Archive for the ‘Planning’ Category

 

aviramLong ago in the dot-com era, business models were the rage. But along with other questionable notions like cost-per-eyeball and stickiness, the concept of business models has fallen into disuse. It’s now time to revive this powerful shortcut to profitable thinking.

What is a business model and why would you need one?

A business model succinctly describes how your business will make money. It is shorthand, a model–insuring that all your business bases are covered, detailing only the essential elements: how you produce a product or service people need and want, how you put that product in their hands, and how you make a profit.

That seems simple enough, doesn’t it? But have you actually gone through this exercise?

Have you taken the time to consider the critical factors for your business success, making sure you have adequately addressed each one?

Suppose your business is already generating a profit. Do you need a business model?

Consider this: If you can’t describe–briefly and to the point–how your business performs each critical function, you are probably not earning the most money possible from the opportunities available to you.

But a business model is more than just a list of the essential elements–it is a cohesive narrative which you can communicate easily–to customers, vendors, lenders, investors, employees, anyone…

And just like a financial model–which allows you to identify and tweak various components like lead conversion rates or the cost of money–a business model helps you identify, then tweak, individual components to increase your profit.

There are four key parts to a solid business model:

The Value Proposition

Your value proposition links the individuals and organizations in your market segment to the products and services you offer, via the unique constellation of ‘value elements.’ Your value proposition answers the questions: who are they buyers, what will they buy, and why will they buy it.

The Production System

Some people call these operations. We like ‘production system’; it states clearly that this is about producing value. Your production system is the way you deliver your company’s unique value to your customers, in the form of products, services or both. It could involve creating something in-house or outsourcing. It could involve manufacturing from raw materials, assembling components, or even buying finished goods for resale. It could involve providing services with your own staff, using outside contractors, or assembling a team of virtual contributors.

The Distribution System

Your distribution system includes those parts of your business which identify potential buyers and helps them buy your product or service. This is what people traditionally think of as marketing and sales. It also includes logistics decisions like format, packaging, and delivery mechanisms.

The Profit Formula

This is how your company is going to make money. As it is said, do the math! You cannot buy high and sell low expecting to make it up on volume, regardless of what people hoped in the dot-com era.

Buy low and sell high will make you money, but unfortunately that little bit of info that doesn’t tell you quite enough to get rich. You must buy low, make whatever you buy worth more via some kind of added value, and then sell high enough, over and over again. Your profit formula describes how you are going to do that.

Of course, there are numerous other secondary components to running a business, but your business model will only include them when they are pivotal to your particular business design. For instance, a company which provides on-call engineers would include its special method for recruiting qualified engineers, which in most companies would be considered part of the HR function.

If each element works well on its own, the value proposition is sufficiently unique and compelling, you can economically and reliably produce value for your market, you have a repeatable and cost effective way of identifying and selling to customers, and finally you can sell things for more money than they cost. You will make money. But if any part of the model does not work, in the long run, and the long run could come quite quickly, you will go broke.

Your first step to profiting from a business model is to describe your own. List each of the four headings on its own fresh sheet of paper. Then write, in narrative form, how each works in your business. This may take one paragraph, it may take a page. If it takes any more it is likely too complicated.

Make sure you can describe each clearly and simply, value proposition, production system, distribution system, and profit formula. If an area is not sufficiently clear to you, it needs work, immediately. Because this area is holding back your business and costing you money.

Avi E. Ram

www.Araytha.com

 

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Think Big and Change the World

Posted: July 12, 2015 by Bill Cunningham in Innovation, Planning, Startup

bill-cunningham-sc“Whatever you are thinking, think bigger” – Gaye Crispin

Entrepreneurs love to think big. Go big or go home. Life is too short to think small things. And so on.

Of course the first spark, that twinkle in your eye may be small at the start. Taking your idea to a full-blown entrepreneurial rocket ride to Mars requires big, big thinking. Look back at “really cool” ideas that have changed the way the world works.

