Gennaro Cuofano's Blog, page 228

June 4, 2019

Growth Hacking Strategies That Guarantee Success In 2019

Have you ever wondered how did companies like Groupon, Airbnb or Dropbox become so successful within such a small amount of time?

You can say that they went to the old school way. “Slow and steady”. But that is clearly not the case, especially in a world dominated by the internet.

So what is the secret? Growth hacking strategies! Ever heard of those? No? Well, no issues, we are here to tell you about the concept of growth hacking strategies, furnish you with certain strategies and finally share a few tools with you which can get the job done with ease!

So let’s dig!

What Is Growth Hacking?

Growth hacking is the process of rapidly experimenting and implementing marketing strategies which are targeted to be more efficient and quick for the growth of a given business. The term growth hacking was coined by the CEO of GrowthHackers and the Founder, Sean Ellis in 2010.

The idea of growth hacking is to achieve quick results with the minimum amount of time spent. It is the “hacking” part that is used to find the shortcuts in order to achieve the big results!

Are you thinking that growth hacking is a game only for startups? Well, not at all!! In fact, any business can grow using the hacking techniques by still remaining within their set budget.

Read: What is Growth Hacking?

In that light,

Who Are The Growth Hackers?

Anyone who makes use of a growth hacking strategy can be called a growth hacker, but there is more on the platter than just that. Unlike, traditional marketers who were concerned about brand recognition, public relation, and growth, growth hackers are only concerned about the strategies and techniques.

Growth hackers are known by multiple names. So if you know anyone who is a Growth Engineer or a Product Manager, then know for sure that his job scope is that of a Growth Hacker.

Now that the task of a Growth Hacker has been understood, it’s time to shift to the growth hacking strategies which will be of success in 2019:

Hack Your Email List Growth Using Exit Intent:

Email marketing has an amazing ROI. As per email marketing research and statistics, for every 1 dollar spent on email marketing, the return is near to 32 dollars!! Thus it’s very important to use growth hacking techniques to hack this particular resource.

One of the key benefits of email marketing is that you do not need to spend anything while getting started. There are different software that you can use to get started with email marketing.

But a working email list takes time to grow. Thus the growth hacking strategy here would be to use an exit intent style attached to the lead magnet on offer.

Lead magnets are incentives that you offer to the visitors in exchange for their email id. These can be ebooks, worksheets reports and such. The exit intent gauges when the visitors are to leave the site and offers the lead magnets just then to keep them hooked.

Discounts For Social Share:

By using the power of social media you can spread awareness about your product and services. You can also use the same medium to spread the word of mouth about your product through the means of social share.

But while some will share it with no interest attached, there will be others who would only share the post if they get something in return. Your growth hacking tool can be offering them a reward or discount for their social sharing.

You can use this growth hacking strategy if you are using Shopify, an all-in-all social marketing tool. This tool helps you to request a share on social media so you can reward them once they add something to the shopping cart.

Onboarding Game:

If you are thinking of gamefying the onboarding services then you are on the right track! There are a few ways in which this strategy can help you grow:

Firstly, It helps you to reward your customer for successfully using the product, stay interested in the product and making them stick around.

Second, you can also reward them for referring other users, getting sign-ups which add to your business growth.

Sounds like quite a deal right?

However, in order to use this specific growth hacking strategy, you first need to come up with some onboarding workflow which will help the users to know your product properly and then go on to encourage them to share the product.

A good tool in this regard is Masskom.

A fantastic Free Tool:

This growth hacking strategy never fails! All you need to do is create a very helpful tool and let your users use it for free!

There are multiple choices that you can implement. It can be a headline creator, a link cutter anything. But the catch remains, a user has to give the email id to use this free service!!

This is a very smart strategy as the tool will meet the requirements of the audience, and will then go on to increase the brand value, recognition, and goodwill of the brand. Finally, this strategy adds the right people into the company’s email list.

Run a Competition:

You can make use of some amazing contests as a tool for raising the level of awareness about your company and the kind of products and services it has. This growth hacking strategy will help you to a great extent.

Such content can give you a double win! If you provide an account as the winning prize, you get a brand new user; additionally, you also send out a word to people who might be your potential customers.

You will know for sure who all are interested in winning a free account!

Now that a few of the growth hacking strategies have been touched upon, it important to know something about the various growth hacking tools which will help you ace these strategies.

These include:

Constant Contact: This is an email marketing tool which helps one get so unbeatable ROI. The tool is very easy to use and setting it up is quite simple.
Many Chat: This is a facebook messenger bot which can be used to keep your customers engaged 24*7. It works great on Facebook messenger so that you can talk to your customers whenever required.
Google Analytics: One way of getting along with your customers well is by knowing what exactly is working out for them. In other words, what is their interest? This is where Google Analytics comes in. This is mostly used by SEO companies in the industry. The best part is, it’s absolutely free!!!! Google analytics can help you figure how visitors are reacting on your site, the challenges they are facing with your product and get a knowhow of the pages that are performing the best.
CoSchedule Headline Analyzer: Nothing can beat the charisma of Content Marketing. This is one of the best tools that you can use to attract and retain customers. But for that, you need a magnetic headline which this tool provides you.
OptinMonster A/B Testing: Just making marketing messages is not enough. You need data to work upon for successful growth hacking. That is where OptinMonster’s in-built A/B testing can be of help. This tool helps you replicate a campaign just with a single click so that you can change a particular element and get with running your test.

With these tools and growth hacking strategies, you are all geared up to take your business on the next level.

Good luck!!

June 3, 2019

Network Effects In A Nutshell

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Why do network effects matter so much?

Network effects have become an essential element of a successful digital businesses, for several reasons. First, the Internet itself has become a facilitator for network effects.

As it becomes less and less expensive to connect users on platforms, those able to attract them in mass become extremely valuable over time.

Also, network effects facilitate scale. As digital businesses and platforms scale, they gain a competitive advantage, as they control more of the total shares of a market.

Last but not least, as we will see, network effects are considered among the defendable, or what confers to digital business, a competitive advantage.

Where in the past linear businesses gained a competitive advantage by buying assets and controlling supply chains. Digital companies gain competitive advantages by building network effects.

Read: Linear Vs. Platform Business Models In A Nutshell

The power of network effects

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Image credit: Ray Stern, CMO of Intuit.

Network Effects enable digital businesses to gain value quickly. That is because they have built-in asymmetries between costs and value of the network. Where costs might increase linearly, the value of the network increases exponentially as the network grows.

Network effects have become a key ingredient in the digital era enabling the dominance of a particular business model: the platform business models.

The era of platform business models

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Platform business models make up most of the value captured and created by digital businesses.

Companies like Google, Facebook, LinkedIn, PayPal, and more are platform business models, which benefited and created a strong competitive advantage by leveraging on network effects.

[image error]

Image Credit: Applico, Inc.

That’s because, in theory, platform business models manage to scale efficiently. Thus, where a traditional business, at a particular scale, it reaches a point of inefficiency where diseconomies of scale pick up.

A digital, platform business, might scale so efficiently, to be able to grow close to the total size of the market. This enables the formation of monopolies.

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Thus, network effects become the real “assets” in the digital era. However, those “assets” won’t be seen on the company’s balance sheets.

Quite the opposite, platform business models enable exchanges among a large number of people within a network, but in most cases, they don’t control any of the assets owned by the people in the network.

Instead, those platform businesses only facilitate exchanges. And as a facilitator, they collect a “tax” as a transaction fee. That’s why modern platform business models might look and act more like nations, rather than corporations.

