that after your decision to actually start a new enterprise, your next most important decision arrives when you hire your first employee.
It’s talented people that produce revenue streams not assets so always try to hire ‘up’. I look for people with the right set of skills and experience but I am also looking for people with ‘good hearts’. These folks won’t quit when the going (inevitably) gets tough. To read more about this, see: http://www.eqjournalblog.com/?p=96.
Here is what the Oracle of Omaha had to say on the issue. It may take a few seconds for the lesson to become clear.
“In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy,” Warren Buffett.
Leverage using OPM is increased when the project’s or business’ rate of return is higher than money you borrowed. Or when you use bootstrap capital, say, trade credit, where a supplier gives you credit at low interest or no interest to buy from them or a customer gives you a deposit on an order on which you pay no interest, you are then leveraging your own efforts and capital with theirs.
You also get leverage when other people are paying off your debts. This happens when, for example, you own rental property. Every time a tenant pays their monthly rent and you pay off some of the principal using their rent, you experience a form of forced savings and a wealth effect.
I have spoken to the need to have some type of innovation in your business model; as we saw above, Steve Jobs proved that you can think your way to wealth a lot faster than you can work your way there. That’s big-time leverage…from ideas.
It would also appear self-evident that having top notch capital equipment provides greater leverage for your employees and means higher productivity.
You also get leverage from your location and your brand. In real estate terms, if you occupy a particular location, it obviously means that no one else can, so make it a good one. I
Some people think that having a great brand is nice, actually it’s essential. A strong brand creates trust and trust creates the opportunity to sell. Think about it? Ever bought anything from someone you didn’t like and didn’t trust? If you did, it was only once.
But a brand does other things for you. For example, Apple’s incredible brand, its reputation for building insanely great products, allowed Steve Jobs to cajole out of AT&T a share of their monthly subscriber revenues for the launch of the iPhone, something that no other telecom had ever granted to a cell phone manufacturer before.
Cell phone manufacturers went from selling a ’shrink wrapped’ gadget for a one-time payment in a brutally competitive market that was racing to the bottom to an industry with multiple sources of revenues, some of which are recurring: the holy grail of techdom.
Imagine how much harder Steve Jobs and Apple would have to work and how much lower their productivity as measured in revenue per employee would be without recurring revenues from iPhone app sales and revenues, advertising revenues on their mobile platform, downloads of paid content from iTunes and a share of their carriers’ subscriber fees.
From a simple question, asked by Steve Jobs, and a tweaking of his business model flowed great benefits. The harder they work, the more money they make and, in Apple’s case, this relationship has become geometric.
(Jobs has created radical change in industry after industry: personal computing (the Mac), animation (Pixar), music (iPod), cell phones (iPhone) and now book/newspaper/magazine publishing (iPad) plus perhaps television and film (Apple TV). It is truly a remarkable record of achievement.)
I was almost tempted to add a 11th form of leverage: the power that comes from co-branding, co-opetition and co-creation. Co-branding is poorly understood and vastly under-exploited. Here’s a simple example. If I was responsible for marketing BMW cars, I would ask my self what else people who buy BMWs also buy. For guys, maybe it’s a Harry Rosen suit and a Rolex watch. So perhaps my TV commercials would show men dressed by Harry Rosen looking at their Rolex watches as they step out of their BMW before playing Texas Holdem for multi-million stakes. These four brands might share marketing costs but more importantly, they leverage off each other. People who like to play Texas Holdem get introduced to BMWs and vice versa.
If I was marketing say promo products, I would use co-branding a lot. Suppose you want to sell mouse pads to golf pros to give out to their clients. Club pros usually don’t have much money but some of their students such as lawyers and accountants do. So co-brand the mousepads with all three. The lawyers and accountants will pay for it (because they want to put their names in front of a golf-playing public and this is a cost effective way to do that) and golf pros will hand them out (because it’ll be sitting on someone’s desk basically saying: ‘Wouldn’t you rather be golfing?’ and ‘Learn from the best! Call me now for your next lesson at 613.mmm.nnnn!’).
Recently, I was advising S3, Select Start Studios on how to build their newsletter list (see: http://www.eqjournal.org/?p=3052). My advice? Invite third party content.
At Exploriem.org, we get a tonne of stuff from people in our ecosystem for our monthly newsletter: entrepreneurs with new products or services, Profs who’ve come up with clever new algorithms or pieces of research ready for commercialization, providers who cater to our market (entrepreneurs and intrapreneurs/product managers) with new services to announce…
They not only provide us with more cool content, they become ambassadors for our newsletter– they have a stake in it and a stake in getting more readers for it. This is also a form of co-branding and there absolutely needs to be more of it because it provides big leverage for both. Basically, it introduces our entire ecosystem to our suppliers’, clients’ and partners’ separate but overlapping ecosystems that will almost never be entirely either one or the other.
Another form of co-branding is actually also a form of co-opetition and a source of leverage. Why do Starbucks, McCafé, Second Cup and local Bridgehead Coffee all tend to gather near the same geographic locations? It’s so that: a) that area gets branded as a coffee haven and when people feel the need, they think of a place where they have a wide choice, hence overall market grows, b) marketing by any one of these enterprises benefits the others in the group, c) unsatisfied demand is reduced (for example, if lineups are too big at Bridgehead, they can go to Starbucks and vice versa.)