The music business has gone through tumultuous change since Edison figured out how to record sound and play it back. From the first 78 rpm record which begat the LP Vinyl record which begat the infamous 8-track tape player which begat an even more convenient cassette player which begat the CD and DVD revolution all leading up to a totally digital downloading economy. And now this is birthing the streaming economy so that you can have 14 million songs at your fingertips.

Did Edison even have a clue of what was to come. Of course not, but he imagined great futures with his technologies.

Uber is transforming the transportation (and logistics) business in many ways. Whenever a discussion about Uber occurs, people talk about how they ambushed the taxi companies — they had no clue that competitive force was growing. Look deeper into how Uber is becoming part of our urban fabric and you will find more industries for which Uber is becoming a competitor. First of all, there is the automobile industry — many Uber riders say they leave their car home on weekends and party on down to Over-the-Rhine so they don’t have to worry about having that extra drink. So if you use your car two fewer days a week, your car will last longer — and you won’t buy as many cars in your lifetime — completely changing the car industry forecasts.

Many Uber drivers earn a decent living driving revelers back to their cars the morning after a wedding reception or big night on the town. So the number of DUI’s and police required go down. There are fewer life threatening injuries — so emergent health care population reduces. Fewer court dates, attorneys and doctors out of work and safer roads are all a result of Uber’s enabling people to be more responsible — and it is economical — so the market forces are driving this new-found responsibility! Imagine that.

As Uber expands it reach into new markets, (now funded by Google to the tune of $225M investment last year) more changes will proliferate naturally through these market forces. Buying groceries, picking up kids after school, and filling up space on tractor-trailers will benefit from Uber and Uber-like startups. The impact gets magnified and duplicated across many market segments.

One of the key elements to success in your startup is the belief that you can create big ideas. If you are not creating big ideas, then you won’t get the time of day from investors. Dean Kamen, inventor of the Segway, raised the first part of a $100 million round without showing anyone a business plan. Why did those investors invest? Because Dean Kamen  was a big thinker — he had a track record to doing big things (Like inventing the mobile insulin pump when we was a sophomore in college — and that was before he dropped out.)

Swing for the fences, throw the long ball, skate to where the puck is heading and go for the gusto!

 

Finding Money in Your Company

Posted: March 15, 2015 by Bill Cunningham in Manufacturing, Money, Operations, Planning

bill-cunningham-scOne of my business school professors quipped, “That business doesn’t have any problems that money won’t solve!” However, when you are that business and you need cash to stay in operation – it really isn’t that funny. Here are some tips to keep you going,

Start by looking for quarters in the sofa. When cleaning your house, and you lift up the cushions and find a few quarters – or when you reach in a pair of pants and find a five-spot, it gives you a great but short-lived feeling of wealth. The same can be true in your business if you look hard enough.

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The Case for a Strong Board

Posted: November 9, 2014 by Bill Cunningham in People, Planning
Clay Mathile, Founder of IAMS

Clay Mathile, Founder of IAMS

If you’re willing to work and subject yourself to the scrutiny of other’s [creating a board] is the best investment you’ll ever make in your life.”

     — Clay Mathile, Aileron’s founder and former chairman of Iams Corporation.

Entrepreneurs carry a reputation of being self-made, uber-confident and highly capable business people. It takes guts, chutzpah and moxie to create something out of nothing – especially when others can’t see around the corners that you can. As a deep subject matter expert in your field, you are the reigning monarch leading your team into battle with great products, great vision and great expectations.

bill-cunninghamYet, great entrepreneurs build a network of support to fill in the gaps – you just can’t be great at everything. When you run into challenges that need some brain power to solve – who are you going to call? Maybe Ghostbusters can help, but more than likely you should rely on the wisdom of a well-formed and functioning board of directors or board of advisors.
So if you have never created, recruited or managed a board – how do you get started? Aileron offers several courses in board creation and management including sessions for board members to learn how to become most effective. Assuming you can’t fit that into your schedule, you should be begin by putting together a list of attributes of ideal board members. Diversity on a board is great – familiarity on a board is not so great. You want to have different perspectives from industry and functional areas to add value to your interactions. Talent that represents finance, marketing, sales, your specific vertical, organizational (people) expertise can be extremely helpful. Recruiting your accountant, attorney and your Uncle Joe may not give you the answers you need to tough questions.