Read: Platform Business Models In A Nutshell

Types of network effects

Examples of network effects

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Source and Image Credit: nfx.com

NFX points out thirteen main types of network effects:

Physical (e.g., landline telephones)
Protocol (e.g., Ethernet)
Personal Utility (e.g., iMessage, WhatsApp)
Personal (e.g., Facebook)
Market Network (e.g., HoneyBook, AngelList)
Marketplace (e.g., eBay, Craigslist)
Platform (e.g., Windows, iOS, Android)
Asymptotic Marketplace (e.g., Uber, Lyft)
Data (e.g., Waze, Yelp!)
Tech Performance (e.g., BitTorrent, Skype)
Language (e.g., Google, Xerox)
Belief (currencies, religions)
Bandwagon (e.g., Slack, Apple)

As James Currier, from NFX, points out, “Network effects have emerged as the native defense in the digital world.” Within network effects as a defensible NFX points out three key elements: scale, brand, and embedding.

It is essential to highlight that the types of networks above are not exhaustive, neither set in the stone. But the framework offered by NFX is a great starting point to understand how network effects work.

In this guide, I want to focus on two main kinds of network effects:

Direct or same-side
And indirect or cross-side

Direct or same-side network effects

Direct or same-side network effects happen when an increasing number of users or customers also increases the value of the product or service for the same kind of user.

Direct network effects usually follow Metcalfe’s law (one of the laws on the basis of network effects).

In short, Metcalfe’s law, developed in communications theory, states that, as users of a network grow, this enables the exponential growth in the number of potential connections, thus also an exponential increase in utility of the platform.

Indirect or cross-side network effects

Indirect or cross-side network effects happen when an increased number of users on the side of the platform drives up the value of the product or service offered for the other side of the platform.

Indirect network effects aren’t necessarily symmetric. In other words, in some cases, increasing one side of a platform might have more profound effects, than increasing the other side.

For instance, in Uber’s case, as a two-sided platform, driven by the exchanges between drivers and riders, the former play a more critical role.

Indeed, Uber uses dynamic pricing strategies that make the service less convenient for riders, but it keeps drivers going back to the platform.

Also, indirect network effects might not necessarily be reciprocal. Thus, increasing the one side of the network might improve the service for the other side. But the same might not apply if the other side of the network is increased.

Virality vs. network effects

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Source: platformed.info

In business, it’s easy to get confused between virality and network effects. But there is a clear distinction.

Where virality is a marketing tactic, that enables companies to lower up the acquisition costs of new users and customers.

Network effects represent a competitive advantage for digital organizations. Indeed, it is argued that network effects are the “real assets” digital businesses have.

Key takeaways

The internet has become a facilitator for network effects.
Digital businesses work on a set of premises and principles that are different from traditional or linear businesses.
Network effects have become the “assets” for digital organizations.
Those network effects don’t sit on companies’ balance sheets. Rather digital businesses can trigger and build them up to create a strong competitive advantage.
Network effects enable digital businesses to scale efficiency and to get close to the total size of the market.
Network effects can be direct (when they when an increased size of the network improves the value of the platform for the same kind of users) and indirect (where the increased size of one side of the network improves the service for the other side).
Network effects are not the same thing as virality. Virality is a marketing tactic to acquire users or customers at a lower cost. Network effects represent a business strategy aimed at creating a long-term competitive advantage for digital businesses.

Read next:

Dissecting Platform Business Models With Nick Johnson [Lecture]
Platform Business Models In A Nutshell
Linear Vs. Platform Business Models In A Nutshell
What Are Diseconomies Of Scale And Why They Matter

Other business resources:

What Is a Business Model? 30 Successful Types of Business Models You Need to Know
The Complete Guide To Business Development
Business Strategy: Definition, Examples, And Case Studies
What Is a Business Model Canvas? Business Model Canvas Explained
Blitzscaling Business Model Innovation Canvas In A Nutshell
What Is a Value Proposition? Value Proposition Canvas Explained
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Marketing Strategy: Definition, Types, And Examples
Marketing vs. Sales: How to Use Sales Processes to Grow Your Business

How To Write A Mission Statement

Business models case studies:

How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does WhatsApp Make Money? WhatsApp Business Model Explained
How Does Google Make Money? It’s Not Just Advertising!
The Google of China: Baidu Business Model In A Nutshell
How Does Twitter Make Money? Twitter Business Model In A Nutshell
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
How Does Pinterest Work And Make Money? Pinterest Business Model In A Nutshell
Fastly Enterprise Edge Computing Business Model In A Nutshell
How Does Slack Make Money? Slack Business Model In A Nutshell
Fastly Enterprise Edge Computing Business Model In A Nutshell
TripAdvisor Business Model In A Nutshell
How Does Fiverr Work And Make Money? Fiverr Business Model In A Nutshell

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Published on June 03, 2019 14:54

June 1, 2019

What Are Diseconomies Of Scale And Why They Matter

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale.

Let’s first understand the difference between economies and diseconomies of scale.

Difference between economies and diseconomies of scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and they increase production, a subsequent decrease in the costs associated with it will help the organization scale further and more efficiently.

Diseconomies of Scale represent the opposite phenomenon instead. Where a company has grown too large, the cost per unit increases, thus making the firm no longer able to benefit from its achieved scale.

Diseconomies of scale can happen for a variety of reasons that might span from the inability of the organization to keep organizing its resource efficiently (due for instance, to a too large number of the workforce). When diseconomies of scale pick up, the firm will have higher marginal costs for each additional unit of output.

Thus a primary consequence for diseconomies of scale is a significant increase in coordination costs and a drastically reduced benefit in scaling.

Examples of diseconomies of scale

Why do companies experience diseconomies of scale? Economists argue that several reasons might cause that to happen:

Coordination issues: as a company becomes too big, it needs more administrative departments, divisions, and management. When a large organization becomes too hierarchical, centralization might prevent it from being efficient. Therefore, it might slow down production and manufacturing.
Management inefficiencies: as the company needs more management as it grows, this might also slow-down decision-making processes.
Difficulties in keeping a smooth communication flow: communications costs might increase exponentially with the size of the organization. And when the organization becomes too large, those costs might also influence the output and the cost per unit of production.

It is essential to rethink the theory of Diseconomies of Scale as digital businesses manage to take advantage of new business models.

Platform business models and economies of scale
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Source: Applico Inc.
While Diseconomies of Scale might affect linear businesses. There is a distinction to make with platform businesses. Indeed, platform business models follow a different logic compared to a linear business.
As a platform business model the main asset is its network, which makes it possible to thousands of consumers and producers to connect, interact, transact, and exchange, those platforms can scale quickly and efficiently.
Thus, they might manage to grab close to total market shares, compared to linear businesses, that instead are affected by Diseconomies of Scale as they grow.
In short, while Diseconomies of Scale might affect linear businesses, platform business models, might, in most cases, be immune to that.
Read next:

Dissecting Platform Business Models With Nick Johnson [Lecture]
Platform Business Models In A Nutshell

Linear Vs. Platform Business Models In A Nutshell

Other business resources:

How To Write A Mission Statement

The post What Are Diseconomies Of Scale And Why They Matter appeared first on FourWeekMBA.

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Published on June 01, 2019 03:45

May 31, 2019

Linear Vs. Platform Business Models In A Nutshell

Linear business models create value by selling products down the supply chain. Platform business models create value by enabling exchanges among consumers.

Has the business world changed?

In the old business era, the business that dominated the business world were linear business models.

Nowadays, platform business models have become the dominant form of businesses as they can scale quickly and grab market shares more efficiently compared to linear business models.

Where a linear business might still be a great model for small organizations and startups, however, as companies scale, platform business models enable them to scale more efficiently to grab larger shares of the total market.

What’s a linear business model?

A linear business model creates value by selling products or services down the supply chain. Thus, its value starts by controlling the supply chain.

