Labcast: New Trends in Business Models

In this week’s Labcast, Paul Higgins joins us to discuss the interesting ways in which business models are evolving, and how to determine the right model for your startup or expansion-stage company.

Kevin: Hello and welcome to this addition of Labcast. I’m Kevin Cain, and today I’ll be talking with Paul Higgins about new trends he’s seeing in business models. Paul is a consultant with a Rapid Innovation Group, a UK base strategy and execution firm, that focuses on helping young companies accelerate their growth and achieve leadership in specific markets. He’s particularly
interested in helping early stage startups become market leaders in small segments, and then expand at new markets or territories. His expertise includes demand generation and partnering strategies. And he’s worked across a variety of industries including Ecommerce, retail, healthcare, hospitality and the UK public sector. Paul welcome to Labcast and thanks for joining us today. We’re really happy to have you here.

Paul: Hi Kevin, thanks for having me. It’s great to be here.

Kevin: So as I mentioned in my introduction what we’re looking at today is really new trends that you’re seeing in business models and I thought, you know, before we get into that why don’t we start off by really defining what you mean by business model. Can you do that for us?

Paul: Yeah, absolutely. It’s a term that kind of means a lot of different things to different people. I think my favorite kind of definition is one that came from Alexander Austin Wilder, who developed the business model canvas. Which I know is in use in a lot of kind of startup incubators at the moment. And his thoughts on what a business model means is he said it was the rationale of how an organization creates, delivers and captures value. So how an organization created, delivers and captures value. So another words you’re looking at the whole business. You’re looking at how you put together your product or service, how you attract customers and then how you get paid. So in a kind of traditional retail setting, how you put together your product, how you create your lemonade or something, how you set up your store. And then how you get paid is how you attract customers and how you get your money for your products or service. If all of that generates profit at the end of the day then you have a viable business model. So that’s really kind of what I have in mind when I talk about business models.

Kevin: Okay. And that kind of sounds like a very theoretical description, so can you give us more concrete practical examples of what you mean?

Paul: Okay. So, what we often see is ambitious entrepreneurs come to us and say “we’re struggling with a sales problem, we’re struggling to generate revenue in the right way.” They often frame it as a sales problem as wanting to go faster, as wanting to hit a certain target by the end of the year. And, you know, it’s often an indicator that business model is the problem. And so, you know, some examples of that could be, if they’re in the B2B sector, traditionally you would see models like the kind of inside sales model. Where you have an internal sales team on the phones trying to phone up customers and sell the products or service. You have your kind of door to door salesman or direct sales teams. You have the kind of indirect sales models as well. So selling through partners, selling through other kind of channels or distribution methods. So those are all kind of examples of b-to-b business models.

What’s interesting at the moment I think is, because of a lot of kind of trends and technology a lot of new distribution channels are opening up. And that’s allowing organizations, both on the B2B and B2C to develop new business models like the kind of market place type business models or “freemium” business models that weren’t really viable a few years ago.

Kevin: So can you give us examples of that? I mean, I guess why I’m asking is that the order in this actual conversation with you was that blog post that you wrote, where you talked a little bit about the difference between traditional enterprise sales and the yammer approach and it sounds like that’s one of those tools that people might be using. So could you elaborate on that a little bit?

Paul: Yeah, I mean the Yammer story is really fascinating. It’s in an area kind of referred to as enterprise social networking. So it’s kind of around employee productivity and, Yammer is essentially a kind of like an internal Facebook for enterprises. So it encourages better collaboration between employees and better communication and so on. This was really interesting because I met with a couple of organizations in Europe that were doing some things similar, but using a very traditional kind of direct B2B sales model. So they would have an internal sales team. They would try and get in front of a corporate buyer of large corporate prospects, and they would try and sell on, you know, your software’s of service type subscription model, and they found it very hard. The interesting thing was they didn’t find it difficult to get in, they didn’t find it difficult to get access to the potential buyer. They, you know, a lot of expansion stage companies struggle to get in front of the budget holder, but that wasn’t the case here. They managed to get a good audience. But for whatever reason the proposition wasn’t compelling enough. They really struggled to get through the corporate buying process. They struggled to get the right level of data or the right level of information that would compel an organization at enterprise level to buy this.

