Tech IT Easy » business models

The Poor Man’s Business Model—How Out-of-the-Box thinking can generate tremendous value for customers

Vincent van Wylick — Tue, 01 Dec 2009 13:17:21 +0000

I’m always fascinated by business models, i.e. at how entrepreneurs and companies put together services in order to make money from them. I’d call it the source code of business if I hadn’t seen the other source code in Luxembourg —legal and accounting—but arguably that’s more like binary code, i.e. 99% unintelligible.

Sarah Lacy writes about SMSONE, a ultra-local news provider in India similar to Outside.IN, a Union Square Ventures funded US-only company that provides news updates via the web. SMSONE does it, as the name suggests, via SMS. And it spreads through a franchising model, working with local entrepreneurs that pay a franchise fee and also collect a share of the advertising revenue from locally focussed businesses. It is able to do this because of something that apparently doesn’t exist in the US (but does in Europe): receiving an SMS in India doesn’t cost the recipient anything.

When reading about this, I was immediately reminded of a similar business model employed by a Dutch entrepreneur in Russia, Ms. Annemarie van Gaal, founder of Independent Media, a company that distributed Russian versions of magazines like Cosmopolitan, Marie Claire en Good Housekeeping (source). When she spoke at the Star entrepreneurial seminar in Rotterdam a year ago, she told us about how she differentiated herself from the competition (paraphrased as I haven’t got my notes with me):

The trouble with getting your magazines distributed in Russia was that you had to pay quite a lot of money (some would call it bribes) to companies that would then take care of it… badly. Instead van Gaal decided to do it differently. She would hire street kids to distribute her magazines, similar to the gold days of newspapers: the newspaper boy.

If you read Sarah Lacy’s account on Techcrunch, you’ll see that SMSONE does it similarly, hiring local kids, often without much education, to take care of distribution. Doing it via official channels is likely a nightmare over there, and centralising distribution kind of defeats the purpose of micro-news.

It’s a different way of thinking, which many of us westerners don’t have. I mean, would you entrust your products to a beggar on the street or to a street musician? Not only is it probably against the law (except if the government does it), we pride ourselves on our super-organised infrastructure, where anything from temp-workers to interns are there to provide companies with a flexible workforce, and anything from printing presses to mobile internet exists to produce and distribute your stuff.

Of course, I wouldn’t just leave you with these two examples. In the beginning of 2008, Boston Consulting Group published a study of “local dynamos”— domestically focussed companies, which use creative business models to capture value from emerging markets that are filled with challenges, like lacking infrastructure and low-income consumers. The map below shows how widespread these companies are.

Some very interesting examples are mentioned, like:

Shanda, a Chinese gaming-company, that, in order to combat software-piracy, focusses on providing interactive services through gaming, services that are impossible to pirate. And to overcome a lack of a financial infrastructure to pay for online services, they work with pre-paid cards.
Indian CavinKare, which sells cheap sachets of shampoo through small local retailers, while using educational marketing to teach customers how to use their products.
Goodbaby, which targets the many 1-child families in China, who are both willing to spend more on their child than multi-child families would, but are also in need of education.
Amul, an Indian food-and-beverage-marketing-organisation, which collects and pays for milk locally, while tracking all operations via satellite and uses ERP solutions to make analysis based on the data and gauge whether future supply needs to be increased or decreased.
Wimm-Bill-Dann Foods (Russia), which works extensively with local partners, and has devised leasing schemes for expensive machinery to boost their production and is able to serve 280 million consumers nation-wide.

The BCG, of course, takes the stance of its customers, Western companies, and the study is mainly aimed at how multinational companies (MNCs) can replicate 6 of these dynamo’s advantages, in order to compete with them. They are:

Customising to local needs – which involves first understanding these needs, and then meeting them.
Devising innovative business models that overcome local challenges – a logical follow-up to the last point, how to make money from the info you gained.
Leveraging the latest technologies – meaning that these emerging economies are less burdened with traditional infrastructure and quicker on the uptake of more affordable, newer, and easier-to-spread technology, e.g. mobiles.
Beneﬁting from low-cost labor and overcoming shortages of skilled labor – there’s two ways to look at this; a local workforce will be better equipped to interact on a local level, a highly-trained workforce will be better equipped to run a business. Tough call.
Scaling up fast – Russia, India, China, Brazil, etc. are all giants with the promise of huge rewards when you capture them. Many of these dynamos grow quickly through both through acquisitions and building up their network of suppliers and distributors.
Sustaining long-term hypergrowth without imploding – this kind of follows on to the last point

Some of the Western companies mentioned, which have managed to compete on a local level, include:

General Motors, which has adapted its luxury-liners to meet the demands of its Chinese customers, who are usually sitting in the back;
LG, in China, which has learned that the audio-quality of its televisions is more valued by its customers, who often reside in noisy environments;
Carrefour, which has started to work with local municipal governments in China, as these don’t meddle in their operations like local dept. stores would, and are able to provide access to prime locations;
Perfetti Van Melle, in India, a candle/chewing-gum manufacturer, which has found local means to advertise, interacts frequently with local partners, and has adapted its products to local tastes;
and Yum! Brands, which owns Pizza Hut and KFC, and has adapted its menus to meet local Chinese tastes, started a new food-chain aimed specifically at the market, and uses its international expertise to integrate IT, lean supply chains, and a higher level of food standards into their offering.

