Do You REALLY Know Your Business Model?

Do You REALLY Know Your Business Model?

Clarity is a repeated theme of mine and The Disruption!, whether in regards strategy or how you make money. Listening to Josh Kaufman discuss his “Five Parts of Every Business” and the need to define your business model while presenting this information clearly magnified the point.

 

What Are The “5 Parts of Every Business”?

Kaufman says in every business model there are “5 Parts of Every Business,” each of which flows into the next:

  1. Value Creation: A venture that doesn’t create value for others is a hobby.
  2. Marketing: A venture that doesn’t attract attention is a flop.
  3. Sales: A venture that doesn’t sell the value it creates is a non-profit.
  4. Value Delivery: A venture that doesn’t deliver what it promises is a scam.
  5. Finance: A venture that doesn’t bring in enough money to keep operating will inevitably close.

 

Value Creation

Kaufman defines Value Creation as “Discovering what people need or want, then creating it.”

Most customers don’t know what they need or want. As has been pointed out many times, people wanted a faster horse, not an automobile. However, whatever they want, in reality, they are just seeking a solution to a problem. Therefore, the critical issue is determining “What problem you are trying to solve?” Or, as Clayton Christensen said, “What is the job the customer is hiring you or your product to do?”

Defining this is often hard, as many companies don’t know what job their clients are seeking them or their products to provide. I have discussed this before. However, as the adage says, “people aren’t buying drills, they are buying holes.” This is a vital part of your business model.

So, working with your team to determine “the job to be done” and your “Core Customer” is well worth the effort because you can better describe what you do, and all your employees will better know what you do and how what they do impacts it.

 

Marketing

Kaufman’s definition is “Marketing is defined as attracting attention and building demand for what you have created.”

In today’s digital world, with Google, Facebook, Linked In, and Instagram, marketing separating yourself from the masses is hard, especially if people don’t understand the product and service. Therefore, by focusing on the job to be done or the problem you are solving, it easier to stand out among the crowd.

Also, as you identify what the “job to be done” is, you can better identify your Core Customer. Remember a Core Customer is:

  • An actual person with needs and wants. If you sell B2B your core customer is still a person because you have to convince a person to buy.
  • Who buys for the optimal profit.
  • Who pays on time, is loyal, and refers others.
  • Has a unique online identity and behavior; and
  • A customer who exists amongst your clients today.

Build Direct started as a company supplying contractors. However, it soon realized that while contractors were a key customer component, they were not the company’s Core Customer; instead, Build Direct’s core customers were young female DIYers interested in the products and education. Build Direct focused its marketing according to that recognition and started providing much educational content for young female DIYers. This specific marketing drove much better brand recognition and engagement.

Also, South Shore Furniture in Canada identified their core customer as “Sarah.” Sarah is so vital that there is a mannequin of Sarah in all meeting rooms, so no one forgets whom they are seeking to serve.

Besides, marketing to the correct demographic is easier and more fruitful if you know your Core Customer. Without this information, the marketing section of your business model is just hope, not a strategy!

 

Sales

Kaufman defines sales as “Turning prospective customers into paying customers.”

However, as Jeffrey Gitomer, put it “People don’t like to be sold, but they love to buy.” So the key is how do you move prospects into customers? Businesses have to earn their prospects’ trust and help them understand why it is worth paying for the offer. Another way of looking at this is, “What is your brand promise?”

Companies need to know what their brand promise is. For example, Starbucks is “Love your beverage or let us know and we will always make it right.” Some organizations may have supporting brand promises to prove more definition of the brand promise. Your brand promise must be measurable, because as Peter Drucker said, “What gets measured gets managed.” So if it is measurable and measured, the organization can ensure that it meets its brand promise, which provides more assurance to the prospect. Finally, with a clearly defined brand promise that is measurable, the organization ends up saying “No” more than “Yes” to opportunities and ideas since they will damage the brand promise.

Since no one wants to be taken advantage of, Sales is about educating the prospect to identify what is essential to convince them you can deliver on your promise. A clearly stated brand promise that is measured and quantified increases the ability to persuade the prospect to purchase from you. It amazes me how many business models don’t have a brand promise.

 

Value Delivery

Here Kaufman defines Value Delivery as “Giving your customers what you’ve promised and ensured that they’re satisfied.” With this, I have no issues. Anyone who doesn’t deliver what they promised is effectively a “scam artist.”

To ensure you that make the customer satisfied, you have to exceed the customers’ expectations. A popular way to determine customer satisfaction is through Net Promoter Score scores which we see more and more (if you are looking for help with NPS surveys of your customers, contact me). You want more promoters and detractors. However, the NPS score tells you what the customer thinks after experiencing the service or product. Companies need to develop systems that ensure the service or product is exceeding expectations.