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Fundraising and Risk

Posted: October 12, 2014 by Dov Rosenberg in Money, Planning, Startup

dov-rosenbergOne of the most frequent questions I get from entrepreneurs getting started is, “How much money should I raise?”  In the imaginary world where startup pro formas originate, it is clear how much total capital will be needed to build the business to breakeven, but not when each portion of that capital should come in.  And how you answer that can have a significant impact on the amount of dilution you take over time as a founder.

One extreme would be to just raise all the money up front.  While this approach greatly reduces the total cost of fundraising, it will almost certainly be a worst-case scenario for founder dilution, assuming your valuation goes up over time (which it always does, right?).  So, raising all of that cash at the beginning is obviously not the solution.

Perhaps you could try to raise cash just-in-time, as you need it.  By never raising more than you need, you would minimize the dilution that you’d take overall, again assuming your valuation continues to increase.  But there is a cost to fundraising, including things like your time and effort, out-of-pocket travel and legal expenses, and so on.  And the more times you do it, the more times you disrupt your business and put needed growth expenses on hold.  Definitely not an effective way to grow a company.

So where’s the happy medium?

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Are You Really Solving a Problem?

Posted: September 14, 2014 by Tim Metzner in Innovation, Marketing, Planning, Startup

TIM-METZNER-BWOver the last few years I’ve spent a lot of time with entrepreneurs at the very earliest stages, including many Startup Weekend events. One common pitfall that I see many teams fall into is starting with an idea for a “great product” versus a specific problem that they are trying to solve.

What’s the difference? Glad you asked.

Starting with the Solution

I understand why most people tend to start here, it’s how most of us think. The high profile successes seem to be from “inventors” who are creating things so new and different that the world doesn’t even know they need it. Quotes like Henry Ford’s classic “If I asked people what they wanted, they would have said a faster horse”, and iconic leaders like Steve Jobs, perpetuate the belief that this is how great companies are started.

The trouble is, most companies aren’t Apple. Sure there will always be room for highly disruptive companies that are reinventing entire industries, but this is unquestionably the exception. The reason starting with a solution is so difficult is you literally have to create demand for a product; it’s a solution searching for people with a problem to solve. (more…)

Startup 101: Build an Advisory Board

Posted: January 11, 2014 by Vance VanDrake III in Leadership, People, Planning, Startup

vancevandrakeA strong advisory board, which shouldn’t be confused with a board of directors, is the single most valuable asset that a start-up can have.  An advisory board is generally a group of three to five individuals that advise the company, often for free, in a capacity that is less formal than that of a board of directors.  The value can be limitless, but some of the more significant benefits include the following:

  1. Your team is more important than your idea
    An A team with a B idea is more investable than a B team with an A idea.  Sophisticated investors bet on people, not ideas. This approach has become even more commonplace considering most start-ups pivot three or four times before settling on a business model. The original idea often evaporates and only a strong team can carry the company forward.  An advisory board gives you an instant team, often without giving up any equity, that can build credibility. Smart entrepreneurs will beef up an otherwise thin “management” slide on their deck with an impressive advisory board.
  2. It wont cost you anything
    Most advisory board members are not compensated and entrepreneurs should avoid, if possible, any payment other than picking up the occasional lunch tab. Entrepreneurs are the new rockstars and most founders don’t realize that being affiliated with a start-up is attractive; don’t be afraid to ask.  Prospective board members are likely to be flattered by your offer and will welcome the opportunity to lend a hand.
  3. The perfect advisory board member
    An advisory board member should be selected because they have (a) access to capital, (b) credibility, or (c) can provide a skill set that the current team lacks.  Every advisory board member should have at least one of these characteristics, but the perfect board member has all three.  Make a list of the skill sets that your business needs and draw up a “wish list” advisory board.  Leverage your network and start making “asks” of people that match your needs.
  4. Minimal time commitment
    An advisory board should not require much time from the founders or from the board members. Because advisory boards are generally not compensated, the time commitment should be less than a few hours a month. Many advisory boards never meet formally; entrepreneurs can reach out to specific board members when the need arises. The minimal time commitment can help entrepreneurs attract prestigious, but busy, prospective board members.
  5. Maximum flexibility
    Most advisory board members are not bound by contract or formal agreement. As a company grows, its needs may change and more prestigious individuals may be asked to serve.  The informality of an advisory board allows new members to be added and less relevant members need not be formally removed. There is no cap on the number of members allowed, which can help start-ups build a robust team.