This concept is critical to understand as a linear business model would start from the assumption that the value is in the supply chain, and as it grows it can grab more market shares, by controlling more pieces of it. Also, a linear business model that scales will want to own more assets, thus it will require more capital to be managed.

Also, a linear business model has to be closed and controlled by definition, as this is the way value can be captured. Those logics do not apply to platform business models; let’s see why.

What’s a platform business model?

A platform business model unlocks value for its end users and consumers by enabling them to interact and transact smoothly with the other side of the transaction, be it another consumer or a producer.

Therefore, a platform business model won’t own assets, but it will make it possible to its end users to exchange things. In short, platform business models take their value from network effects. This means the platform business model scales way more efficiently than a linear business model because it’s able to reduce its transaction costs also as the scale reached is massive.

In other words, where linear business models hardly scale to the total size of the market, platform business models not only might scale to the size of the market; but they might actually expand these markets altogether.

Other key resources:

Business models case studies:

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Published on May 31, 2019 14:53

How Do You Build A Digital Business In The Era Of Dominating Tech Giants?

Back in February 2018, Google launched Google Trips. As Google explained at the time:

Planning a trip involves lots of searching for flights, hotels, things to do, itineraries and more. The process is often cumbersome because we have to use multiple tools to gather everything we need—especially on a mobile phone.

So Google Trips was announced as a way to “help users explore options and make decisions on their smallest screens.”

In 2019, Google Trips got even better:

Your trips on desktop

In short, Google entered at full speed and force the travel industry by enabling end users to perform the whole travel navigation from searching to booking.

As reported on skift.com, Expedia’s CEO, while answering questions in a media briefing at the Expedia’s Explore ’18 conference in Las Vegas, Okerstrom announced, “The internet has been littered with the bodies of companies put out of business by Google.”

And he went on by defining Google as its most significant competitors that made many entrepreneurs rethink the logic of the whole digital business world. Travel and tourism search engines like Expedia, Booking, and TripAdvisor had thrived thanks also to the inability and lack of interest of Google to cover these segments.

As Google has grown to the size of a tech giant, it now has the power to reshuffle entire industries. This opened up to me a few questions. And I asked help in interpreting this scenario to Thales Teixeira, author of Unlocking The Value Chain, which I interviewed about disruptive business models.

The digital world boundaries are fluid
The digital business strategy world follows different logics that we were used to in the previous business era.

This new business era has started with the rise of The Internet, and it’s still ongoing. In the interview to Thales on disruptive business models, we saw how the business world has gone through three main stages:

[image error]As pointed out in the book “Unlocking The Value Chain” by Thales Teixeira, business model disruption has followed three waves: unbundling (1994-99), disintermediation (2000-05), and decoupling (2005-onward). Today what’s disrupting the business world is the wave of decoupling. That consists of breaking the customer value chains by identifying valuable activities that can be performed by the decoupler, which can capture a good chunk of the business value from incumbent companies.
In the first era, unbundling, companies broke down products to make them more compelling to end consumers. For instance, rather than buying the whole CD, consumers could finally buy a single song they liked the most. This era reached the apex around 1999.

Then, a second era, that of disintermediation, enabled companies to break up supply chains to go directly to end consumers. This era apex was 2005.

A third and still ongoing phase is decoupling. Decoupling is a phenomenon where companies break up the customers’ value chain, by breaking up one activity the consumers perform from the other activities served by existing organizations.

As successful decouplers manage to grow and scale. They can take advantage of their core competence and activity to move to adjacent activities in the value chain, and expand the business.

Going back to Google‘s example, as the company identified travel queries as very valuable for its existing users’ base. It started to double down on developing its own travel search engine, to couple the activities the existing users’ value chain.

Even as a tech giant, worth hundreds of billions of dollars, Google shows it’s still able to move in adjacent industries quickly, and by being able to use coupling strategies efficiently. However, that opened up a question to me.

If a new startup is willing to scale in new industries, how are they supposed to enter them if large tech companies manage to expand that quickly? Doesn’t this shrink opportunity for new players to enter? Thales Teixeira helped me analyze this scenario.

Decoupling as a strategy for lowering entry barriers

T.T.: First, let’s be clear that decoupling is an ENTRY strategy. Due to the power of specialization, it allows small, cashless, resource-constraint startups enter a market, steal activities from much larger and cash-rich competitors and, in essence disrupt these incumbents.

As Thales pointed out, decoupling can be used as a strategy to reduce entry barriers in a world dominated by a few tech players. In that scenario, it is essential to map the customer journey and identify the single activity that the decoupler can perform better than the incumbent.

Once you found the activity to decouple, you have an excellent place to start. Indeed, to build a platform business, it is essential to master a core transaction, thus simplicity and focus on that might help scale fast.

Coupling as a growth strategy

T.T.: After establishing themselves via decoupling, startups needs to enter new markets and/or come up with new products (or both). Many use coupling in the customer value chain (CVC) as a GROWTH strategy. That is what you see with Alibaba, Google and Amazon. Chapter 8 of my book explain this in details.

Only after a startup has mastered an essential activity and it has decoupled it successfully, it has a viable and robust business model. To expand further, it can identify adjacent activity to couple with the existing core activity. From there, it can scale further. Thus, coupling works as a growth strategy.

Look at the weak links

T.T.: As companies grow and take on more CVC activities they tend to do so not necessarily by fulfilling each activity in the absolutely best way possible. Google Trips might be great if you already use Google Maps and Google Gmail, but if used alone it might be not as good as Kayak or something else. As Google couples, it does not couple optimally at each activity. Therein lies the opportunity for another start up to come up with a better product or service at a weak link of the coupling tech company.

Thales argues that as those tech giants coupling adjacent activities, they might not do so optimally. Which leaves space open to new startups to decouple these activities that come from the weak links of the incumbent’s offering.

As Thales points out:

One example that comes to mind is Yahoo. It added many substandard products that were all decoupled by its users. Another is eBay. It had a section for artisanal and craft items. But it was really bad. Result: Etsy came in and made it much better. This is technically not decoupling but it illustrated the fact that as big tech companies grow, they don’t necessarily keep making the best products that are unmatched by others in the market.

What’s your take on that?

Other key resources:

Business models case studies:

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Published on May 31, 2019 13:58

Five Effective Sales Tactics To Close Any Deal

Closing a deal is the only thing that matter in the sales process. You can have many conversions and several people interested in your product or service, however, if no one decides to make that last step, you are wasting time.

Regardless of whether you work as a sales rep or as a founder of a business, closing a sale should be at the top of the “must-do” things on your daily activities list.

Many believe that selling is about showing up, pitching the prospect correctly and sometimes answer some of the prospect’s objections. Unfortunately, it is a little bit more complicated than that. Although many might try to “sell” you the secret formula for sales success (see the irony in that?), there’s no such a thing as a ready-made method to close a sale.

Every situation is different. Every prospect has a different need. Every salesperson sells differently.

Selling is a combination of science and art. Understanding which factors can be controlled and how you can steer the wheel in your favor is the key to close more deals and take your business to the next level.

What Does It Mean “Closing A Sale”?

Understanding what the top salespeople do daily is going to give you an edge against your competition. One of the old adagios in Sales is “Always Be Closing.”

Top performers have this in their mind constantly; they work closely with prospects and get them to the finish line hand in hand. But, is it all about closing?

One of the biggest misconception for those who are not involved in sales as a profession is that closing a sale means signing a contract. To be successful in sales, you need to understand that the sales process is made of several steps and top performers break down this process in a series of micro-sales (or micro-wins).

Each step of the funnel takes the prospect a little bit closer to the big commitment. Implementing the following strategies will increase your chances to be successful.

What Do You Need To Do To Be Like A Superstar?

Before diving into effective strategies to close a sale, it’s important to lay down the basic rules that will differentiate you from the rest of the sellers out there in the market. Remember, selling is a mix of science and art. The science is made of strategies, the art is made of attitude.