A great example is the Ritz Carlton’s policy whereby any Ritz-Carlton employees can spend up to $2,000 per incident, not per year, to rescue a guest experience. This policy ensures that the customer is getting a great experience because it empowers employees to fix problems and provides the customers’ concerns are solved quickly. As David Marquet says, “Move the decision making to where the information is.” That is what Ritz is doing, and it is empowering employees and making customers happy.

Companies that have outsourced many functions to cut costs, so any customer has difficulty reaching the people they need or have to spend five minutes going through a phone tree to contact some is already failing at this.

Ensure your business model tracks customer satisfaction and you have ways to ensure that customers are happy.

 

Finance

Kaufman defines finance as “Bringing in enough money to keep going and make your effort worthwhile.”

As I have pointed out, this is key, and many people don’t realize the situation because of flawed analysis and lousy modeling. However, the key for any organization must be a well-defined “Profit/X.”

Many organizations don’t have a well-defined Profit/X, but there is a lack of discipline that ensures good financial performance without it. Profit/X is some unit of scale, and profit can be gross profit, net profit, EBTIDA, or EBIT. Examples that I have seen are:

  • profit per airplane
  • profit per job
  • profit per customer
  • gross margin per delivery
  • profit per employee

There is no correct Profit/X, just the one that works with your business. One organization that did deliveries chose Gross Margin/Delivery, which focused on reducing the cost of delivery to maximize profit. Once Profit/X is selected, the entire organization must seek to meet or exceed it; thus, everyone needs to understand it and how they drive it. With that focus and discipline, the organization is more likely to meet its financial goals and objectives.

 

Summary

In summary, the organization needs to be able to define its business model by the following:

  • Define the problem its products or services solve or, more precisely, what job they do.
  • Who their Core Customer is so they can market to them effectively?
  • What is their brand promise, and how is it measured?
  • That their customers are satisfied, returning and recommending.
  • That they have identified their Profit/X so that they are profitable.

Doing this work is an excellent exercise for any leadership team to help bring clarity to your organization. If you need assistance doing it, contact me. Good luck, and may your business grow.

 

 

Copyright (c) 2021, Marc A. Borrelli

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TikTok, Why and Should You? Yes

TikTok, Why and Should You? Yes

Even if you are not on TikTok, you have probably seen the videos. In the world of social media, you’ve got to move with the times and if you’re not fast, you’re last. TikTok is the fastest growing social media platform with more members than Snapchat, and as a marketer, you shouldn’t ignore its rapid growth and rise in popularity. Currently, TikTok is taking share from all the other social media channels and growing like crazy. If your business is B2C you need to understand it. If you are B2B, you should so that you understand the under 30s coming your way!

What is TikTok?

  • TikTok is a mobile app that allows users to create a short, 15-second video of themselves, often featuring music in the background, which can be sped up, slowed down, or edited with a filter.

  • Users can film their reaction to a specific video, and with the app’s “react” feature, place it in a small window that is movable around the screen.

  • The “duet” feature allows users to film a video alongside another video. The “duet” feature was another trademark of musical.ly which TikTok acquired

  • Users to set their accounts as “private” and can choose whether any other user, or only their “friends,” may interact with them through the app via comments, messages, or “react” or “duet” videos.

  • Users also can set specific videos to either “public,” “friends only,” or “private” regardless if the account is private or not.

  • TikTok’s “for you” page is a feed of recommended videos to you based on your previous actions on the app, consisting of what kind of content you’ve liked.

  • TikTok has over 1 billion all-time downloads, and its popularity and influence have only continued to spread.

  • TikTok enables everyone to be a creator and encourages users to share their passion and creative expression through their videos.” Music is the gold in TikTok, and the platform works with musicians whose videos are going viral to help them improve the use of the platform.

While TikTok is a social network, it has nothing to do with one’s social network. It doesn’t ask you to tell it who you know. The app has a “Discover” page, with an index of trending hashtags, and a “For You” feed, which is driven by an AI system that analyzes and tracks user behavior to provide a continually refined, never-ending stream of TikToks optimized for your attention. Essentially, the platform is an enormous meme factory, and giving small pieces until you yell enough!

 

How did it get here?

