It seems every other day I read another story about mainstream media just not getting the shift we are seeing in the landscape. The most recent example is the idea of international TV programs being fast tracked to Australia. That is, them not waiting to show it in a perceived ‘peak ratings’ period in our country, but just showing it as soon as it is available.
One such program that is touted as being on the ‘fast track’ to Australia is Homeland. A really terrific edgy show which was a ratings boon in Australia for series 1. Channel 10 in Australia screened the first series in January this year to more than 1.2 million viewers. This was 3 months after the USA premier. Yet the ‘so called’ fast tracked 2nd series averaged a disappointing 630,000 viewers. Some commentators including this one postulated that ‘fast tracking’ doesn’t work. Claiming that ‘downloads are minimal’ ( WTF?) and that it is better to promote heavily and program in a strong period.
It’s clear to me that he doesn’t get it. A few points to note:
- Fast tracking should be ‘the next day’. Not 3 weeks after the US shows as channel 10 is doing – way too slow.
- The second season rated poorly because people loved the first one and didn’t want to wait.
- Fact – second seasons of successful shows have significantly higher download rates than first seasons. #obvious?
I could go on… But the simplest fact of all is this – mainstream media are still serving their model, not the model the customer want. This is why successful businesses of yesteryear rarely survive a technology disruption as a front runner.
At first we got confused about how to make money out of the internet. We thought we should be able to demand payment. Silly us, we forgot about the first lesson in economics – that pesky demand and supply. Supply doesn’t automatically equal demand – especially financial demand. On the internet things work in reverse. First value must be created, then it is extracted. It’s the opposite to the previous industrial world of buying and selling.
Now it’s proving, then earning.
The web has changed business models so much, it’s hard to know where to start when discussing the implications of revenue streams.
In the past I’ve been very clear on my views about Free – it is not a business model. It’s a sampling campaign, or a related revenue strategy. But in truth, the methods for extracting revenue are being totally reinvented by the web. Given the cost of producing everything from flat screens, the flat pack furniture to microchips is in a state of rapid deflation means we need to reconsider the revenue equation – or more appropriately, the timing of the revenue.
For a business to survive, revenue must be extracted.
But before revenue can be extracted, value must be created.
When creating web based startups it is very hard to create value, until we have large numbers of participants (espoecially if we are not selling physical or virtual goods). The way to get large numbers of participants is the reduce the barriers to usage and entry. And the best way to reduce the barriers to entry, is to reduce the price, or even remove it entirely in the short term.
So when thinking of pricing models we need to forget about the price and start thinking about value. It isn’t until we have created value, that we will be able to extract it. So the real question is not ‘what to charge’, but has value been created yet?
A popular story in science folklore is that the aerodynamics of bees suggest that they should not be able to fly. It was hotly debated in at a time when human flight via aircraft was being mastered (around the 1930′s). Because physicists and aerodynamic specialists had started to develop theory of ‘predictable flight’ with machinery, they believed their knowledge applied to all forms of flight.
Of course bees do fly. A bee is very small. And, at that size, air acts as a much more viscous fluid than it does for airplanes and helicopters. So the laws of aerodynamics are quite different for bees and other insects. But it took some time before this was understood and that new theoretical models were developed relative to the size of the thing of flight.
The point for entrepreneurs is important, especially at a time when technology is challenging existing business models. So the next time someone tries to put the kybosh on your new idea or startup remember that based on yesterdays knowledge, bees can’t fly.
I caught up with all round good guy Ned Dwyer yesterday. We chatted about many things, of which the top of the list was the recent launch of “And now it’s in print.” A project Ned is heavily involved with. Let me just say this. It’s one of my favourite startups this year. The world over. For many reasons, but here’s one:
I asked Ned what the business model was, and this was his reply:
“It’s too important to have a business model. We decided instead to just make something awesome and see what happens”
That’s it my friends, the startup ethic we all need to aspire to. Doing it because it matters.
A couple of other smart ideas entrepreneurs can take note of.
- They limited their production run to 500 copies (invent demand through limiting supply)
- All the articles and visuals are from content they found on line (blending off line & on line worlds)
- The idea was borrowed from South by Southwest (share ideas, re-interpret)
- They proved print can still be awesome. (Print isn’t dead, print industry management is brain dead)
- They set themselves an impossible launch deadline, and made it. (Don’t think too much, get it out there)
Kudos from me.
In nature, with every second something lives for, it’s probability of continued life increases exponentially.
The lessons for startups is simple, do the stuff that keeps you alive longest. And the most important thing we can do for our startup is keep our costs low. Low cost operations gives us the advantage of time. And time is the most important asset when it comes to working out our business model. Not capital, not technology, not employees, not research. Just time.
It costs the soft drink Industry over $100 million a year for thefts committed involving vending machines.
*actual Coke vending robots!
Yet vending machines still exist for one simple reason. This is still a profitable business regardless of the theft.
So often in startup land we here people pointing out the gaps and potential issues in any business model we propose. The fact is no business model is perfect. Every business has gaps and potential issues which will impact profitability. There is always leakage, there is always some evaporation. What we need to focus on is the net result and understand if we can still make a profit regardless of the model imperfections.
I had this discussion yesterday. I walked past a hole in the wall cafe. (Tiny cafe which serves take away and stand up coffee in inner city area)
Friend: Wasn’t Joey going to open a business like that?
Me: Yeh, I remember him talking about it before I had even seen one of these in the city.
Friend: What happened to it?
Me: I don’t know, I guess he just didn’t get around to it in the end. Got distracted.
Friend: That’s a shame, looks like a good little business model. What’s he doing now?
Me: He’s in the same job.
Friend: Oh. Ok.
We keep walking …
Don’t be Joey. It at least try and fail. The old job will be waiting for you if you have to return.
5% of our customers wont pay on time
5% of our customers wont pay at all
5% of our employees wont deliver what they are paid to
5% of our employees will steal and or damage company property
5% of business partners will break contracts and even worse, not keep their word
5% the people we meet will be genuinly dishonest and painful to deal with
It’s the 5% rule. In fact quite often business discussion are too often focused on the 5% of times the business model will break down and we will get cheated in some way. The amount of strategy, board room and agency discussions I’ve had about the 5% of people who make business models and ideas imperfect are countless. The point for startups, no less any business, is to accept the fact that all models have gaps. And more often than not these gaps the doing of the 5% rule.
The problems with trying to remove the 5% is that we build gates and protections which often stuff up the 95% which is working. We create unnecessary friction. What we are better off doing is thinking about the problem like water evaporation. It’s going to happening, no matter what we try. But we must remember that the very large majority of people are good.
My advice is simple. Know that it exists, and forge ahead anyway.
I know I am being a bit of a dog with a bone here. But we really need to put this ‘Free’ stupidity to rest once and for all. Sure it’s semantics, but this is what the Free model really is:
Delayed Revenue Model
If we have a so called ‘Free’ model, we are simply providing resources (at out cost) in order to extract revenue through alternative means later, or via a trade sale to incumbents who see value in what we have created. In both cases the ultimate goal is Revenue.
In many ways it’s riskier to go down the free track, simple because time and money are inextricably linked. If we don’t end up ‘Monetizing’ (another word I hate) then we are simply in the wealth transfer business.