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Steve's Small Biz Podcast
3 minutes | Aug 16, 2019
According to Strategyzer, when it comes to the Business Model Canvas, key activities are any activities that your business is engaged in for the primary purpose of making a profit. Business activities include operations, marketing, production, problem-solving, and administration. Your key activities will change depending upon the type of business you operate. If you are a web developer, User Interface (UI) design and coding will be key activities. On the other hand, if you are a business coach, problem-solving and customer service are key activities. While your means of production, problem-solving, and platforms or networks are important considerations when defining your key activities, I take a different approach when mentoring clients about the role of the key activities block. As with all the blocks associated with the business model canvas, it is about looking for ways to find your uncontested blue ocean to do business in by evaluating your business model from a cost, value proposition, and customer perspective. Therefore, I believe the ultimate goal when defining your key activities is to help you discover what activities you need to address in order to differentiate your product or service from your competition, so that you can effectively deliver your Value Proposition. The process I advocate when it comes to assessing the key activities of your business is to look at the related business model canvas blocks. While any of the blocks are fair game when looking for key activities, I believe there are two blocks that require your special attention. Since key activities are primarily a bridge between your value proposition and your customer segment, you will want to look long and hard at your channels and customer relationships when coming up with your key activities. For example, if we look at Amazon’s business model, a key activity that makes them different from brick and mortar retailers like Walmart is related to the evaluation phase of the channels block. By collecting and displaying product review information, Amazon assists the buyer in making a decision among similar products. Since it is not possible to read product reviews at Walmart, collecting and displaying review data is a key activity that helps differentiate Amazon from many of its competitors. Another example is when it comes to delivery, two-day, next-day Prime delivery and even drone deliveries are shortening the time between purchasing and receiving the product in your hands, making the delivery phase of its channels a key activity to differentiate Amazon from other online e-commerce sites. The 5 Channel Phases When it comes to the five phases that make up the channel block of the business model canvas, here are a few sample questions you will want to address when developing the key activities block. Awareness – How can you create awareness that you have something to sell? Will a key activity involve being accepted as a speaker at your industry’s annual trade show? Evaluate – How can you make it possible for a prospect to evaluate your offering before paying? Will a key activity be implementing a 30-day try before you pay option? Purchase – How can you change the way a customer makes a purchase? Will a key activity be to use cameras and artificial intelligence (AI) to eliminate the need for cashiers? Deliver – How can you make the way you deliver your product or service unique? Will a key activity be offering free pick-up and delivery services, in comparison to your competitors requiring customers to come to their establishments? Customer Support – How can you change the way a customer is treated after the sale is completed? Will a key activity be to offer native-language instructions like Clorox, or to offer an incentive for employees to quit to test their loyalty like Zappos? The Customer Relationships Another area where key activities can help your business find its blue ocean is by changing the customer relationship your business has with its customers. While most stores that sell computer systems, like Best Buy, rely on knowledgeable salespeople which can vary and be expensive, Dell chose a different path with the relationship it has with its customers. Rather than rely on a salesperson’s knowledge and a customer’s access based on store hour limitations, Dell uses an online application instead. By assessing how the customer will use their computer, Dell helps the consumer understand all of their configuration options as they build a custom PC. They even provide a running total, and list special deals. so the customer can do a series of “what-ifs” to build a computer that will meet their unique needs within their budgets. Will a key activity be to provide an automated service like Dell, a dedicated personal assistant for the life of the relationship like Wells Fargo’s Private Client Services, or allow customers to be part of your offering with a co-creation option like YouTube? In conclusion, while examining all of the nine core blocks of your business model canvas may help you define your key activities, there are three primary questions you must ask yourself: What key activities do your value propositions require?What key activities do your channels require?What key activities do your customer relationships require? Do you have a clear picture of all the key activities you have to perform to produce your output? IF YOU LIKE OUR CONTENT PLEASE SUBSCRIBE AND SHARE IT ON YOUR SOCIAL MEDIA CHANNELS. THANK YOU! The post Key Activities and Your Business Model appeared first on How to Advice for your Side-Hustle or Small Business.