joshua-johnson-thumbnailI was 23 when I determined to live the life of an entrepreneur. Like many, I was seduced by the idea of independent wealth, “owning my time”, and changing the world (all in the same breath, of course). These goals alone were not my vice. How I pursued them and the beliefs I acted out while driving toward success have often led me off course. I always believed that if I just worked harder and longer hours that it would equal a greater chance of success. While a diligent work ethic is important for our character and provision, I realized that too much of a good thing can also be destructive.

Have you heard that story of the woman who died from drinking too much water?

In essence, water intoxication occurs when a person drinks so much water that the other nutrients in the body become diluted to the point that they can no longer do their jobs. I believe this is a lot like the American work culture. We strive so hard for success, wealth, and sometimes fame, that we lose sight of the other necessary nutrients that give us life.

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Rest, Reflect, Act

Posted: December 29, 2013 by Chuck Matthews in Culture, People, Planning, Startup

Dr. Chuck Matthews“And now we welcome the New Year, full of things that have never been.”

          – Rainer Maria Rilke

With the 2013 rapidly fading into 2014, it is fitting that we take time at the end of the year to pause and reflect on where we have been and where we are going.  There is something exciting about looking back on successes, failures, good times, and not so good times and realizing that the future beckons us to look forward to new vistas, hopes, fears, and dreams.  The writer Carl Bard captured this excitement very succinctly when he said, “Although no one can go back and make a brand new start, anyone can start from now and make a brand new ending.”

This is especially true for entrepreneurs, who constantly seek to solve problems, introduce new methods of production, innovate new products and services, and generally seek to meet and exceed customer expectations at every turn. 

A very successful entrepreneur once told my class that entrepreneurs are doers not dreamers.  They take action – not tomorrow, but today.  They get off their butts and make something happen.  In essence, entrepreneurs marry thought (ideas) and action to generate goods and/or services that address a “pain point” in an unserved and/or underserved market.  They execute ten simple steps (six strategic and four tactical) that propel them forward.   (more…)

The Future is Bright

Posted: October 9, 2013 by Bill Cunningham in Ecosystem, Planning, Startup, Technology

“The Future’s So Bright, I Gotta Wear Shades”

              — 1986 hit song by Timbuk3

bill-cunningham

sunglassessmallSara Specter, editor at Modern Materials Handling, asked me to review and give feedback on a draft of the US Material Handling and Logistics Roadmap, a synthesis of over 200 participants from all facts of industry, academia and government to predict the state of the industry in 2025. Since Material Handling and Logistics touch every facet of our life from what we eat and wear to how we drive and play, it makes sense to think about how our organization would fit into that world.

My first impression: Technology will disrupt the market more than we can imagine. At Promat 2013, a logistics trade show, the futurist, Edie Weiner, talked about the speed of technology change: “It is happening at an exponential exponential rate, and I did mean to repeat myself.”

The roadmap thinkers envision innovations such as “same day” and even “same hour” deliveries. While this seems like a ridiculous notion that we would need something the same hour, look back to the 1970’s where we thought next day delivery was limited to extremely urgent situations. FEDEX changed all that. And the thought of free, two-day delivery for everything seemed like a sure way to lose money, yet Amazon dominates a market where they have set expectation that everything is delivered in two days for free.

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