It shows the value of out of the box thinking in terms of reaching people, and I believe that traditional “Western” thinking should long ago have been thrown out the door anyway, particularly in light of the troubles that media-, automotive, and financial industries are going through. We are in the flux of disruptive innovation and only those quickest to grasp new technologies and ways of thinking are able to survive another day.

No shortage of lessons on that from entrepreneurs in emerging economies…

Vincent out

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Creative Business In the Digital Era

Georgia Psyllidou — Mon, 31 Mar 2008 22:52:50 +0000

Unlike other Mondays’ reputation, March 17th was a bright one in London.

…Post-reporting from the “Creative Business in the Digital Era” seminar, in 01zero-one centre in Soho.

The idea in the CBDE was to bring together people from different walks of the creative industry (music, cinema, publishing, photography…) whose common point is the zeros and the ones: digital works and concepts.

…so as to exchange on intellectual property, open rights, business models, digital marketing, creativity, its stimulation, its canalisation…

If it wasn’t for Suw Charman-Anderson and Michael Holloway from the Open Rights Group (a growing NGO community focusing on Digital Rights Issues) I would have probably stayed home and the other guys may have crossed each other on the pub. So thank you guys for setting up and animating the whole day!

The project has a wiki, at our disposal beforehand – a great thing, given the variety of the people attending.

On Monday we warmed up with a notion-shower by Suw, then got in the shoes of Radiohead and their In RainBows experiment and finally had some real entrepreneurs of the digital era sharing their vision:

A great Tom speaker and Reynolds author of “Blood, Sweat and Tea” distributed under a Creative Commons Licence.

John Buckman, multi-entrepreneur, mostly known as Magnatune CEO and as Bookmooch owner.

And finally, David Bausola and Rob Myers, the principal conceptual stormers behind the project “Where are the Joneses?”.

What are the Joneses? Based on a series-like format, it is mostly a transmedia chameleon; the product is shaped by its environment and its audience, the significance changes depending the angle you choose to look at it.

Nobody knew in advance where the joneses were, the public decided the how-what-where, sending them around Europe to find their siblings, participating themselves in the scenario, in the acting etc.

Mr and Ms Jones, if you came to France you might have recognised Laurent Godard as your sibling : he’s the father of Flateurville, a “discussional” building of a village to finally come up with a film. How? Through regular interactions with the audience, in a “salle de jeux” every Thursday evening. More to discover “sur place” if you happen to be in Paris.

The whole experience made me more aware of the fact that prediction is a quite autistic procedure in digital business, you’d better keep it away if you want things going on smoothly. Well I suppose that it had always been like this, long before I woke up, but in digital business where cycles are faster and faster, prediction seems really outdated.

So, just for the pleasure of philosophizing a bit, prediction may have been only a temporary solution for the industrial first era of business, serving to bridge the gap of the missing dialogue with the “consumer”.

John Buckman made this quite clear to me when discussing on his Magnatune and Bookmooch activities where he applies a trial-error-adaptation schema.

“listen” and “reply” in a way that makes sense, seem to form the principia of digital business for those who do it. The commercial transaction being replaced by a commercial natural language dialogue? trial and error this question as well…

Shall this be confirmed, does it mean we’re finally moving on from Industry to Internet? spring feels good…

(to be internetically correct, if someone who reads this is on the south hemisphere, enterring fall, please replace the season by the metallic mecanism as far as spring is concerned, it also feels good)

To get back to last Monday,

My personal favourite gadget presented that day is CCMixter, a pool-tool of music creativity on a “molecular” level : you can post and find samples, remixes, a capellas and build on them since they are licensed under creative commons. Quite solid concept, as it connects the two extremities of the 2.0 value chain: the artist with the user. Plus it teased some of my memory parts referring to other music tools, like C-sound. I wonder what applies in the case of music-code copyrights…

Cheese.

Accuse me of writting cheese, “come on Georgia, stop name dropping and all”

Nope nope, cheesy or not, the sensation of this seminar was like a cute baby incarnating the taste for openness, the playfulness of creativity and the cosiness of legally-correct digital business.

loved it.

Cheers.

Georgia

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