To be successful in sales, you cannot just apply great strategies and wait for them to work. Selling is a tough job and needs you to be smart about it. Understanding the behavior of the best salespeople, regardless of their industry, will give you some ideas on what to work when it comes to you.

1. Believe In What You Sell

This might sound silly, however, there’s a lot of people who go out there and speak with prospects who constantly doubt their solution.

If you don’t believe that your solution is the best, how can you convey its value to the prospects you are talking to? Saying that you have the greatest service or product in the market and meaning it with words and behavior is very different.

2. A “No” Is Just One Step Towards A “Yes”

Understanding that getting Nos is part of the sales process will get you far ahead of most of the competition. Top performers are ready to get a rejection and move on. They are ready to close an opportunity if it doesn’t move forward.

The best salesmen move quickly and don’t waste time on a “no”. If you want to be successful at this game, you need to understand that rejection is a natural part of the process. To be the best, you need to understand what went wrong in the process.

Was the wrong prospect? Was the right prospect but too early for them? Was the pricing too high? Do a post-mortem analysis of rejection and learn from it, then move on and start again.

3. Talk About Value Not Features

Another common mistake that many do while selling is to talk about the features of a product or service. Do you really buy that camera because of the latest features or because the end result will be a fantastic photo?

Do you really buy that laptop because of the high-speed RAM or because you don’t want to be frustrated anymore when working on several projects at the same time? Features vs. value is one of the key points to understand in the sales process. Features are supporting arguments to the value your product or service brings to the prospects.

4. Stop Talking, Seriously

When you are the seller, there might be an inner expectation to be the one leading the conversation talking. You are indeed in the driver seat, however, it is crucial to understand what is the best way for you to control the conversation.

Great salespeople don’t get lost in their own words, they ask questions, they want to know more about the prospect’s needs.

What Are The Most Effective Strategies For Closing A Sale?

Moving onto the science part of the equation, there are strategies that you can implement in your daily activities to achieve better results.

It’s important to understand that implementing strategies alone while forgetting the art part of the equation won’t necessarily get you to the finish line.

1. Understand The Right Prospect Fit

Lead qualification is probably the most important step in the sales funnel. If you qualify a lead in the wrong way, you might end up wasting your time trying to solve a problem that doesn’t exist. It’s crucial to focus only on those leads that meet your criteria as a company.

Before starting reaching out, you need to understand the answers to these questions:

What type of company do I want to work with?
How many people work there?
What industry are they in?
What title does my decision maker hold?
What’s the minimum investment the prospect needs to make so that everything is worth the effort?

All these questions should be clearly answered before you even start reaching out.

Almost two third of all lost sales are the result of a poor qualification process. You might be thinking that because selling is a number game, then you need to reach out to as many people as possible, however, by doing so, you will diminish the opportunity to close the right deals for your company.

Not every sale is a good sale. To be successful, you need to assess the opportunity cost of closing and managing a bad account.

2. Don’t Give Up Too Early

As said, to be successful in sales, you need to break down your sales funnel into micro steps. Aim at getting the prospect one step at the time ahead. You can’t expect to get the prospect to sign with you after the first meeting.

There’s a 2% chance that a lead will jump on working with your company after talking with you just once. Following up is the key to success in closing a deal. It has been reported that 50% of the sales happen after the 5th contact with a prospect, however, most sales reps give up after 2 touch points. Yes, you read that right. Prospects will either ignore you or find an excuse not to talk with you on average four times.

Following up should be a constant activity through the sales funnel, not just limited at the prospecting phase. How many times have you sent out a proposal and the prospect went dark? When “touching base” with them, did you just “ping them” or sent them valuable additional information to help them make the decision?

The average sales rep tend to “just follow up” with a prospect by sending a generic email and asking what’s going on the other side. All that comes across when you send that email out is “Hey, why haven’t you bought yet from me? Please, I really need this deal!”.

Following up for the sake of doing it yields no value. Make sure to be relevant and share with the insightful prospect information. It could also pay off to be bold. If the prospect is not answering maybe she is not ready to buy; why not just ask that?

3. Build Rapport

It’s one of the oldest saying around and yet so many people forget that. In sales, people buy people, not products. It is a basic thing but we often think that we need a better presentation, a better proposal, a better discount, and whatever else to close a sale. The reality, however, is that you just need yourself, your true self.

Prospects want to be treated like humans, not like banks. They want to talk to someone who cares about their situation and needs. Stop harassing them with useless proposals without even knowing what they are looking for. Take the time to build a long-lasting rapport with a prospect by being genuinely curious about what’s going on in their world. Put them in the center, not your product, service or company.

Don’t fall in the so-called sales disconnect. Have you ever wondered what the prospects want to hear in the first conversation with a salesperson?

Most of us will think that the last piece of information we should share with a prospect the very first time we are talking with them is price, well, think again about it, pricing comes at the top of the list of what prospects care. Are you truly listening to your prospects’ needs? Because 69% of them think that sales reps are too focused on their own interests.

4. Create A Process For Objections Handling

The sales process is far from being a nicely paved highway. In fact, it’s more like a mountain road with a lot of bumps and obstacles to it.

On the way to the finish line, you will encounter several types of objections, these are a natural part of the “sales dance” you start with a prospect.

However, to be successful and make sure you focus on the right points, you need to be prepared. One of the most common mistakes organizations make is to forget to work on a simple, yet effective, objection handling document.

Anticipating and dealing with objections in the right way can simplify your way to success. Ignoring this step will leave you and your team in the uncertainty of the moment. Every answer you will give will be depending on the current state of mind and moreover, it might make you look like you don’t know what you are talking about.

There is no unified approach to objections handling, as the process might be different depending on the industry you operate. However, you can start to build a document by writing down the most common categories to which you usually get objections and think about those questions prospects might have.

5. Don’t Forget To Ask For It!

The biggest mistake in the sales process is not to ask for the sale. We often get caught up in minor actions and solving problems that we forget to ask for it. It’s a natural evolution of the sales conversation and yet so many people are afraid to ask the most important question.

Understanding how and when to ask for the sale is crucial to make sure you take the prospect through the finishing line. Even the most experienced sales reps tend to delay the magic moment because deep down inside them, they fear rejection.

Remember, as said earlier, a “no” is just another step towards the final “yes”. Although it’s normal to feel attached to a deal, especially if it is a big ticket prospect or you have been working on it for months, delaying the key question will only make you lose important time.

So, when is the right moment to ask for it? Like anything else, there’s no exact moment in the sales process when you can or should ask for it, however, if you start thinking that you should go for the question, then probably you are already too late.

Selling is a process, if you have done your research, made sure the qualifying process was correct, ensure that it is the right fit for your company and answered all the important questions, then it’s probably the time to ask for the sale.

Conclusion

When it comes to sales, a lot of people deal with a different set of emotions. Not everyone is ready to make the right effort to close a sale.

Selling takes time, preparation and above all a sense for people. Remember that you are talking to another person. The moment you stop seeing the person in front of you as such, but she becomes just a number, then you are going to fail at this game.

The five strategies mentioned above for closing a sale will get you on the right path to create value for your prospect and increase the success rate for your company.

Other resources:

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Published on May 31, 2019 04:10

May 29, 2019

Dissecting Platform Business Models With Nick Johnson [Lecture]

https://fourweekmba.com/wp-content/uploads/2019/05/Interview-nick-johnson.mp3

Nick Johnson is the Principal at Applico; he is also the co-author of the best selling book “Modern Monopolies,” which is incredible reading to understand the business model that is dominating today’s business world.

With Nick, we explored the dynamics of platform business models.

How did you get to study business modeling and the platform business models?