Here’s how it works in the home building biz: two builders construct model homes across the street from each other and ‘compete’. One is a stucco builder, the other brick. They both advertise like heck. Someone comes to see Builder A (the stucco guy). “Ugh,” they say. “I hate stucco.” So they cross the street and buy a nice brick home. Someone else comes along and says: “Brick is like so like last century” so they go buy a stucco home.
Now if Builder A was alone, maybe he sells 1 out of 3 clients. The other two wonder off to some other part of the city. Builder B is experiencing the same thing. But if they co-locate and co-brand (even if it’s really a form of co-opetition), 1 of 2 unsatisfied clients crosses the road (going both ways) and their success ratios have changed from 1 in 3 to 2 in 3. So the equation 1(3) + 1(3) = 2 sales (read ‘1(3)’ as a success rate, i.e., ‘one of three’) has now changed to 2(3) + 2(3) = 4 sales. THIS IS HUGE LEVERAGE, right?
Co-creation is what happens in the Apple universe when you open up a platform like the iPhone or iPad to app developers. It turns out that an active, broadly developed app marketplace is essential to the sale of iPhones and iPads and one of the reasons for Apple’s wide lead in smartphones over previous leader RIM and Blackberry. By leveraging the talents of a huge number of unpaid (by Apple) developers, they extend their brand and significantly boost the utility and revenues of their devices sharing some of that bounty with third part app providers.
Microsoft decided (unintentionally) to do just that after launching the Kinect:
“Within weeks of launching Kinect, someone had hacked it and there was open source code on the Internet. Instead of freaking out, they decided to run with it and create a software development kit. It’s thinking like this that will make personalization and co-creation a key driver for how brands and companies create closer relationships with their customers,” Sondre Ager-Wick, Head of Design Strategy and Foresight, Nokia, December 14, 2011 (http://nokiaconnects.com/2011/12/14/5-incredible-ways-mobile-design-will-change-in-the-next-5-years/).
Threadless does something along these lines by inviting artists to submit T-shirt designs for production after a voting process takes place amongst their community. Biz models are developing or discovering new and interesting sources of leverage that have never been possible before.
The most obvious example of network effects is the facsimile machine. I was actually one of the first people in Ottawa to get a fax machine. The problem was: what if you had no one to send a fax to? I had to work hard to get my law firm to install one. They asked me: “Why do we need it? We have couriers for that?” “But imagine if I could send you to documents in minutes instead of hours?” I responded. “How cool would that be.”
Having the only fax machine in a town or having a fax machine that uses a communications protocol that is different that everyone else’s, is pretty useless. Having a video player that works with Beta isn’t much use if all the tapes are VHS.
More recently, network effects are apparent in Apple’s app store, Google’s search engine algorithm, Skype’s video calling, in fact, anything that verges on becoming a standard can also create the potential for network effects to take hold. You can read more about how standards are creating wealth, please refer to: http://www.eqjournal.org/?p=1366.
Leverage is also generated in Business Models that somehow manage to reduce the one to many marketing problem to one to a few. This is done, for example, by developing sales channels that include resellers. We worked on this for Amy Yee’s EventBots business. You can see our handwritten notes on this at: http://dramatispersonae.org/StartupDNA/event-bots-biz-model-redesign-march-2011-notes.pdf. Essentially, practically everyone on the planet will have at least one event in their lives that they will want to record; e.g., their weddings! So, in theory, EventBots could market to 7 billion people. Not very practical.
Instead, we worked on a model that would see EventBots selling to Wedding Planners, Event Managers, Hotels, Convention Centres, Marketing Agencies and Media Companies, political organizers, anyone who might want to record in a meaningful way some event they host or organized. This builds plenty of leverage in Amy’s model.
Your marketing efforts also generate leverage for you when you use a non-linear selling model: http://www.urbandictionary.com/define.php?term=Non-Linear%20Selling.
Lastly, if you are in an industry that is experiencing price inflation, you are benefiting from asset value increases without putting in any effort of your own, i.e., more ‘free’ positive leverage for you. That is why it is almost always better to enter into buoyant sectors where ‘all boats are rising’.
7. Lastly, you will need to write a Summary of your Business Model that is 2-pages or less that summarizes:
a. Your value proposition including its ‘pixie dust’ (http://www.eqjournalblog.com/?p=9) or differentiated value and how you can create a sustainable competitive advantage. Make sure that you are abundantly clear about the costs and benefits that you are creating for each customer.
b. How you can acquire customers and clients, including pre-launch clients, in a cost effective manner through guerrilla marketing, social marketing or direct marketing. Explain how you might use negative cost selling to achieve this: http://www.eqjournalblog.com/?p=425.
c. How you integrated the Internet into your business model. (See: http://www.eqjournalblog.com/?p=1609).
d. How you can bootstrap your business and self-capitalize it (http://www.eqjournalblog.com/?p=1162).
e. How you will build cashflow and create a cash conversion cycle that is workable (http://www.eqjournal.org/?p=2257).
f. Why you and your team are the right people to execute this model.
@ProfBruce
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