4 minutes | Aug 9, 2019
A company’s key resources allow it to create and deliver its value proposition. Its key resources also allow you to reach its target market and maintain a quality customer relationship with them so that the business can earn revenue. Depending upon the value proposition defined in your Business Model Canvas, you will require more of one resource and less of another. For example, a manufacturing company requires physical assets in terms of machines, as well as financial resources. By contrast, a design company requires more intellectual and human resources. Key resources can be owned or leased by the business, or acquired from key partners. For a company to produce a product or service, it needs access to physical resources, intellectual resources, human resources, and financial resources. Physical Resources Physical resources are often capital-intensive and include things such as: BuildingsVehiclesMachinesPoint-of-sales systemsDistribution networks Large retailers like Walmart and manufacturing facilities rely heavily on physical resources. Intellectual Resources Intellectual resources include things such as: BrandsPatents and copyrightsProprietary knowledgePartnershipsCustomer databases Intellectual resources often take time to develop. Some companies like Nike and Sony rely heavily on their brands as a key resource. Some companies, such as chip manufacturer Intel, and software companies like Microsoft rely on patents and copyrights to drive revenues. Other companies like Walt Disney generate a large share of its revenue by licensing its characters to manufactures. Unlike copyrights or patents, proprietary knowledge includes trade secrets which never expire, such as the secret formula for Bush’s baked beans or KFC 11 herbs and spices. Companies like Dodge and Cummins have created partnerships as their key resource. And finally, companies like Facebook have a huge customer database from which their entire business is based upon. Human Resource All businesses need some level of human resources to operate, but human resources are particularly prominent and valued in knowledge-intensive and creative industries. A pharmaceutical company relies heavily on its human resources such as its skilled scientists and aggressive sales force. Financial Resource Finally, some business models depend heavily on financial resources. For example, cell phone companies that finance the consumer’s phone purchases across a contract period rely heavily on financial resources. When considering key resources, you must consider which key resources your value proposition requires. What key resources do your distribution channels require?What key resources do your customer relations require?What key resources do your revenue streams require? When it comes to your key resources, do you have a clear picture of the degree to which your offering relies on each of the four key resource types? Next post in the series: Key Activities There is also a FREE Podcast Series we offer on Applying the Business Model Canvas For more detailed information on how to apply the Business Model Canvas to your business, check out my book: Applying the Business Model Canvas, A Practical Guide For Small Business Design, Align and Test Your Ideas Applying the Business Model Canvas, A Practical Guide For Small Business is a book that was written for the entrepreneur trying to come up with a workable new business model. By using the Socratic method of asking and answering questions for each of the 13 building blocks of the Business Model Canvas and the Value Proposition Model the reader will be able to turn abstract ideas into a practical business model in no time. The book Applying the Business Model Canvas, A Practical Guide For Small Business is a concise and easy to read guide packed with solid advice and examples that will help you refine your new business ideas before you launch helping you avoid costly mistakes. IF YOU LIKE OUR CONTENT PLEASE SUBSCRIBE AND SHARE IT ON YOUR SOCIAL MEDIA CHANNELS. THANK YOU! The post Key Resources and Your Business Model appeared first on How to Advice for your Side-Hustle or Small Business.
