Never let market size fool you into making a misconceived target market choice. Social media pioneer Ning wisely gave up its Facebook-inspired dream of success with millions of consumers to serve a much smaller set of business customers instead. In making the change, its customer base grew from 17,000 to over 100,000 according to Fortune Magazine, while the certainty of paid subscriptions replaced uncertain advertising revenue. Ning’s software enables its customers to launch and run their own private social network with employees, customers, fans or suppliers. The switch from consumers to organizations emerged from the CEO shutting down Ning’s free service. Consumers jumped ship for one of the 125 plus free social media Facebook clones. With a narrower but relatively under-served target market, Ning was free to add services that deepen and differentiate its value to business customers. Additions include analytics for the…
Technology Strategy as Part of Larger Business Model Strategy
A potential client in a technology industry called me with an all-too-familiar story about his privately held company: • Established decades ago as a niche technology company • Successfully executed many technology evolutions and disruptions • Earned price premiums for decades due to outstanding service and quality • Survived the 2008 decline – hardest years in the leader’s professional life • Previously distant competitors (by geography and technology) are moving into his markets intensifying price competition • His largest direct competitor is now offering “one-stop full-line” solutions which are far more comprehensive than his company’s niche offerings Furthermore, his company’s sales force used to work directly with buyers, with relationships keeping win rates high. Now an online bidding system decides which company gets each order. After becoming “qualified” to compete by proving his company meets quality and service standards, his company must bid…
Apple’s Business Model Lesson
The blogosphere is aflutter with talk on Apple’s recent customer satisfaction issues linked to the new iPhone 4’s antenna design. A quiet whisper turned into thunderous noise once Consumer Reports decided to not recommend the phone because calls are dropped if the antenna is covered while in use (for example, by the user’s hand holding the phone). Much of the on-line conversation centers on public relations lessons and a debate about the sensitivity issues of the iPhone versus competitive products. (For a good assessment of the PR lessons for Apple, see The Leadership Playlist blog.) There is more to this lesson than public relations. I think in terms of business model and strategic leadership, and I believe Jobs ignored Apple’s business model in resolving an internal debate about the antenna, a product design decision that I’m confident Jobs now regrets. Apple’s value promise…
Value Promise and Profit Potential, Part Two
If you need a differentiated, superior value promise to win customers’ votes, how do you know when your value promise is no longer working and business model innovation is called for? Make sure you measure repeat purchases, your consideration rates and your win rates. Discover where you’re losing business and why you’re losing business, as losses signal a weakening value promise and threats to profit potential. Lost order autopsies can reveal – Nascent industries reducing customer interest in your categories Your differentiators becoming standards to be considered Non-traditional competitors entering your space Subgroups of customers exiting for simpler offerings Reduced profit margins also indicate a weakened or less differentiated value promise. But leaders too often forget that a compelling value promise creates the best context for reliable profit potential. They fix profits by cutting costs, forgetting value promise implications. A vital strategic leadership…
Recessions Demand Business Model Innovation
Image by Calidonia via Flickr “When the tide goes out, you see who is standing naked.” (Warren Buffet) When Joseph Schumpeter described capitalism as creative destruction, he was talking about business model innovation. New or transformed companies take the place of companies that are lethargic due to size-induced bureaucracy or over-confidence. This transition, Schumpeter argued, drives a nation’s long term economic vitality and growth. Recessions are great, the economist in me argues, because they accelerate creative destruction. The business-owner in me wants this recession to end. These are downright scary times even for businesses like my own that lack significant fixed capital and an employment base in the hundreds or thousands. The wise advisor in me knows that we’re in times of rich opportunity, ripe for business model innovation. Why? Billions of new dollars in federal research and even more in infrastructure and…