Nick Johnson: My background before I joined the company that I’m at now, Applico. Alex, our CEO, was also my co-author on the book. I worked at an economics think-tank for several years, and Alex was working at running Applico.

They were doing a lot of app development and started to see that they were working with large enterprises, Applico was as well as big tech companies, the Googles and so-on of the world.

And started to understand that the way these companies were using technology was very different from more traditional companies. We started to formulate what eventually came to be our understanding of this platform business model, and thought that it made sense.

We saw that business model as the kind of future business model of the 21st century increasingly becoming dominant, so we decided to focus Applico particularly on creating platform businesses or helping our clients with creating and launch platform businesses. I joined about five years ago, primarily intending to help shift the company in that direction.

Out of the first couple of years of work, understanding these platform models and how they work, which no one had kind of broken down. Systematically there were some academic writing on platforms or multi-sided platforms as they sometimes get called.

But no one had gone in a practical sense and broken down “how do these businesses work, what do they do, how do you understand how to build them?”.

So we built the process around that to help clients run through that process and help them launch new businesses. Out of that work came the book, “Modern Monopolies”, which essentially lays out the blueprint for this platform model, why it’s been the “secret sauce” of a lot of the big tech companies for the last 20-30 years, and then how it’s starting to make its way into some more traditional industries.

Everything from day-to-day distribution, finance, health care, industries that have undergone a tremendous amount of change over the last 20-50 years compared to some other of the more recent industries. Like media and content, for example, and retail.

But you’re starting to see these platform models come into more and more of these industries, in the sense that we help large companies that are companies that are competing with some of these big tech monopolies figure out how they launch their platform businesses and scale them up.

Gennaro Cuofano: Before we get to the definition of platform business model, in the past you would have built a successful company by controlling the supply chain, and that’s how you actually created a competitive advantage. And from your study, from your research, it turns out that’s not the way it works anymore.

How has the business world changed since platform business models dominate?

Nick Johnson: This platform model that we focused on and that the book is about, is rather than owning the underlying supply chain, or all of the supply, and have that sit on your balance sheet. It’s about just facilitating transactions and interactions between some third-party consumer, and a third party producer; someone who is creating value whether that’s selling a product or a service, or creating content, or an app.

There are a lot of different permutations of this model. At the core, it’s really about facilitating transactions and network, and which you’ve started to see over the last 20-plus years is that this network model quickly aided by things like mobile phones, and the rise of more connected technology.

As that becomes more dominant, part of the value of that is scale; they tend to have winner-take-all effects driven by kind of strong network effects between the consumer and producer sides of that network.

So rather than a traditional business where you tend to reach a certain kind of scale and then due to complexity, you cap out the size of that business. Otherwise, you start to run into diseconomies of scale.

In ecnomics, economies of scale is the mechanism for which an organiaztion saves costs as it gains increased level of productions.

A linear business model creates value by selling products or services down the supply chain. Thus, its value starts from controlling the supply chain.

What is a diseconomy of scale?

Nick Johnson: These platform businesses mostly have unlimited economies of scale and can expand to the total size of the market, which is why you tend to have “winner-take-all” or “winner-take-most.”

Markets dominated by platforms business models tend to have one or two big winners in a market, and very rarely you have a third big platform that operates successfully.

Gennaro Cuofano: So the main difference is between a linear business model, which was the business model of the past, and the platform business model, which dominates today’s markets.

There is another interesting point that your research points out in the book, which is about the economy of scale. As you scale, you can capture higher and higher portions of the market. While with the linear business model, this is not possible because it is a point where the economy of scale becomes inefficient.

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Source: Applico

Example of how platform business models manage to grab most of the total addressable market compared to a linear business model. As the linear business model grows in scale it becomes inefficient as the cost per transaction grows. Thus it becomes way more expansive to grab the total addressable market. Thus the linear business at a particular stage it reaches “diseconomies of scale.”

How have economies of scale changed in a world dominated by platform business models?

Nick Johnson: We’ve seen this several times where traditional businesses get too large, they have too many different lines of business, and the economies of scale kind of peter out as you reach a specific size.

And it becomes about the coordination costs, mostly, of managing that business, which starts to exceed the benefits of continuing to scale in that fashion. Whereas in the platform model, you do not own all the assets, you’re just providing the names of connection rather than the means of production.

And that’s a much more scalable model, and you’re able to connect a lot more than you’re ready to control directly. You have to set the rules of playing field, and then enable the parties to interact, which is why you see a company like Airbnb for example, having more rooms on its platform than any hotel company – even though it doesn’t have rooms that it owns itself.

Gennaro Cuofano: Another interesting point I think, is also about the misuse of the term “platform”, because as you say in the book, today when you say that a company follows a “platform business model“, this will right away evaluate the company because it implies that it has better scalability and investors like that. But the definition of a platform business model is tricky, and many of those companies do not fit in.

What’s the definition of a platform business model?

Nick Johnson: When we talk about platforms that distinction between technology and business model is a key one. A lot of people, when they think about tech companies and these platform businesses they go “they’re a technology company so its the technology that’s the differentiator.”

However, the technology at a certain point becomes a kind of a commodity, and that’s not a sustainable advantage in and of itself. It’s really about what these companies do with the technology.

So this platform model is what where you have a multi-sided network, and you’re facilitating transactions, whereas the kind of tech company model, where you create software and sell it, eventually someone is going create that similar software better, faster, or cheaper than you are.

That becomes hard to have that as a defensible advantage, whereas these networks are much harder to replicate, and as you get more and more scale and market power, they become much more defensible.

A platform business model creates value by tapping into network effects that make it scale fast, which enables a large number of users to exchange and transact.

Gennaro Cuofano: And there is another argument which I think is also important. As companies try to emulate platform business models, they get confused, and they try to do probably too many things at once, but as your research points out that there is a critical element of any platform business model which is the core transaction.

What is the core transaction?

Nick Johnson: The core transaction essentially is that repeatable interaction between that consumer and that producer that you want to happen over and over. It’s the engine of the platform business, and you need to have essentially four steps to that transaction:

One is where you’re getting the inventory into the platform, which you call the “create step.” Two, you have to have the consumer be able to connect to that inventory, that value, in some way. They have to be able to consume it, obviously, so if that’s a video on YouTube, you have to be able to watch it.

If you’re ordering an Uber, you have to be able to order the car. And there’s a compensate step, where that producer has given them some kind of value, so then they have to figure out how you’re giving value back to the producer from the consumer to close the loop on that transaction.

Why is the core transaction so crucial for a platform business model?

So that core transaction is the engine that drives all these successful platforms. They typically start with one core transaction. So the example I would give is a company like Facebook, which does pretty much everything under the sun today.

Facebook started very simply, the core transaction came in. “I create a profile with a photo, and I can connect with other people in my college network that I’m friends with, and they have to accept me” so it’s a double opt-in model where both sides accept the other and that was really it, that was all Facebook did in its initial phase.

All the other stuff that came much later on like wall posts, messaging, bringing businesses in another kind of content platform dynamic. All that stuff came much later, and you start with an initial core transaction, and you’re able to scale by building additional core transactions on top of that, which is something you see with a lot of platform companies.

Start with one core transaction, and build a network around that, and then they scale by adding in new core transactions and eventually end up as almost platform conglomerates where they have a bunch of these interlocking networks and core transactions that work together

Gennaro Cuofano: So its really about optimizing the first core transaction, and then moving forward, bringing more and more core transactions in the platform business model.

I find it very difficult to distinguish among the several platform business models as they seem very similar in many aspects. But your research shows a framework for that.

How are platform business models primarily categorized?