3 minutes | Aug 2, 2019
Your cost structure as it relates to the Business Model Canvas is closely related to your value proposition. A company’s cost structures represents the specific costs that the business will incur while operating under a particular business model to create and deliver the business’s value proposition, as well as maintaining its customer relationships all have costs to the business. These costs have to be allocated across all product or service offerings to minimize costs. A company’s cost structures can be calculated after it considers the key resources, key activities and key partners it will require. For a vertically integrated business, such as one of the big six Japanese Keiretsus who are able to allocate their fixed costs from one business unit to another business unit, these businesses control all the key resources, activities, and its partner business units to pick which industry it wants to dominate. For the small business owner however, the best option when it comes to understanding cost structures is to look at the contact area between the company and its customers, buyers, and suppliers using Porter’s Five Forces model. At its highest level, cost structures are either cost-driven or value-driven. Cost-driven structures Cost-driven structures are focused on keeping costs or expenses down. Companies that embrace a cost-driven structure use automation or outsourcing to keep internal costs low, resulting in competitive pricing. Operational excellence is often at the core of the business model of cost-driven structures and are exemplified by Walmart and McDonald’s. Since margins are small, a business that is cost-driven has to rely on economies of scale and scope to achieve satisfactory returns. Economies of scale represent cost-saving that a business enjoys as it grows. For example, a larger company like Walmart benefits from volume discounts on the items it purchases, resulting in lower costs per unit. Economies of scope represent cost savings that a business enjoys as the scope of its operation grows. For example, a large online retailer like Amazon used its market leadership in online book delivery to expand into other consumables. Value-driven structures Value-driven structures are focused on providing more value or revenue through premium offerings or services. Companies that embrace a value-driven structure use customer intimacy and high-end components to create premium products. Customers that buy value-driven products and services are less price-conscious, and value quality, performance, and convenience over price. Nordstrom and Rolex are examples of companies that have value-driven structures. Operating Leverage Another element of a company’s cost structure is the ratio of fixed to variable costs they have and are known as Operating Leverage. High variable-costs relative to fixed-costs have less upside reward, but also less downside risk. In contrast, low variable-costs relative to higher fixed-costs have high upside rewards, but have substantially higher downside risk if break-even volumes are not reached. When considering cost structures, you should consider what your most important costs are that need more attention, and which have less impact on the quality of your product or service. You should also consider which key resources and activities are the most expensive and whether you benefit from moving up or down the value chain. Do you understand your cost structures? There is also a FREE Podcast Series we offer on Applying the Business Model Canvas For more detailed information on how to apply the Business Model Canvas to your business, check out my book: Applying the Business Model Canvas, A Practical Guide For Small Business Design, Align and Test Your Ideas Applying the Business Model Canvas, A Practical Guide For Small Business is a book that was written for the entrepreneur trying to come up with a workable new business model. By using the Socratic method of asking and answering questions for each of the 13 building blocks of the Business Model Canvas and the Value Proposition Model the reader will be able to turn abstract ideas into a practical business model in no time. The book Applying the Business Model Canvas, A Practical Guide For Small Business is a concise and easy to read guide packed with solid advice and examples that will help you refine your new business ideas before you launch helping you avoid costly mistakes. IF YOU LIKE OUR CONTENT PLEASE SUBSCRIBE AND SHARE IT ON YOUR SOCIAL MEDIA CHANNELS. THANK YOU! The post Cost Structures and Your Business Model appeared first on How to Advice for your Side-Hustle or Small Business.