What Yammer did was kind of go from the bottom up rather than going from the top down. So they allowed individuals in an enterprise, in an organization, to sign up and use it for free without having to access the corporate buyer, the corporate budget. And the rationale behind that was that if they got one person in a company to start using it they would share that with their colleagues, their work colleagues. And as that kind of internal network grew, they would have a case to take to the corporation, the kind of budget holder. And once you could say, you know, “half your organization is already using our tool,” you have a very compelling case. It’s also not the only possible business model, you know, Yammer used this, this kind of freemium approach to get in. But another organization called Huddle, which does something a bit similar, is also a quite successful organization. Backed by Aid in Ventures, a great VC in London. They tried the freemium model and didn’t have such success with it. They realized that trying to get to group decisions made staring from a freemium approach, it wasn’t getting them where they wanted to be fast enough. So they started with freemium and went back to the kind of direct sales model. So what we’re seeing is because of a couple of the kind of technology trends like, better access to broad band, lower cost of storage, faster web base processing power, things like that. It’s really allowing business models like the freemium model to compete effectively with a traditional direct sales model. And it’s becoming genuinely a choice for a lot textile subs.

Kevin: So it sounds like there’s actually quite a few applications that I could use Yammer for. So I’m curious to know is it something that you guys at Rapid Innovation Group use?

Paul: We’re not actually using Yammer fondly enough. No, we’re using another one called Podio, which does something similar, and I think has a similar business model. But it’s certainly a great tool and you know, I think it’s that kind of collaboration of software’s could be pretty valuable, I think.

Kevin: Yeah, absolutely. So you’ve done a really good job of outlining a couple of different types of business models for us. So I guess the next logical question would be, how do you figure out which business model is right for you?

Paul: Yeah, that’s a great question. And I think, if you’re a CEO of a growth expansion stage company, the important thing to think about here, is you’ve got to know how things get easier for your business, how your business becomes sustainable or scalable, because that really makes a huge difference about where you compete and ultimately which business model that you should be running with. If you feel like you want to compete by being a domain expert in a particular sector, becoming the market leader in a segment, then you might want to look at the various sort of targets that are search driven, consultative sales team, competing on industry expertise. That means that your business model is likely to be a kind of a traditional enterprise sales model.

If on the other hand you’re competing by trying to become the obvious choice by trying to create user habits and be associated with what you do and you know, almost in the same way that Amazon is associated with Ecommerce or EBay is associated with kind of a market place. Then you need to be majoring on user experience, on customer support. You’re competing on design and usability. And in those kind of businesses where you’re really, your value is going to be based on the volume of users and how your users are using your service, your product. The number of users is very important there. So you’ve got to be careful that your business model doesn’t constrict your user growth, especially in the early days. So that’s where models like freemium come from. I think it really does come back to how you want to compete, how you want to create value, deliver value and capture value. And you know, ultimately the decision will come back to where you want to compete and where you want to be positioned as the most valuable company you can be.

Kevin: Great. Well Paul thanks so much for joining us today. We really appreciate your insights into the new trends and business models. Before I let you go can you give our listener a sense of they can be in touch with you if they like?

Paul: Absolutely, yeah. So let me give you a quick plug from my consulting company, Rapid Innovation Group. It’s a consulting company in London that helps growth in expansion stage, companies around the world on strategy and execution. So that means we work with companies to go from really being a startup to finding the right business model, building capability, scaling and ultimately getting to the right exit. There’s information about us at rapidinnnovatioon.co.uk and you can also reach out to me at
Twitter, which is @paulhiggenz with a Z at the end.

Kevin: Great. Thanks again for joining us today Paul.

Paul: Pleasure. Thanks very much.