ByteDance, a Chinese tech company, founded in 2012, owns TikTok. In 2016 ByteDance launched a short video app in China called Douyin, and Douyin took off. Within a year, Douyin had 100 million users and 1 billion video views a day. A year later, Douyin decided to expand outside of China to select international markets under a new name – TikTok. As TikTok shot up the charts in other Asian markets, in the US, a short video app was taking off, Musical.ly, which focused on 15-second lip-syncing music videos. When Vine closed in October 2016, many of its influencers moved to Musical.ly to continue their work. In November 2017, ByteDance acquired Muscial.ly for $1 billion. In August 2018, ByteDance announced it was shutting down Musical.ly and merging it with TikTok. In December 2018, TikTok peaked in the US with 6 million installs that month. ByteDance received a three-billion-dollar investment from SoftBank, and last fall, it was valued at more than $75 billion, the highest valuation for any startup in the world.

 

How does it make money?

TikTok generates a million dollars annually, according to Crunchbase. However, TikTok is aggressively investing in growth right now and is grabbing market shares away from other popular social media channels.
A few potential monetization strategies might be:

  • Advertising revenues generated via targeted ads (similar to YouTube)

  • Allowing content creators to monetize their content as a user-generated platform is critical to the platform long-term success

  • A subscription model for original, more extended form content from the platform that assembles the best short-form content

TikTok has grown so fast that Facebook has taken notice and is building an app, Lasso, to compete against TikTok. However, given TikTok’s position, that may not be easy. TikTok is following its users of a specific demographic around the web via paid ads, and it appears to be ubiquitous. It is blitzscaling to gains as much growth and share as fast as possible.

 

Some TikTok Stats

  1. TikTok was downloaded more than 660M times in 2018.
  2. TikTok is more popular on Android than iOS with 80% of users on Andriod
  3. More than 500 million people globally use TikTok monthly, and 26.5 million are in the US
  4. TikTok’s user base is primarily based in India at 43% of all users.
  5. 66% of users are younger than 30-years-old.
  6. Users typically spend around 52 minutes per day on the app.
  7. In-app purchases increased by 275% year-over-year.
  8. 29% of monthly users open TikTok every day.
  9. The #RaindropChallenge has over 685.7 million views on TikTok.
  10. Jimmy Fallon’s #TumbleweedChallenge created 8,000 videos with over 9 million views in seven days.
  11. There are more than 5 million #InMyFeelings challenge videos on TikTok compared to 1.7 million on Instagram.

 

The Content

TikTok is available in 150 markets. Typically built around music, language doesn’t pose a significant barrier for its videos. As few of the videos have anything to do with the news, they don’t quickly become dated. Kids do TikTok better than adults. According to Jack Wagner, a “popular Instagram memer, “I haven’t seen one piece of content on there made by an adult that’s normal and good.” However, adults are also using the platform, including:

  • Arnold Schwarzenegger, riding a minibike and chasing a miniature pony

  • Drag queens

  • Opera singers

  • the Washington Post

  • dogs on Instagram; and

  • The self-made celebrities of Generation Z.

 

 

Why it is appealing

The platform doesn’t pretend to require a good reason to visit; the only reason is it serves videos that retain your attention. Through its AI system, half an hour has passed before you realize it. What makes it unique is that unlike Instagram and Facebook, it doesn’t make us feel irritated, looking at friends having a better life. The whole family can watch together if the content is appropriate, making it more fun and engaging rather than falling into our closed silo with our device.

Further, TikTok focuses on whatever will retain our eyeballs, and it provides the incentives and the tools for users to copy that content with ease. The platform then adjusts its predilections based on the closed-loop of data that it has created. The scary thing is that the algorithm provides what we want, and we deliver what it wants. When do we know what the difference is between the algorithms and us?

In addition, TikTok has a couple of differentiators. First, as a Chinese company, it has huge market penetration in China, unlike many of the other large social media companies. But TikTok has local market adoption more than other social media companies, helping get more user attraction. Finally, TIkTok is focused on developing local creators in each market and limiting influencers.

 

US Government’s Concern

In January 2019, the Peterson Institute for International Economics, an American think tank, claimed that TikTok poses a national security threat to the West. It noted the app’s popularity with Western users, including armed forces personnel, and its ability to convey location, image, and biometric data to its Chinese parent company, which is legally unable to refuse to share data to the Chinese government. There is discussion in Congress about legislating or banning it, but for now, it is still up and running.

 

So Why Should You Care?

Brands are slowly appearing on the platform. From fashion brands like River Island and Guess to restaurants like Chipolte, to massive sports teams like NFL’s New York Giants, an array of favorites taking up space on the channel now. If your demographic includes Generation Z then you should definitely be considering TikTok as a brand channel. Also, remember that as teens are often ahead of the curve on most things, so even if Gen Z isn’t your thing, your actual target audience may be moving to this platform in the near future so it’s worth reserving your handle and get experimenting!

 

© 2019 Marc Borrelli All Rights Reserved

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