3 minutes | Jul 12, 2019
When it comes to choosing revenue streams as part of the overall Business Model Canvas, there are many factors that affect your sources of revenue. Pricing Mechanisms Your first consideration when defining your revenue streams is to give some thought to your general pricing mechanisms. Your pricing mechanism can be either to employ fixed pricing or a form of dynamic pricing for your product or service. Fixed Pricing When it comes to defining fixed pricing, do you only offer just a single list price, like a restaurant menu? Or do you offer customer segment pricing which features different prices based on specific customers, such as offering reduced prices for seniors or veterans? Finally, do you offer volume-dependent pricing where you provide discount pricing if the customer buys in bulk? In all fixed pricing situations, you have a defined price for your product or service based on a set of defined rules. Dynamic Pricing In addition to the more traditional fixed pricing mechanism, your revenue streams may come through a dynamic pricing mechanism. One form of dynamic pricing might be negotiated pricing, such as buying a car or home where the final price is negotiable. Another form of dynamic pricing is yield management pricing, where the price changes based upon your inventory, like airline ticket prices changing based on the time left and how many available seats are yet unsold. Real-time market pricing is defined by supply and demand factor, like how stocks or commodities go up and down. Lastly, you might offer pricing based on an auction price through a bidding process, similar to how buyers make a purchase on platforms like eBay. Transactional or Reoccurring Revenue Streams Your next major consideration is to determine if your revenue will come from a single transaction or reoccurring transactions When you have a revenue stream based on a single transaction, you receive a single one-time payment for your product or service. However, when you have a reoccurring revenue stream, you receive ongoing payments that deliver value or provide post-sales support to your customers. An important consideration when deciding between a transactional or reoccurring revenue stream is related to your cost of customer acquisition. For a single transaction, your customer acquisition costs are spread across just one transaction opposed to a recurring transaction, where your customer acquisition costs are spread across many transactions. Fee-Based Revenue Streams When you sell a product like a car or furniture, the customer is buying a physical asset. Once it is owned by the consumer, they are free to do whatever they want with it. They can use it or sell it without your permission. However, there are a bunch of other revenue streams that are fee-based revenue streams. With fee-based revenue streams, the business continues to own the underlining asset and gives permission to the customer to use it. Here are some common examples of fee-based revenue streams you may want to consider for your business. Usage Fees The more they are used, the more the customer pays the business. ATM charges are one example of a usage fee. Every time you use an ATM machine, the bank charges you a fee. The more you use ATMs, the more the bank changes you. Another example is a cell phone data plan. The wireless carrier charges the customer a usage fee based on the amount of data they used. Usage fees represent a variable but recurring revenue to the business. Subscription Fees Revenue is generated by continuing to provide access to a service. Fitness centers have a monthly subscription plan to continue to provide the user access to the gym. Netflix charges a monthly subscription fee to provide continued access to its online streaming video service. With a subscription fee, the user is granted unlimited access to the service during the subscription period. Whether you use it a little or a lot, the subscription fee is the same price. Subscription fees represent a consistent reoccurring source of revenue to the business. Lending/Renting/Leasing Revenue is generated by temporarily granting exclusive rights to use an asset for a fixed period of time. When you rent a car, the rental agency gives you exclusive use of the vehicle for the term of the rental agreement, and no one else can use the asset while it is assigned to the customer. However, once the period is over the asset can be assigned to another customer, and the customer has no ownership of the product during the term besides the exclusive right to use it. Lending, renting, and leasing can be either transactional or recurring revenue, and represent a consistent source of income for the period of the agreement. Licensing Revenue is generated by giving the customer permission to use protected intellectual property and allowing the customer the right to generate revenue from the property. Patent holders often license their ideas to a manufacturer in exchange for a fixed fee or a royalty on all sales. Licensing can be either transactional or recurring revenue. Brokerage Fees Revenue is generated by an intermediary service performed between two or more parties. A credit card company collects a brokerage fee by connecting the merchant to the customer. The credit card company owns nothing, they just facilitate the transaction. Another example of a brokerage fee is when a real estate broker captures a commission for matching a buyer and a seller. Brokerage fees are typically transactional revenue. Advertising Fees Revenue is generated from fees charged to a third party to present a message to your customers. Advertising can be either transactional or recurring revenue. Financing Fees Revenue in the form of interest is generated by selling either an asset or a service to a customer, and then extending credit to the customer so that they can pay for the purchase over a period of time. Revenue Stream Questions While there are many options that you can employ to generate revenue for a business, there are several questions that you should ask yourself when choosing the best options for your business: For what value are your customers really willing to pay?What do they currently pay?How are they currently paying?How would they prefer to pay?How much does each revenue stream contribute to your overall business revenue? When it comes to your revenue streams, do you have a clear picture of all the ways you can generate revenue? Applying the Business Model Canvas, A Practical Guide For Small Business is a book that was written for the entrepreneur trying to come up with a workable new business model. By using the Socratic method of asking and answering questions for each of the 13 building blocks of the Business Model Canvas and the Value Proposition Model. The reader will be able to turn abstract ideas into a practical business model in no time. The book is a concise and easy to read guide packed with solid advice and examples that will help you refine your new business ideas before you launch helping you avoid costly mistakes. IF YOU LIKE OUR CONTENT PLEASE SUBSCRIBE AND SHARE IT ON YOUR SOCIAL MEDIA CHANNELS. THANK YOU! The post Revenue Streams and Your Business Model appeared first on How to Advice for your Side-Hustle or Small Business.