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Source: Applico

Nick Johnson: The two big categories for different types of platform businesses we call maker and exchange platforms. The main dynamic that helps you understand the difference is maker platforms have a “one to many” dynamic, so it’s a broadcast dynamic where someone is, for example, creating a video on YouTube, or creating an app on the app store, and then any number of people can download that.

The concept we use to describe this is called “matching intent”. So for that inventory that’s being provided, how many people can use that at once, and the maker platform dynamic, that is a “one to many” matching intent, where any number of people can use the same unit of inventory.

The Exchange platform business models, rather than a “one to many” connection, you have a “one to one” or at the very least “one to a few” relationship where typically you’re connecting directly with another party in a one to one manner.

The matching intent is 1:1 or 1: a few so for example if you order a car on Uber that you’re connecting directly with that driver, that driver can’t then take 20 other ride requests at the same time.

There is very often a concept of kind of limited inventory based on this with a direct connection. This includes things like market places obviously, on the exchange side, as well as investment platforms where you’re matching some consumer with a financial product and someone providing that.

Also, messaging platforms where you are interacting directly or social networks where you have this double opt-in model; similar to how Facebook initially operated where you connect with someone else, and they connect back to you to make that connection.

The one-to-many model, for example, happens with a content platform, something like Twitter, where you can follow somebody and they don’t have to follow you back. It’s an asymmetric connection that enables this kind of one-to-many model.

The two main kinds of platforms business models are maker and exchange. Maker have a one-to-many dynamic. While exchange work on a one-to-one or at most a one-to-a-few basis.

Are traditional business strategy tools like Porter’s five forces still useful?

Nick Johnson: I think it’s useful. At eye level, I think where you started to see this change is that the kind of traditional frameworks like Porter’s Five Forces and the value chain focused on optimizing and improving linear business models where you kind of own all that value, you’re providing that service directly to a customer.

The mental model and framework that you have to use for a platform business are very different. It’s not about what you own; it’s really about what and how you can generate value by connecting rather than owning everything on your balance sheet.

I think at a high level some of those things in terms of competition and technology; and some of the other things that you see in those kinds of linear business frameworks makes sens. But you have to think of them in a platform context with the companies that are going to be the most successful and get the most value are ones that are connecting things rather than just owning.

How do you build network effects?

Nick Johnson: Part of the great value that a platform creates, it’s scale. A network effect implies that the more users join the platform so the more consumers participating later will get value.

That network brings value to each producer and vice versa, so the more producers join, the more value it’s offered for a customer.

Initially, network effects are like a double-edged sword. That’s because early on you don’t have any of either group (producer and consumers). You have to figure out how do you get both of these groups to join at the same time or how can fake one side of the network to get the other side to show up and then kind of go back and then actually acquire that third-party supply for example if you were faking the supply early on.

By trying to hold one of these sides constant or figuring out how you can provide enough value to both sides; early on, you can get this thing off the ground. And then once you start to reach that initial point where there’s enough of a liquid network where you can begin to match people together; you don’t have a lot of failed transactions, or for example, someone comes and can’t find what they’re looking for and then leaves.

Once you start to get to that point which tends to be called critical mass, then that network effect starts to work for you and makes it easier to acquire customers and producers and when you can reach that point that is when you begin to scale quickly.

That’s why you often have this kind of hockey stick growth curve for successful platforms where it starts very, very, slowly and then once they hit this point of critical mass, it starts to take off very quickly.

Network effects indicate that the value of a product of service increases as more users use it. Popularized by Robert Metcalfe, the law that brings his name states that networks value is proportional to the square of the number of users that join a platform.

Gennaro Cuofano: If you look at Uber business model, for instance, at their balance sheets and their financials and stuff you notice that what they point out as the most valuable thing as a platform business model they have is actually what they call liquidity network effects.

They argue that over time, they are going to be able to capture so much value from those networks that the company is going to become highly profitable.

Uber network effects case study

Nick Johnson: I think Uber is an interesting example, so the challenge that they have is that their network effects are hyperlocal in the sense that every new market they go into, so if they go into a new city, there is minimal spillover between the existing markets they are operating in and that new market.

They have to start to create much of this network from scratch every time they go to a new city. This makes it very hard to scale that business, compared to a business like Facebook. That has somewhat less regional or less local network effects because people interact online with people across all kinds of areas as well as across different types of content.

It’s a little less local in the sense of specific region; it’s easier to scale that kind of business up, so Uber’s challenge is that for example, in the initial markets they operate in such big markets like San Francisco, New York, Chicago, they do quite well.

But, where they’ve been spending a lot of money in particular if you look at their financials, they spend a lot of money in China, trying to launch and essentially scale the business up there from scratch. When they’re going against new competitors, and they hadn’t yet hit that critical mass point which took a lot of investment for them to try to get there.

Eventually, they backed out of China and have been finding it’s difficult to replicate in new markets, which is what’s been pushing a lot of the red ink on their balance sheet and their income statement. It’s different stages.

FourWeekMBA Note: Plaforms like Uber to keep a balance between the supply and demand use strategies like dynamic pricing.

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How do you know when you reached the critical mass to scale?

Depending on where that network is, you kind of reach that point of critical mass typically when you start to see people starting to join more organically, and you’ve got a lot more organic traffic, and your customer acquisition cost starts to go down.

Going back to Uber case, you start to see that as you go into established markets with Uber where they have definitely reached that point of critical mass and sometimes will have 70 plus percent market share.

Where you can see the incentives they’ve had to offer to drivers and customers have gone down over time compared to what they were early on but a lot of that spending that they have to do has been driven by growth and new markets rather than those kinds of fore markets where they already critical mass.

Gennaro Cuofano: To emphasize your point, Uber is a particular example as you said because they have to start over again to inject liquidity in networks and they try to go to a new market just because, of course, it’s a very localized service.

There is also another argument which I liked a lot in the book which is many time times when people think about disruptive business models they think to those companies are stealing market shares from other companies, but you argue that those digital business models, rather than stealing market shares. They are creating a bigger market.

Do platform business models create more prominent and larger markets?

Nick Johnson: These platform businesses enter the market and they lower in barriers to entry, lowering transaction costs and by doing that they start to enable new customers to join in in a market that might not have been able to get them otherwise. Or they also start on the supply side often bringing new sources of supply into the market, and by doing so they can expand the total size of the market.

What’s the critical difference between a modern monopoly to an old monopoly?

Nick Johnson: The old monopolies tended to build a kind of top-down system and owning all the supply so that no one could enter. These modern monopolies as we call them in the book do so by owning the means of connection and essentially having market power by facilitating both sides of the network. So they don’t actually own the supply, but they own the means by which the supply can connect with the demand.

Is scale an essential element for any platform business model?

Nick Johnson: I think that scale is one of the critical aspects of the platform model. However, if you’re operating in a small market, given the kind of control and easier ability to get that business off the ground, you would want to start a linear business.

So if it’s not a significantly sized market where you have enough supply and enough demand to justify using a platform model versus a traditional model, then a platform probably isn’t the right fit.

It tends to be in these relatively large markets where there is a lot of different sources of supply and a lot of different customers. If you have these kinds of very consolidated markets or very small markets then platforms are typically not able to get traction and get enough size to pay back the start-up costs and make it worthwhile.

What suggestion do you have for anyone starting a platform business model from scratch?

Nick Johnson: Starting up a new platform, the biggest challenge is always that chicken and egg problem, how you get both sides of the supply at once. There are some ways that you can kind of cheat that problem.

One is to sort of pay the supply side. For example, you hold that constant in the initial stages and operate as a linear business until you can build enough demand to be then able to get those third part producers to join in a platform model.

Another way is if you’d have some single user utility to enable any consumer or producer that comes even if they’re not able to connect to the other side there is some value they’re getting out of that.

If there’s some software tool something that you are also providing that can be one way. Another way would be looking at; you can start to incentivize users to join by offering them joining fees or other things like do you get a lot of credit to join up front.