11 minutes | Mar 20, 2019
How to Improve Profit Margins with Porter’s Five Competitive Forces
What if there was a way that a business could systematically assess the micro-environmental forces to determine their strengths and weaknesses, in an effort to predict the company’s ability to succeed? Well, thanks to Harvard Business School professor Michael Porter, there is such a model and it is called Porter’s Five Forces model. Porter’s Five Forces looks at the contact area between your company and your customers or buyers, your suppliers, and the competitors to assess the business’s ability to succeed in a specific industry. The model was designed to help you assess the following: What are your business’s strengths in your industry?How easy or how hard is it for new competitors to enter the market?If suppliers can force you to pay higher prices or customers can force you to lower your prices? Basically, the Porter’s Five Forces model is an assessment tool that answers the question: “Who has the most power in a transaction?” The Porter’s Five Forces model came about when economists began to look at why different industries were more profitable than others and tried to define a model to explain why some had low-profit margins such as airlines and cafes, while other industries had high-profit margins such as soft drinks and drug manufacturers. Their result was Porter’s Five Forces model that Michael Porter defined. The five forces in Porter’s model are: Supplier PowerBuyer PowerCompetitive RivalryThreat of SubstitutionBarrier to Entry Let’s look at each of Porter’s five forces in more detail Supplier Power – Porter’s Five Forces Supplier power is determined by how easy it is for suppliers to increase their prices and make you accept these higher prices. Essentially, their power lies in how expensive they could make their offering before your business would be forced to switch to another supplier or other option. Of course, this leads to the question, how many potential suppliers do you have? If you only have one supplier, they will hold a lot of power over your business. Another point of supplier power is how unique is the product or service that the supplier provides to you? High supplier power is defined when it is easy for a supplier to drive up your costs. This is much easier if you have only one supplier and limited opportunity for substitutes, or when a supplier’s product or service is critical to the delivery of your end products or services and there are no real viable substitutes. Labor is a supplier to business and through collective bargaining intermediaries can exert significant supplier power on a business. This is especially true with low-income jobs, where either the government can mandate a business pay their workers a minimum wage, or where unions can withhold workers in exchange for concessions. Another way suppliers can have a high degree of power is if they control scarce resources or materials. For example, as we discussed in De Beers’s – A Story about Controlling Supply and Creating Demand, De Beers controls the world’s Diamond supply. Similarly, collusion between key suppliers can force businesses to pay the prices for the supply they control. For example, OPEC can exert undue power over the price of crude oil, and therefore force refineraries to pay their prices. Yet another source of supplier power is related to switching costs. If you paid a freelancer to develop a custom coded web site, you give away some of your power to the coder since if you decide to fire the current web developer, a new web developer may not readily understand the former developer’s coding schemes, making switching to the new provider harder. Buyer Power – Porter’s Five Forces When it comes to buyer power, a business should ask how easy it is for buyers to drive your prices down. A buyer can exert significant pressure on a business if they have many other suppliers in your industry, they have low switching costs to take their business elsewhere, or if they know that they are a flagship client of yours that your business cannot afford to lose. With buyer power, the buyer can dictate the terms of their relationship with your business. For example, Walmart does business with many businesses where they are their biggest customers. If a supplier does not agree to the terms set by Walmart, there are many other businesses that would love to take their place. When what you do is a commodity, the buyer has the bulk of the power in the relationship and will often ask you for discounts or better terms if you want their continued business. On the flip side when a business has a patent and the ability to enforce it, a business shifts all of the power from the buyer back to the business. Competitive Rivalry – Porter’s Five Forces Competitive rivalry looks at the number, strength, and desperation for market-share of your competitors. You should ask, how many