You have to figure out different ways to subsidize that early participation and if you can do that successfully then eventually you can kind of dial that down over time. That initial challenge is always the most difficult in terms of getting these businesses off the ground.

Key takeaways

A platform business model creates value by enabling users of a group of users to exchange value.
A linear business model instead creates value by selling a product or service down the supply chain.
Modern monopolies are built on top of platform business models.
Network effects are the most important element and asset platform business models “own.”
A platform business model to get off the ground needs to master a key core transaction.
Rather than owning the means of production a platform business model owns the means of “transaction” or the ability of users to connect and interact smoothly.
The two main types of platform business models are the maker and exchange platforms. The maker works on a one-to-many logic. While the exchange platform works on a one-to-one or one-to-a-few basis.
Platform business models follow a winners-take-all or winners-take-most logic.
Platform business models expand the total size of the market.
Compared to a linear business model they scale up efficiently by grabbing most of the total market value. So where linear businesses become inefficient when they reach too much scale, platform business model instead gets most of their potential from the scale.
Another key element of any platform business model is liquidity, or the ability to keep those platforms able to have users exchange value continuously and in a frictionless way.
When a platform reaches a critical mass that is when scale picks up. Usually critical mass happens when more and more users join the platform organically.

Suggested reading: Modern Monopolies

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Suggested resources:

Business Model Canvas
Lean Startup Canvas
Value Proposition Canvas

Other key resources:

Business models case studies:

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Published on May 29, 2019 14:58

May 26, 2019

What Is Storyboarding And Why It Matters In Business

A storyboard is a linear sequence of illustrations used in animation to develop a broader story. A storyboard process is now used also in business to understand and map customers’ experience and enable the growth of the company using that process.

What is storyboarding?

Simply put a storyboard is a sequence of illustrations which aim is to visualize the critical moments of a whole story. That isn’t a new tool in animation. Indeed storyboarding has been popularized by Walt Disney Studios during the 1930s.

Storyboarding is critical in animation as it enables to develop the broader story. Indeed, the developers of content would use storyboarding as an inexpensive way to build content to see if it worked before doing the full production.

Thus, storyboarding, as used in animation, has a few key elements that made it so useful:

An inexpensive way to visualize a story before it got developed in full
Visualize a whole story with a minimum amount of information
A quick and dynamic approach to visualize an entire story
The ability to capture the critical emotions at each sequence
A way to present and pitch a story before it could get produced

Storyboarding, which has become a best practice and process in the movie industry, is now becoming also an essential process in business, let me show you why.

The importance of storyboarding in business
Walt Disney had mastered the storyboarding technique and made it a process within Disney before the production of big movies that made the company successful over time.
The storyboard allowed Disney to share and make them understand the vision of the project.
It is famously noted that Steve Jobs brought the love for aesthetics within Apple‘s UX from a calligraphy class he had at the university.
Thus, when you do find valuable thinking tools borrowed from other disciplines, it’s interesting to notice how they create value in the business world.

Storyboarding in business can help in many other cases like:

Uncover customer experience
Align on a longer-term vision
Pitch a broader project idea
And more

In this case, we’ll look at how Airbnb has been using storyboarding to uncover hidden patterns for its customers that enabled the further platform scale.

How Airbnb used storyboarding to pivot on customer experience

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An example of storyboarding the guest journey, from smashingmagazine.com

Back in 2011, Brian Chesky, co-founder of Airbnb, over the Christmas vacation had picked up a biography of Walt Disney. In there he found a technique that Walt Disney used.
As the story goes, during a passage of Walt Disney biography, Chesky noticed how, during the production of the movies “Snow White and the Seven Dwarfs” in the 1930s, Disney used storyboards, a technique invented by a Disney’s animator a few years earlier.

Chesky felt that when Disney had used this technique, he was in a similar situation, that Airbnb was facing at the time.

Thus, Chesky with the other co-founders had an animator from Pixar design the storyboard for the three key processes:

The host process
The guest process
And the hiring process

Those storyboards brought in the Airbnb headquarter had the purpose of aligning everyone in the organization around the critical elements of the customers’ experiences.

Let’s see how.

Empathize with your customers

As Nathan Blecharczyk, co-founder and CSO at Airbnb pointed out on Sequoia blog:

Creating a great customer experience is the highest priority at Airbnb and something that we’ve made a big part of our culture.

Storyboarding then helped Airbnb executives and employees to understand its customers deeply. Empathy and being able to feel the emotions and moods of customers throughout travel experienced enabled Airbnb to map it at best.

Map the customer journey

One thing that’s really helped is a storyboard we created that depicts the different steps someone goes through from the time she first hears about Airbnb to the time she leaves post-visit feedback. We have 15 pictures that cover the guest journey and 15 more that show the journey for the host.

Nathan Blecharczyk also pointed out how this storyboarding process needs to be done from end-to-end. Since the customer first hears about your product and service, up to the time she/he has consumed it.

Understand where you’re missing out

What the storyboard made clear is that we were missing a big part of the picture—the offline experience—that’s an even more meaningful part of using Airbnb than booking a property.

Thus, this process enables the company to uncover steps you were missing out. Each of those steps you were not covering or providing value for will become an essential ingredient for great customer experience.

However, it is important not to get bogged down in too many details.

Select only the meaningful moments

We started brainstorming what our storyboard would look like. We started with a list of many, many moments, grouped like ones together and refined them down into a concise set. If you have too many moments on your storyboard, it’s worthless. Fifteen seemed comprehensive yet manageable.

As pointed out by Nathan Blecharczyk on the Sequoia blog, it is crucial to map at first only the most significant moments. That makes the process manageable and actionable. For instance, Airbnb had mapped fifteen key moments in its storyboards.

Build a roadmap around those key moments

We then had a roadmap for figuring out what a customer expects in each of those situations, what we were doing to meet those expectations and where we had an opportunity to create a “wow” moment.

Once those key moments get uncovered, it’s time to offer a great customer experience by providing value to your customers in those faces. Airbnb likes to define those moments when the value is provided at best as a “wow” moment.

Thus, it has to be turned into a product roadmap.

Uncover the gaps and fill them up with a “wow” experience

We noticed a lot of gaps. It became our number one priority to fix those areas where we weren’t doing what the customer expected of us.

What’s a valuable, “wow” moment? Imagine in Airbnb‘s case the case of a guest arriving at a host’s house and without even knocking the door finding the guest with a bottle of champagne to celebrate the arrival of the guest (this is an exaggerated example as some people might not like this welcome).

But the point is the storyboard enables you to develop a deeper bond with a customer, to improve the experience at each potential step.

Airbnb neighborhood guides case study

One example of one of the projects that Airbnb has implemented as a consequence of using storyboards is the “neighborhoods guides” section available on the platform.

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With sotryboards, Airbnb understood all the questions travelers had before, during and after traveling. Therefore, Airbnb, came up with the neighborhoods guides:

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So that for each city people could find answers to questions related to the things to do in the city.

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And also look at all the possible things to do in each neighborhood.

This helped Airbnb guests to find all the travel-related answers they might have before reserving the trip.

Those guides are so granular to unlock key information for each neighborhood, almost like you had a local, giving you all the suggestions you needed to have a great trip:

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Key takeaways

Storyboards were popularized by Disney in the 1930s to develop stories before the production of movies
Storyboards became a best practice in the movie industry world as a way to craft compelling stories before producing expensive movies
Now storyboards get used in business for several purposes. Airbnb used it to enhance customers’ experience
During Christmas vacation back in 2011, Chesky, Airbnb co-founder found out about the storyboarding technique, and he implemented it within the company to map the three key processes (host, guest, and hiring process) for Airbnb.
Those storyboards got transformed in actions within the service. One example is the “neighborhood guides” that Airbnb developed to give all travel-related answers to its users

Key resources:

How To Write A Mission Statement

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Published on May 26, 2019 12:49

Amazon AWS Platform Business Model In A Nutshell

Amazon AWS follows a platform business model, that gains traction by tapping into network effects. Born as an infrastructure built on top of Amazon‘s infrastructure, AWS has become a company offering cloud services to thousands of clients from the enterprise level, to startups. And its marketplace enables companies to connect to other service providers to build integrated solutions for their organizations.