competitors do we have? Who are they, and how does the quality of their products and services compare to ours? In your quest to remove competitive rivalry, a business should seek their blue ocean by focusing on points of differentiation. When it comes to competitive rivalry, the intensity of the rivalry increases in declining markets where all your competitors try to survive an economic downturn. Idle human resources or fixed expenses, like space, keep a company’s cost high and serves to increase their intensity to make sure revenue remains above break even. Competitive rivalry is particularly intense when the industry has high sunk costs in illiquid assets, such as factories or specialized equipment. When the buyer has most of the power, substitution options are everywhere, and there are minimal switching costs so the intensity of competitive rivalry will be higher. Competitive rivalry, however, is less intense in rapidly growing markets. This is particularly true where scale can’t meet demand, such as in a service industry where the bottleneck to scaling is based upon skilled consultants or workers. Threat of Substitution – Porter’s Five Forces The threat of substitution refers to the likelihood that your customers can find a different way of doing what you do for them, or they can find another similar solution. For example, a few years ago my local newspaper doubled their annual subscription cost. Being the only local newspaper supplier, they thought that they had supplier power. However, the price increase caused me to completely rethink the problem of getting my news. I discovered several online resources for local and national news, canceled my subscription, and now read all my news from several news aggregation services on my iPad each day. In another example for years I was a huge Dish Network fan but when a recent price increase hit, I looked at my options and replaced my Dish Network service with a Roku for all of my non-smart TVs and subscribed to Netflix, Hulu and Prime that now costs me collectively half the price of my old Dish Network subscription, with greater access to shows and no more need for a physical Digital Video Recorder. Disruptive technology is often a catalyst that can render even the most entrenched and beloved businesses subject to the threat of substitution. For instance, movie theaters were a pretty stable industry for over half a century. Then in the 1980’s they took a body shot when people could rent new movies on videotapes from Blockbuster Video. They took another shot when Redbox made access to movies on DVD even easier with unmanned kiosks, and yet another shot when streaming sites like Netflix entered the market. Barrier to Entry – Porter’s Five Forces Your market position and the power that your business enjoys can be affected by a new competitor’s ability to enter your market space. You should ask, how easy is it for a new entrant to set up a competing business? How much would it cost them and how tightly regulated is your industry at keeping out competitors? There are fice types of barriers to entry. Economies of Scale Barriers to entry for new competitors can be based on economies of scale. For example, Walmart has huge buying power, as do large car companies. As such, new entrants have a hard time entering the market because of the economic costs to set up a new competitor. High barrier to enter industries are generally in the retail sector, or are product-based companies with high upfront capital costs. Regulation Another barrier to entry may be caused by regulation. A pharmaceutical company not only requires a huge amount of risk capital to fund operations from the product development stage, through testing and finally to market which takes years but once developed, patents are used, and the business has a temporary monopoly to earn back their upfront costs unchallenged. Moreover, as we shared in Is Licensing Really Necessary many businesses, like barbers and liquor stores use regulation to keep out competition. Vertical Integration Vertical integration is where a company like J.D. Rockefeller’s Standard Oil not only controlled the raw materials, production, as well as distribution similar to a Japanese Keiretsu, allows the business to strip out all sources of margin and profit from the supply chain and creats a cost barrier to new entrants to compete with them. Brand Loyalty Brand loyalty, such as you may have with an airline or a hotel where the points earned by customers discourages buyers from switching or lose out on the benefits the buyer has accrued, is a switching force to prevent new competitors from entering the market. Technology or Infrastructure Access to technology or infrastructure like those possessed by FedEx or UPS, Human expertise like Google or SpaceX engineers and a company’s reputation like Microsoft or Amazon are additio
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