I want to highlight the importance of AWS in the overall Amazon business model and how it has changed over the years.

The importance of AWS on the overall Amazon business model

As I pointed out in this article, “back in 2000, Amazon was trying to figure out a way to allow other stores to build their e-commerce on top of Amazon. That is why the Amazon team came up with an e-commerce service at the time called Merchant.com. However, they soon realized that it was impossible to do that on the existing Amazon‘s infrastructure.”

That’s how Amazon AWS came to be. From that attempt to scale up Merchant.com infrastructure, the company managed to build instead an infrastructure that powers up an ecosystem of small and medium businesses.

Today Amazon AWS, although a separate unit within Amazon, is a crucial contributor to the company’s overall profitability, as pointed out in the infographic below:

Seven Amazon Statistics That Break Down Its Business Model

In this article, I want to point out three key elements of the Amazon AWS business model:

Marginality
Scalability
Ecosystem and network effects

The marginality of an ecosystem that sustains SMEs

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When you first look at AWS margins; the first thing you notice is how a company built on top of another platform (Amazon) has incredible margins.

Indeed, when you look at the growth of the margins for AWS, you realize how what was once an infrastructure, it has become a company and a platform business in its own sake.

That was possible, thanks to the scalability, implicit to its model.

A scalable platform

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Once built the infrastructure, the rest is about network effects. Amazon knows this well, as it engineered its flywheel or virtuous cycle to scale the company to monopoly proportions:

[image error]The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

The company is applying its expertise in building up ecosystems on top of Amazon business model to build an entrepreneurial ecosystem that powers up the IT of countless numbers of companies.

It’s about the ecosystem

It’s important to highlight that when a company scales to the proportion of Amazon, it moves away from the traditional business model, toward the platform business model.

A platform business model follows a set of logics, which are relatively new, compared to traditional organizations. Where traditional companies of the past built value on top of a value chain, made of verticalizing its supply chain (take the Luxottica case), to gain as much control as possible on the means of productions, a platform business model aims at creating network effects.

Thus, the more it enables its key stakeholders (drivers – riders in Uber’s case, buyers and sellers in Amazon’s case, hosts and guests in Airbnb’s case and so forth) to connect, and transact in a frictionless manner the more those repeated interactions and transactions drive up network effects.

To make sure a network effect implies that a platform becomes more and more valuable, the more users join in. Thus, an additional user doesn’t become more expensive for the platform business, instead, it makes the service more valuable for others joining in later, and it lowers up transactions cost associated with the platform. Therefore, it becomes cheaper and better.

Amazon AWS in particular powers up thousands of businesses, from small to enterprise, both in private and public sector:

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For instance, on Amazon AWS site the company points out how “Expedia is all in on AWS, with plans to migrate 80 percent of its mission-critical apps from its on-premises data centers to the cloud in the next two to three years.”

Or how decacorn startups, like Airbnb “decided to migrate nearly all of its cloud computing functions to Amazon Web Services,” and as its CTO and co-founder pointed out the trigger was the “ease of managing and customizing the stack. It was great to be able to ramp up more servers without having to contact anyone and without having minimum usage commitments.”

As Amazon AWS becomes the infrastructure for thousands of startups and SaaS companies, it shares its distribution capability by integrating other services providers to enable other companies to benefit from solutions that go well beyond the cloud. Thus looking at AWS just as a cloud service, that is limited as it has become way more than that:

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Thus, the AWS marketplace becomes a provider of other companies’ services and products on top of its cloud infrastructure. That enables its platform to scale further by creating a market that didn’t exist before while scaling it up altogether!

Seven Amazon Statistics That Break Down Its Business Model

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Published on May 26, 2019 05:41

May 24, 2019

What Is Ramen Profitability And Why It Matters

Serial entrepreneur and venture capitalist Paul Graham popularized the term “Ramen Profitability.” As he pointed out, “Ramen profitable means, a startup makes just enough to pay the founders’ living expenses.”

Let’s dive into this concept to see what it means and why it matters.

What is Ramen Profitability?

Entrepreneur and venture capitalist Paul Graham popularized the term “Ramen Profitability” defining it as:

Ramen profitable means a startup makes just enough to pay the founders’ living expenses. This is a different form of profitability than startups have traditionally aimed for. Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time.

Paul Graham uses the word “ramen” in “ramen profitable,” referring to instant ramens, one of the cheapest foods available. Thus, a first step toward the startup scalability.

As Paul Graham points out, Ramen Profitability is a different concept compared to traditional startup profitability. Indeed, where startup profitability might indicate the viability of a startup business model. Ramen profitability suggests the fact that the startup has finally crossed that wall that enables it to be called a real company.

That’s because it can finally pay off for the founders’ living expenses, thus making it become at least a real business. That also buys time to the startup to experiment with growth, product-market fit, venture capital funding to finance further tweaks to its business model.

Ramen Profitability as a survival mechanism

A startup that becomes profitable after 2 months, even though its revenues are only $3000 a month, because the only employees are a couple 25 year old founders who can live on practically nothing. Revenues of $3000 a month do not mean the company has succeeded. But it does share something with the one that’s profitable in the traditional way: they don’t need to raise money to survive.

Paul Graham points out that ramen profitability makes it possible for a startup to survive. That doesn’t guarantee success, but it does help the startup buy precious time to keep experimenting.

Why does Ramen Profitability matter?

Paul Graham highlights a few key points:

You can get at least someone to pay you,
You’re serious about building things people want,
You’re disciplined enough to keep expenses low.
You can focus on further growing the startup rather than focusing on raising money, which is distracting

The bimodal way of startups

A startup that reaches ramen profitability may be more likely to succeed than not. Which is pretty exciting, considering the bimodal distribution of outcomes in startups: you either fail or make a lot of money.

Paul Graham makes a good point here. In a more and more competitive business environment, building up a successful, scalable startup becomes a winner-take-all game. Where for many failed startups, a few make a lot of money. And if you’re on the way for ramen profitability that’s the crucial first step toward building a successful company.

Indeed, ramen profitability removes the dependency on investors’ money. Thus the paradox is that it makes it easier for founders’ to look for investments, by releasing the pressure. That’s because as Paul Graham points out, looking for investors’ money is itself a job that takes away the focus from building the startup.

Bootstrapping vs. Ramen Profitability

It does not, for example, imply that you’re “bootstrapping” the startup—that you’re never going to take money from investors.

Ramen profitability doesn’t mean that a startup isn’t willing to take investors’ money, so to be in bootstrapping mode forever. Instead, it means it has enough means to be at least sustainable. The next stage is about scalability. To go toward scalability, a startup must avoid a trap that is common to many.

The trap of becoming a consulting company

Is there a downside to ramen profitability? Probably the biggest danger is that it might turn you into a consulting firm. Startups have to be product companies, in the sense of making a single thing that everyone uses.

A startup becomes truly valuable when it builds a scalable product, service, or platform that can tap into network effects. That is also why startups like Airbnb and tech companies like Amazon, Google, and Apple are valued many times over their revenues.

They have been able to build successful platforms able to match the interests of many stakeholders. That enables a startup to become scalable over time. The level of scalability is critical to the long-term value of that startup over time.

You can read the whole essay here.

Key resources: