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April 26, 2019

Seven Amazon Statistics That Break Down Its Business Model

Online stores still represent the backbone of the Amazon business model with almost $124 in revenues for 2018
Amazon has a diversified business model. In 2018, online stores contributed to nearly 52% of Amazon revenues, followed by Physical Stores, Third-party Seller Services, AWS, Subscription Services, and Advertising revenues
In 1999 Amazon third-party sales contributed to only 3% of Amazon gross merchandise sales
Amazon third-party sales contributed to 58% of the total gross merchandise sales on Amazon in 2018
Amazon AWS is the fastest growing business unit, with over $25 billion in sales in 2018 and over $7 billion in operating margins
Amazon is grabbing a growing piece of the digital advertising cake, with about $10 billion in revenues from advertising in 2018
Amazon core business is in the US with over $160 billion in revenues in 2018, but it is diversified globally

Amazon revenue breakdown for 2016-2018

Amazon has a diversified business model that relies on several revenues streams. At its core, the online stores are still the primary revenue streams.

Followed by Physical Stores, Third-party Seller Services, AWS, Subscription Services, and Advertising revenues.

data in million dollars
2016
2017
2018

Online Stores
91,431
108,354
122,987

Physical Stores
—
5,798
17,224

Third-party seller services
22,993
31,881
42,745

Subscription services
6,394
9,721
14,168

AWS
12,219
17,459
25,655

Other (Primarily Advertising)
2,950
4,653
10,108

data in million dollars
Revenue Breakdown (2018)

Online Stores
122,987

Physical Stores
17,224

Third-party seller services
42,745

Subscription services
14,168

AWS
25,655

Other (Primarily Advertising)
10,108

Amazon third-party sales vs. Amazon first-party sales

Over the years, Third-party sales have grown from 3% of the total to 58%. Amazon helped independent sellers compete against its first-party business by investing in and offering them selling tools (inventory management, payments processing, shipments tracking, reporting).

Programs like Fulfillment by Amazon and the Prime membership program improved the customer experience of buying from independent sellers, which made this business grow substantially over the years. In 2018, gross merchandise accounted for 58% of the total Amazon online sales.

Year
Third party sales

First party sales

1999
3%
97%

2000
3%
97%

2001
6%
94%

2002
17%
83%

2003
22%
78%

2004
25%
75%

2005
28%
72%

2006
28%
72%

2007
29%
71%

2008
30%
70%

2009
31%
69%

2010
34%
66%

2011
38%
62%

2012
42%
58%

2013
46%
54%

2014
49%
51%

2015
51%
49%

2016
54%
46%

2017
56%
44%

2018
58%
42%

Amazon all segments margins vs. Amazon AWS

Amazon AWS is among the fastest growing Amazon business unit. With its scalable infrastructure, AWS grew to over $25 billion in revenues in 2018.

Also, AWS carries high operating margins compared to the rest of the Amazon business model. Indeed you can see from the graphic below, how AWS contributed to 58.7% of Amazon overall operating income, in 2018.

data in billion dollars
Revenues
Operating Income

All segments (except AWS)
$123B
$5.1B

AWS
$25.7B
$7.3B

data in million dollars
Operating income

All Segments
5,125

AWS
7,296

Amazon advertising business compared to Facebook, Google, and Bing

To put things in context, Amazon advertising business has been growing substantially, and not it competes with other media tech players, like Google, Facebook, and Microsoft.

data in billion dollars
Revenues

Amazon
$10,1B

Facebook
$55B

Google
$116B

Bing (Microsoft)
$7B

Amazon revenues, broken down by geography

data in billion dollars
Revenues per area

United States
160,146

Germany
19,881

United Kingdom
14,524

Japan
13,829

Rest of world
24,507

More resources about Amazon

How Amazon Makes Money: Amazon Business Model in a Nutshell
What Is the Receivables Turnover Ratio? How Amazon Receivables Management Helps Its Explosive Growth
Amazon Case Study: Why from Product to Subscription You Need to “Swallow the Fish”
What Is Cash Conversion Cycle? Amazon Cash Machine Business Model Explained
Why Is AWS so Important for Amazon Future Business Growth?
Amazon Flywheel: Amazon Virtuous Cycle In A Nutshell
Amazon Value Proposition In A Nutshell
Why Amazon Is Doubling Down On AWS
The Economics Of The Amazon Seller Business In A Nutshell
How Much Is Amazon Advertising Business Worth?
What Is the Cost per First Stream Metric? Amazon Prime Video Revenue Model Explained
Jeff Bezos Teaches You When Judgment Is Better Than Math And Data
Alibaba vs. Amazon Compared in a Single Infographic

Data Sources:

Amazon Financial Statements for 2018
Amazon Shareholders’ Letter for 2018

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Published on April 26, 2019 08:15

April 25, 2019

Microsoft Mission Statement In A Nutshell

Microsoft mission is to empower every person and every organization on the planet to achieve more.
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As pointed out in its financial statements:

We strive to create local opportunity, growth, and impact in every country around the world. Our platforms and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also support new startups, improve educational and health outcomes, and empower human ingenuity.

That makes clear that Microsoft value proposition moves around three key customers and for each of those it offers a different benefit:

Small business: productivity
Large business: competitiveness
Public-sector: efficiency

To achieve its mission and vision, Microsoft looks at three prerogatives:

Reinvent productivity and business processes.
Build an intelligent cloud platform
Create more personal computing

Microsoft today has a diversified business model that relies on several units and revenue streams. From its classic office products for PC and Windows to gaming, professional networking (LinkedIn), search advertising (Bing) and more.

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Microsoft Revenue Breakdown Based On Its Financial Statements

Satya Nadella, Microsoft‘s CEO emphasized the role of Microsoft, in the 2018 Shareholders’ letter:

In sum, our platforms create broad surplus everywhere, from the farmer who is able to apply precision agriculture to conserve resources and increase yields, to the hospital that is able to lower the cost of healthcare and improve patient outcomes, to the largest companies of the world reaching new customers in new markets.

And he continued:

At a time when digital technology is transforming every industry and every part of our daily life and work, our customers are increasingly looking for a partner whose business interests are fundamentally aligned with their own. At Microsoft, our customers’ interests are core to our success. That is what engenders trust.

Micorost got founded in 1975, and it has been able to remain a relevant company, which not only managed to keep up with new tech innovations and business models, but it also kept growing at a steady rate by investing in other areas.
And while Microsoft didn’t win the search war (Google dominated the market), the smartphone war (Apple took over the market), and the social media war (Facebook dominated that industry) it still survived to them, and built a successful business unit in each of those new industries, driven by new business models.

As Satya Nadella pointed out in the 2018 Shareholders’ Letter:

We will continue to create local opportunity, growth and impact in every community and country around the world. We will continue to invest in the largest growth opportunities and innovate boldly to serve our customers. We will continue to help our customers build digital capability, so they can grow and thrive — today and long into the future.

He also closes with a critical remark, for which a few tech companies have realized the need to emphasize more in terms of value proposition:

We will continue to work to instill trust in technology across everything we do, to advocate for customer privacy, drive industry-wide cybersecurity initiatives and champion ethical AI. And we will continue to transform our culture to reflect the diverse customers we serve around the world, while holding fast to our timeless values.

Privacy, cybersecurity, and ethical AI are concerns that might shape technology in the next decades!

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Published on April 25, 2019 11:13

April 24, 2019

Lessons On Running Lean With Ash Maurya [Interview]

https://fourweekmba.com/wp-content/uploads/2019/04/Interview-Ash-Mayura-Audio.mp3

Ash Maurya is a practitioner and entrepreneur. Author of Running Lean, Scaling Lean and the Lean Canvas, built on top of the Business Model Canvas. Ash is also the founder of LEANSTACK.

I took the chance to ask Ash a few questions. I tried to limit those as I had so many things I wanted to ask him. And Ash was kind enough to answer all of them!

Can you tell us your story and how you got to become an entrepreneur?

Ash Maurya: Sure. Becoming an author and speaker, which is what I tend to do most of my time now other than run the business was never part of the master plan. As you said, I was a practicing entrepreneur. But along the way in my journey, I had started many projects, then built many products.

All of them started the same way. They all started amazing, fantastic. They all were very promising. But they didn’t end up the same way. Many of them. I ended up shutting down.

The thing that bothered me was not that I shut them down because I knew that you have to search for good ideas. I was ready for the ups and downs when I wasn’t ready for was the time it was taking to launch and validate those ideas.

I was talking about two years from when I had an idea to when I knew it would work or not, and that I realized was just too long because I had way too many ideas and not enough time.

I started studying just how I was building products, started studying how others were building products. I began a blog and around this time is when there was some work happening with Eric Ries and Steve Blank, and that eventually became the Lean Startup.

The timing was just right. I joined in on that conversation, but even then I was still an entrepreneur. I was doing this all as a side project. I was blogging. That blog grew in popularity.

Eventually, some of my readers started asking me to consider writing a book. At first, I said No, but then I ultimately got convinced. I wrote my first book in a very non-traditional way.

The blog turned into the book, and then I began just to get more immersed in this world to run a few workshops as a way to test the content. That’s when the book was getting developed. And then one day I realized that the world had changed; there were entrepreneurs everywhere.

And it was an exciting time. And I felt like this was a time to do something about it. And I decided to sell my previous business and became a kind of a full-time entrepreneur or building products for other entrepreneurs. That’s what we do at LEANSTACK, but then also continuing to develop this body of work.

What do you think are the biggest misconceptions that entrepreneurs have when it comes to starting a business?

Ash Maurya: I find that the biggest one that I also just learned as an entrepreneur is this idea of risk-taking. We all have this image of the heroic entrepreneur who will jump off a cliff and then magically figure out how to build a parachute on the way down.

I find that some of the more seasoned entrepreneurs are very risk-averse and that is that they will pack, make sure they pack a parachute and a backup parachute before they jump off of the cliff because they want to protect their downside.

And to me, this was something that I didn’t think to be true. That’s one of the misconceptions, which I think is a big one because when we start out many have the idea that it’s okay to take a lot of risks.

But in reality, the framework that we teach at LEANSTACK is one where we try to prioritize removing all the red skull, removing the riskiest pieces in order. Start with the riskiest things and then gradually what you’re left with is a business that can work.

The other one that I see and also that’s very common is more of a bias than a myth. That is the innovator’s bias, or the tendency of entrepreneurs to fall in love with their solutions. When we see an idea, we quickly jump to the first solution that enters our mind. But as we know, the first solution is not always going to be the optimal one that often it’s the wrong one.

But the challenge that we run into is we start to believe that that is what we have to build. And then we spend all our energies chasing the wrong risks. We chase the building of a product, and if that product is not something that the market needs or wants, by the time you build it and you’ve exhausted a lot of resources, you realize you have to start all over. And that often is a big setback for people at least first-time entrepreneurs.

Gennaro Cuofano: You have a framework to help entrepreneurs this process. Which emphasizes focusing on the problem rather than the solution.

Can you explain how the problem-solution fit model works?

Ash Maurya: One of the biases that that many entrepreneurs fall run into is this premature love of the solution. Like the first principles in science, you almost have to deconstruct an idea. We have to start with the basics. In this case, when we look at our business, we have to break it down into customers and problems.

If you don’t have the right customers who are trying to get sorted and problem solved, and no matter what solution you build, it doesn’t matter because we know that unless you’re solving a problem, customers are not going to use it.

They’re not going to pay money. Even if you can reach them. Even if you have a patent or an unfair advantage, it doesn’t matter at the end of the day because your customers don’t care. So that is the way we logically break it down, but that innovator’s bias is one of those sneaky things.

It comes upon us and it pretends to be very tempting. And when we have the idea, we think this is the solution. What we tried to do to overcome that is continuous testing.

Even though we may have a product in mind, we don’t build the entire product. This is where the notion of the minimum viable product comes in. We build something smaller. And even before that, even if we have a product that small that we want to build, we don’t even start with that.

We might start with the demo. We might first go and find customers, see if we can reach them, even talk to them. Because if you can talk to customers, we can sell them anything. We start with the end in mind and then we deconstruct our way back to the beginning and start validating at a bottom-up level. That generally is how we overcome the innovator’s bias toward a solution.

Do you think, then, it is a good idea to start selling the product even before you’ve built it?

Ash Maurya: Yes! That’s in many ways is exactly what we also teach. And if you look at the traditional way, we have sold products as we would build it first, then demo it to a customer and then sell it.

What we teach is build a demo first, sell that demo and if you can sell the demo then don’t even build the product. Instead of build-demo-sell, it is demo-sell-build. That way we can go a lot faster as we can start with demos that not only helps us validate for market risk clearly, it also helps you – in a way – to test what you’re going to build because your demo can show what the product will do and if the customer doesn’t like it, you can still change it.

[image error]

Example of the Problem/Solution Fit and demo-sell-build model by LEANSTACK

This means you eliminate the product-market fit problem, right?

Ash Maurya: Yes! That’s because we are systematically testing risks because we recognize the customer market risk to be the riskiest. If we can sell, we have mitigated some of it, but now the next question is can you build what you promised? Because if you sold something without having built it, then we have the feasibility risks.

That is usually less risky, but it’s still not given. There are many companies which cannot build good products, and you can again fail, but at least you’ve proven that if you build what you show the customer, then you stand to get at least that customer.

You still have the feasibility risk, then, which might make a product yet not successful?

Ash Maurya: Of course, you know, all of that is relative. Just to show the extreme example. Richard Branson and Elon Musk are already selling tickets to the moon. They know that it is technically impossible today, but it will happen one day. And the early adopters who are willing, who wanted to be the first to go on a vacation on the moon are buying tickets already.

Gennaro Cuofano: in the entrepreneurial world, there is this thing for “crossing the chasm,” which is the ability of a high tech startup to go from early adopters to an early majority. The problem is the whole process is quite difficult, and in many cases, you might still have a business even though you deal with early adopters.

What do you think about building a business on early adopters?

Ash Maurya: Most companies never even get to saturate their early adopters because it’s just not easy to build something valuable for even early adopters. Often we joke and say, “you know, you should be so lucky even to have the chasm to jump over because most people never even get that far.” That’s one way to think of it, but the way that we try to kind of prepare for that, we try to make the early adopters not too narrow. We want to make them big enough to where you can build at least a business that is sustainable on its own. It’s going to be a small version of the business model, but at least it gives you some sunroom with which to then grow to product market fit and beyond.

That’s one approach. Of course, it doesn’t have to be early adopters as five or 10 people. It has to be of some, some reasonable scale to where it makes sense. But then the more important thing is that when you get to serve those early adopters, they’re the learning you get from them. The social proof you get from them is really what the early majority needs to actually de-risk the idea for themselves. They don’t want to be first but they can happily be second as long as they are enough first people in front of them.

Gennaro Cuofano: In your book Scaling Lean, you make that it’s not about the execution but the search of a business model.

Why is it so important the search of a business model compared to the execution?

Ash Maurya: It’s one of those things where if you look at the execution kind of mindset, it goes back to the original business planning hypothesis where we would take an idea, we would spend all this time doing the analysis and even though we didn’t know all the facts, we would raise some money. Build a team, and then start executing a plan.

That playbook used to work at a time when there wasn’t a lot of competition. If you could build a product, get it to market, and even if it was wrong, you still have the attention of customers because they would work with you.

Even if you’ve got it completely wrong, you could build a product again and that’s how big companies had survived for all these years. Today the world is very different. I read a statistic recently that there are 100 million ideas that get started every year.

That’s 100 million! That’s 300 a second! When there are those many ideas, if you spend nine months coming up with this perfect plan that isn’t flawed, in that same time, you can do the math.

There are probably lots of other ideas which are similar to yours and you only need one of them to break through. And that’s why that whole model doesn’t work. And we have to go a lot faster than before.

And now if you’re going faster, when you go so fast, you can really execute. You have to be constantly learning. And that’s why we kind of talk about this as being a search versus execution mindset is we make some rough plans through the validation process.

We are constantly correcting course, which is how business planning should have been in the first place! The business plan is such a big artifact that nobody wants to keep it up to date. A tool that we use now and then a lighter weight allows you for that kind of dynamic evolution.

Gennaro Cuofano: You argue there is a very important metric to look at when growing your business: Traction.

What is traction and why is it so important?

Ash Maurya: The question often is what is the one metric that both the entrepreneurs, innovators as well as the investors, the stakeholders want. And often times people will say money or profit, but that’s not enough because you may have money this quarter, but next quarter it goes down. It has not just to be money or profit; it has to be a rate of returns; it has to be growth driven.

And that’s what traction is about. But what’s even more interesting about traction is that is not the rate at which you make money. But rather it’s about some of the leading indicators towards making money.

For example, if I just look at a company like Starbucks and I look at their balance sheets, I can tell that they are growing because every quarter they’re making more money when I don’t know is how they are growing or why they are growing.

When you start asking the “why” that is when you need to look carefully at other aspects of the business. For instance, you need to study customer behaviors, so that you can see what customers are doing in the store that may be contributing to the most money.

And that’s where we come up with new campaigns or new policies or new experiments where we double down on those things that drive more money and then we see it the next quarter that goes up.

And that’s in many ways what we call traction! What’s exciting about traction as the rate at which a company captures monetizable value from its, that’s how we like to define traction.

Gennaro Cuofano: I think one example if you look at Amazon and its balance sheets for four you see that Amazon has been running very tight margins for years. But in reality, the reason was Amazon captured market value and it was actually, and it was also pulling other businesses. If you look at Amazon today, the composition of its business model is quite different. And even though again, the online store, it’s a very tight margin it is actually driving the growth of other business units that today contribute to most of Amazon success and margins!

Today if you look at the many tech IPOs happening you look at the financial statements and the first thing that you notice is that the bottom line is negative. They are actually running at net losses in the millions or in the billions in some cases. Many startups that didn’t exist a few years ago we call them Decacorns. And while they have crazy valuations they still don’t turn a profit!

Is a business model viable even though you can’t turn a profit yet?

Ash Maurya: In my opinion, that’s not the case. And this is where I mean all those companies had an inflection point. All those companies when they hit product-market fit and beyond, they had a choice to make, which is we can become a very profitable company or we can become a fast-growing company.

It was growth versus profit and many of their investors chose growth over profit because it goes back a bit to the Amazon strategy, which is let’s get so big that then we have an unfair advantage.

The mistake though is that as you correctly defined in the Amazon case, they were essentially diversifying their business model and they were able to sustain the company at the expense of divisions within the company to build a very much stronger whole than the sum of the parts.

To me then, it doesn’t make economic sense when you’re just growing for the sake of growth with no end of it ever turning into a profit. It becomes more of a speculative game, which is what a lot of the derivative assets and the debt markets are about.

But you look at many companies, Skype being one of them that grew to a huge valuation and then got essentially sold for a very big loss and now it’s inside another company. It’s a bit like the hot potato game at some point and I’m not a huge fan of that. At some point, all companies need to turn profitable.

Gennaro Cuofano: I was reading the financial prospectus of Uber and they point out that the reason why they’re putting so much effort on growth is that they’re trying to capture what they call the liquidity network effects, which means they try to grow their network at the point where they have the whole control over it.

At that stage, they would be able to capture higher margins in the future, which we don’t know if this is going to be the case. And it is a quite risky strategy. What Reid Hoffman, co-founder of LinkedIn calls Blitzscaling or prioritizing on growth over all else.

Ash Maurya: I use the word narrative currency is that if you look at any, any kind of derivative market where we have all the housing crisis, at least in the US here, people invented all kinds of terms and they all sounded very smart and intelligent and assumed they were true. It doesn’t mean they’re going to work in the long run.

It’s a theory. I’m sure they could be right and they could also be wrong and the people were making the bets they are the ones who are going to pay.

Gennaro Cuofano: Right. And the interesting part is that if they turn out to be wrong there will be people losing a lot of money, which is not the point of entrepreneurship. Because as you said at the beginning, entrepreneurs, usually, try to minimize risk, not actually to generate additional financial risks, because they are entrepreneurs and not bankers, nor financiers.

Entrepreneurs are very practical people and they try to really launch businesses and minimize the risk.

You have an interesting way to classify business models, can you articulate on that?

Ash Maurya: I come from a technical background and I always like to think in terms of patterns and systems. And if you look at a business model, there are several actors in them. You know there are users, customers, buyers or sellers.

There are also many different business model types. And I decided to classify business models just in terms of interactions. The more interactions you have, the more complex the model.

I came up with three basic archetypes, one of them was the direct model, and that’s the simplest. This is where you have a user and that user is also your customer or it can become your customer.

I talked about Starbucks early on. That’s the example I use in the book. There is a coffee shop, we know that you go to the coffee shop, you smelled the coffee. If you like it, you buy it so you, the user becomes the customer. That’s a one actor model. That’s kind of the simplest one.

Then we have the multisite model. For instance, Facebook, you have users and customers. Typically the user’s side is free, but it’s “free” in the sense that they don’t pay it directly, but there’s no such thing as a free user in the business model. We’re paying Facebook with a currency, which is attention!

Indeed, that data which Facebook collects and then packages for advertisers is turned into money for the company. That model can be applied in many different places at any time there’s a user side that creates an asset that then gets monetized.

This can be monetization of data and the monetization of user-generated content even in a not for profit. This might sound counterintuitive, but in a not for profit, you’re essentially monetizing impact. You have people that you are serving.

Thus, you are serving people in the Red Cross and then you have donors, donors are the customers and the people that you help are going to be the users of that system. That is the multi-site model.

And then the final model is the marketplace model. And this would be like Airbnb for example. That one is easy to understand. You have buyers and sellers and they come together to conduct a transaction. And then that’s how the business makes money by either capitalizing on a percentage of the transactions from a commission or something, something of that sort of transactional fee.

Gennaro Cuofano: Interesting! I believe it’s very important to remark that a business model they say always evolving. If you think about the Google business model, there is are a lot of discussions going on – especially in the SEO and publishing world – as they fear that Google might be automating part of the process of generating content or extracting more and more content from websites. Thus, the value proposition of companies like Google changes at all times.

Thus, my idea is that you need to look at the key player around which a business model has been built. For instance, if the user gets value from the information that Google offers, then Google is going to be looking at what the users want rather than focus on publishers.

Of course, publishers are another key player, but users come first.

Is there anyone you suggest following in the business world?

Ash Maurya: I tend to be a very deliberate reader. Over the years I followed many people. When I talk about love the problem, not the solution, a lot of it is really chasing problems that keep one up or keep the business up. And that’s for me generally what I tend to follow. I look at people like Elon Musk – which apart from his lack of work-life balance – he has a very non-linear way of thinking, which is something we try to teach.

This idea of a 10x thinking way of deconstructing problems. I find that’s something you see in a lot of his ideas and his business and I think it’s a very powerful thinking process, but also a skill that can be developed and can be taught. That’s something I respect a lot from him.

I learned a lot from just watching. I never met Steve Jobs but just by watching the way his career and kind of how he went through setbacks but also how good of a storyteller he was. There are a lot of people that I guess from the more famous people. Those are the people who I tend to follow it, but behind the scenes, there are a lot of authors and thinkers from philosophy, from science, from engineering that I just constantly read because I look for patterns everywhere. And you’ll find solutions to problems everywhere. The hard part is piecing them together and trying to synthesize them towards something that that can make sense.

Gennaro Cuofano: And the 10x thinking is so important. What the Googlers called Moonshot Thinking!

Are there any companion books that you suggest reading together with Running and Scaling Lean?

Ash Maurya: Eric Ries, The Lean Startup. I really suggest that because that’s more of a big idea book, which has a lot of kind of case studies and at least gets people to understand the context in which a lot of these things apply.

I tend to read a lot of how-to books. Along those lines. I also find the Lean Analytics book by Alistair Croll and Benjamin Yoskovitz which gets more into the metrics and what you would need to be able to measure and test your business.

Gennaro Cuofano: Thank you so much Ash. It was a pleasure having you!

Ash Maurya: Sure. Absolutely. My pleasure. Thank you. Thank you.

Key takeaways

Entrepreneurs are risk-averse
Entrepreneurship is about getting in love with the problem
Avoid to fall in the innovator’s bias, or getting in love with the solution
Demo-sell-build rather than build-demo-sell
There is a key metric to assess the success of a business: Traction!
Business models can be categorized according to the actors and interactions involved in three kinds: direct, multisided and marketplace
Business models are always evolving
Searching for the proper business model means making it profitable
Look for the smallest market, that is big enough to make your business sustainable
You need to be fast from idea to execution, as a few ideas will turn out to be successful

Suggested Readings

Running Lean by Ash Maurya
Scaling Lean by Ash Maurya
Lean Startup by Eric Ries
Lean Analytics by Alistair Croll and Benjamin Yoskovitz

Other 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

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Published on April 24, 2019 13:14

LinkedIn Multi-Sided Platform Business Model Explained

Back in 2002 former PayPal Mafia member, Reid Hoffman together with Konstantin Guericke, Jean-Luc Vaillant, Allen Blue, Eric Ly created the professional social network that would grow until it was acquired by Microsoft for $26.2 billion in December 2016. In this article, we’re going to see what are LinkedIn secrets and how its business works. In fact, a well-designed business model is a primary driver of value for any company in the long run. So how did LinkedIn become a company worth $26.2 billion?

LinkedIn business model explained

We’re going to focus on two aspects. First, how LinkedIn makes money. Second, what customers it serves. Third, we’ll see how, when and why it makes sense to build a multi-sided platform, just like LinkedIn has done.

Subscription-based plus advertising

LinkedIn is a professional network where people can manage their professional brand, while recruiters can find candidates to fill job vacancies. In addition, it has a platform related to education and skills developments. Last but not least LinkedIn offers the opportunity to sponsor products or services with paid advertising campaigns.

According to Microsoft‘s annual report for 2017 LinkedIn has more than 500 million users.

In short, the business model is organized around four pillars:

Talent Solutions
Learning & Development
Marketing Solutions
Premium Subscriptions

Let’s look at each of them more in detail.

Talent Solutions

As specified by the LinkedIn annual report for 2016 (before the stock got delisted), the talent solutions comprise:

Hiring and Learning & Development products. Hiring provides innovative recruiting tools to help our customers become more successful at talent acquisition and professional development. Our products aim to be the most effective way for enterprises and professional organizations to efficiently identify and acquire the right talent for their needs. Learning & Development provides online education courses that aim to make it easy for professionals to accelerate their careers and realize their potential by learning new skills.

In fact, the Talent Solutions platform can be broken down into:

LinkedIn Recruiter, which breaks down the process in allows enterprises and professional organizations to find, contact and hire highly qualified passive and active candidates based on three main features:

1. Advanced searches (through LinkedIn‘s search engine is possible to find any professional profile the comprises the professional network by applying filters to the search

2. InMail service (a service that allows you to message anyone on the platform even if not in your network)

3. Talent Pipeline Management (a sort of dashboard for recruiters that allow them to keep all their leads in one place)

Within the hiring process, there are also other features and products, such as referrals, job slots, job posting and so on. The primary business model here is subscription-based.

Learning & Development

Back in 2015, LinkedIn had bought an online learning company called Lynda for $1.5 billion. Lynda was integrated into LinkedIn as the learning and development platform for professionals. In short, subscription members can get access to thousands of professional courses. Thus, this segment of the business is subscription-based as well.

Marketing Solutions

The marketing solution is the part where LinkedIn uses its member’s user base to let other businesses advertise their products or services. There are six products in this area:

Sponsored Updates
LinkedIn Ads
Sponsored InMails
Display Ads
Ads API
Elevate

The last segment is related to the premium subscriptions members.

Premium Subscriptions

The differentiation between the subscription-based model and advertising model is not as simple as it seems. In fact, within premium subscriptions, you can have access to advertising features (like InMail Messages); therefore, even though the LinkedIn business model is mainly subscription-based. That is more diversified. In fact, it is undeniable that part of the value of the professional network comes from the leverage the businesses can make of the LinkedIn members’ base.

LinkedIn in numbers

Back in December 2016, LinkedIn was acquired by Microsoft for over twenty-six billion dollars. As Microsoft CEO, Satya Nadella put it at the time:

Today is an exciting day, one I’ve been looking forward to since June. It marks the close of the agreement for Microsoft to acquire LinkedIn and the beginning of our journey to bring together the world’s leading professional cloud and the world’s leading professional network.

Therefore, it’s hard to say in hard numbers how much this integration benefits Microsoft. In fact, having LinkedIn is more than just a way to generate new revenues streams, but also a new avenue to “hit refresh” on Microsoft‘s brand value. Also, many have argued that one of the reasons for the acquisition was to bring onboard LinkedIn‘s founder, Reid Hoffman:

Our CEO @jeffweiner’s reflections on today’s announcement that LinkedIn will be joining forces with Microsoft. https://t.co/TV43SkvXK5

— LinkedIn (@LinkedIn) June 13, 2016

However, in this article, we’re going to look at pure financials to understand where LinkedIn is right now regarding growth and how the company’s business model is influencing its value creation.

Before Microsoft had bought LinkedIn, the professional network was listed. In fact, when the acquisition was announced the company’s stock jumped to $195.96 to align at the price of the offer from Microsoft. It was a premium of over 40% compared to the market capitalization of LinkedIn previous to the announcement; when the acquisition was official LinkedIn also delisted its stock to join Microsoft.

In short, today if you want to have financial information about LinkedIn you’ll have to dig into Microsoft‘s financials. In fact, by delving into Microsoft’s financials, there is no doubt that LinkedIn is one of the “products” that bring revenues as you can see from the table below:

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In 2017 LinkedIn revenue was $2.3 billion, which primarily comprised revenues coming from LinkedIn Talent Solutions. In 2018, the revenue surpassed five billion, still primarily from the talent solutions offering.

Indeed, as we’ve seen LinkedIn offers three categories of monetized solutions: Talent Solutions, Marketing Solutions, and Premium Subscriptions, which includes Sales Solutions.
Talent Solutions is comprised of two elements: Hiring, and Learning and Development.
Marketing Solutions allows companies to advertise to LinkedIn’s member base.
Premium Subscriptions enables professionals to manage their professional branding.

Where does LinkedIn get its value? Undoublty from the platform it was able to build, which serves both hands of the professional industry: HR managers and Professionals.

LinkedIn is a Multi-Sided Platform

Based on the 10K for 2016:

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As many multi-billion dollar companies, LinkedIn has several revenues streams which comprised four main areas back in 2015:

Hiring (59.2%)
Learning & Development (3.6%)
Marketing Solutions (19.5%)
Premium Subscriptions (17.8%)

Regarding the business model, LinkedIn could be defined as a Multi-Sided Platform. In fact, one of the key aspects of a business model is the customer segment your organization serves. In short, to whom you’re selling your products or services.

In short, although LinkedIn serves different target customers. They are highly dependent on each other. In fact, LinkedIn gets its overall value by offering services for both HR managers in need of qualified candidates; and professionals looking for career opportunities.

Therefore, If I were an HR using LinkedIn hiring that would help me find qualified candidates. At the same time, the Learning & Development platform allows LinkedIn members to get more qualified. Which in turn, increases the value of the hiring services as more qualified people are available.

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To assess the value of a Multi-Sided Platform financial metrics are useful but a more holistic approach helps.

Summary and Conclusion

As of 2017 LinkedIn generates almost $2.3 billions in revenue. The company has been integrated into Microsoft as of the end of 2016. Therefore, to understand how it is doing from the financial standpoint you’ll have to look at the financial data filed by Microsoft.

In terms of Business Model, LinkedIn focuses on two main patterns for generating revenues: subscription-based (Hiring, Learning & Development) and advertising (Marketing Solutions). The overall platform gets value by integrating those services and serving both the hands of the professional industry (HR managers and professionals). That makes LinkedIn a multi-sided platform.

For more on Customer Segments:

Other handpicked resources:

Other case studies:

The Power of Google Business Model in a Nutshell
How Does Google Make Money? It’s Not Just Advertising!
Ok Google, Are You In Search Of A Business Model For Voice?
The Future of Google: The Curse of Engineers Become Advertisers
When The AI Meets Users’ Intent, Google Takes A Cut On Every Sale On Earth
How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
Who Owns Google? Under The Hood Of The Tech Giant That Conquered The Web
The Google of China: Baidu Business Model In A Nutshell
How Does Twitter Make Money? Twitter Business Model In A Nutshell
How Amazon Makes Money: Amazon Business Model in a Nutshell

How Does Netflix Make Money? Netflix Business Model Explained

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Published on April 24, 2019 08:28

April 22, 2019

Fastly Enterprise Edge Computing Business Model In A Nutshell

Fastly follows an enterprise business model, which offers an edge cloud platform. Fastly business model leverages on an active community of developers. As an enterprise business, a good chunk of its revenues is spent on sales and marketing processes.

The company has 56 sales representative and sales managers across the company. For a monthly fee, enterprise customers get access to the platform and also account management and enhanced customer support.

Breaking down Fastly value proposition

Our mission is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud platform that they adopt as their own.

The basis of the edge cloud computing is in its decentralization and the fact that it brings the data closer to where it’s needed. Why is this critical to understand Fasly business model? We need to look at how Fasly edge cloud platform works.

Fastly edge cloud platform: the developer’s edge

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We have built a powerful, serverless edge cloud platform, designed from the ground up to be programmable and support agile software development. We process, serve, and secure our customers’ applications as close to their end-users as possible, at the edge of the internet for enhanced performance and protection. We call this platform the Developer’s Edge and we believe it gives our customers a significant competitive advantage whether they are just embarking on their digital transformation journey or natively born into the new digital age.

This is how Fastly explains its edge cloud platform, in its Financial Prospectus.

The edge cloud platform has three core premises:

Developers must be empowered to innovate;
Platforms must innovate ahead of market demands while still being reliable, scalable, and secure; and
Vendors must provide exceptional flexibility and support.

As pointed out in its Financial Prospectus:

As the edge cloud grows in popularity, it threatens to disrupt the basic business model of the central cloud. Central cloud revenue is based on the monetization of units of compute power, storage, and bandwidth. As more data is processed at the edge, less compute power will be needed in the central cloud. Similarly egress costs will be lower, since less traffic will need to transit back and forth from the central cloud to the end-user. Like central cloud spend and other non-discretionary budget lines for businesses with online applications, the edge cloud spend is part of cost of goods sold.

Therefore, the whole paradigm of the edge computing allows organizations to build more efficient infrastructure, that can rely less on central cloud services, thus reducing the need to move a higher amount of traffic back and forth.

This allows an organization to get closer to its end-users. It makes it more in control of its data, it works at higher efficiency compared to a centralized system and more secure.

As this edge cloud platform sits between Fastly’s customers applications and their end-users, it allows developers to have a few critical elements to work on:

Full programmability
Reusable modules
Real-time visibility and control
Agile development
Safety at the edge

This implies that developers are a key partner of the whole Fastly business model. Which makes it possible for the company to run successfully, only if it keeps involved its community. That is why Fasly is committing to open source software adoption.

The open source model works as a freemium model. Indeed, as developers and organizations are acquited to Fastly open-source operations, this also allows its sales force to close deals more easily.

Fastly is an enterprise business model

Fasly serves a set of customers operating in digital publishing, media, entertainment, technology, travel and more. The Fastly customer is an enterprise, which usually handles massive amounts of traffic.

And as it also might need to handle peaks of traffic, it needs Fasly solution to allow a certain degree of stability to its infrastructure.

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Among its 1,582 customers in 2018, 227 were enterprise customers.

These customers typically purchase one or more products, for a monthly recurring or one-time fee depending on the kind of products selected.

Within the offering, there are also various levels of account management and enhanced customer support for a monthly fee.

The contract is structured on a 12 months basis, with a minimum monthly billing commitment as a retainer.

As a traditional enterprise business, it’s hard to predict the sales cycle. This is by far the most difficult aspect for any enterprise business. As the closing of a deal can vary from several months up to over a year, based on the structure of the deal.

The level of complexity of the organization. The budget involved and whether the Fastly sales force is able to keep its offering interesting for those organizations.

For instance, Fastly’s clients are divided into six primary categories:

Financial
E-commerce
Travel
High tech
Digital publishing
Streaming

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For each of those customers, Fasly will deliver a custom solution that allows them to satisfy a specific need. As of December 31, 2018, Fasly had 1,582 customers in more than 60 countries around the world, including 227 enterprise customers.

Among the use cases, for instance, Fasly, back in 2016 helped The New York Times to reduce its costs by handling a massive spike in traffic due to the US elections.

The company usually delivers value such as

rapid,
personalized,
and secure web and mobile experiences

Sales and marketing are such an essential element for an enterprise business like Fastly, that as of 2018, the company employes 56 sales representatives and sales managers!

Fastly values and culture: scale up with ethical values

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Source: Fastly Financial Prospectus

Fastly challenges the assumption that a high-tech, a scaling company must give up its ethical principles. And it emphasizes its values as an essential factor for its success. As the company points out “we aspire to improve human lives through our work. We were founded on strong ethical principles, and have intentionally grown values-first, scaling our workforce, services, customer portfolio, and investment partners purposefully.”

The company also added:

We are only as good as the company we keep, and this guides our hiring practices as well as the ethics we are committed to upholding as we scale. We believe that as a result of our values, we have been able to attract great people. We want to serve the very best of the internet. We choose to work with customers that we believe have integrity, are trustworthy, and do not promote violence or hate. Our eight core values define who we are and how we choose to grow, hire, train, work, communicate, make decisions, support each other, and serve our customers.

Even for high tech companies, accountability, and ethical values have become critical to keep them successful in the marketplace. Fastly challenge is to stay true to its values as it scales up.

Breaking down Fastly financials

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Source: Fastly Financial Prospectus

Cost of revenues or CoGS is the money an organization needs to spend to generate its revenues. A good chunk of Fastly revenues are spent toward:

Fees paid for bandwidth, peering, and colocation
Personnel costs, such as salaries, benefits, bonuses, and stock-based compensation

The anatomy of the Fastly enterprise customer

Another good chunk of Fastly revenues is spent on sales and marketing. This is normal for an enterprise business model, as it needs to employ complex sales and marketing strategies to keep growing.

As of 2018, among the 1,582 customers, 227 were enterprise customers. These enterprise customers are those with revenue above $100,000 over the last 12-month period. In 2017, the 170 enterprise customers generated 82% of revenue. In 2018, the 227 enterprise customers made 84% of revenue. That is why Fastly employs 56 sales representatives and sales managers across the company.

Why the dollar-based net expansion rate matters

Our ability to generate and increase our revenue is dependent upon our ability to

Increase the number of new customers
Increase the usage of the platform
And increase the purchase of additional products by existing customers

This metric is what Fastly defines as dollar-based net expansion (DBNER).

Fastly computed its DBNER by dividing:

revenue for the 12 months from customers entering a new agreement

by the revenue for the 12 months ended in 2017

In 2017 and 2018, Fastly DBNER was 147.3% and 132.0%, respectively.

Other resources:

Other business models studies:

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 PayPal Make Money? The PayPal Mafia Business Model Explained
How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
How Amazon Makes Money: Amazon Business Model in a Nutshell
How Does Netflix Make Money? Netflix Business Model Explained

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Published on April 22, 2019 09:04

April 20, 2019

A Quick Glance At Uber Mission Statement

Uber’s mission statement is to ignite opportunity by setting the world in motion.

Let’s see what it means!

A short analysis of the Uber business model

Uber business model has become one of the most mentioned in the business world, as it managed to change the way mobility works. While Uber still represents a small percentage of the global mobility market, it is still an incredible case to look at.

When you build a new industry, market, and a whole new business model, you need to tweak it over and over to find a balance, which aligns value creation, with value capturing. As of now, Uber hasn’t found its balance yet, as the company is still unprofitable.

So far Uber business strategy leverages on Liquidy Network Effects, which focuses on tightening its margins to broaden its network.

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A Moonshot thinking approach

Google is famous for having popularized a moonshot thinking approach. Uber also uses a bold mission to drive its business strategy. This bold mission starts from:

Our mission is to ignite opportunity by setting the world in motion.

The ambition of Uber’s business strategy emphasized first on creating a whole new market (ridesharing). And then to take over the mobility market itself.

As pointed out in its financial prospectus Uber “just got started” with only 2% of the population in the 63 countries where it operates the company looks to expand further.

Several factors drove the Uber phenomenon. In the letter to shareholders in 2019, CEO Dara Khosrowsha pointed out how Uber got there and where’s going next!

[image error] [image error]

Source: Uber Financial Prospectus

The foundation of the Uber platform moves around a few key elements:

Massive network: consists of tens of millions of Drivers, consumers, restaurants, shippers, carriers, and dockless e-bikes and e-scooters, as well as underlying data, technology, and shared infrastructure
Leading technology: proprietary marketplace, routing, and payments technologies
Operational excellence: extensive market-specific knowledge to rapidly launch and scale products in cities
And product expertise: contextual, intuitive interface, continually evolve features and functionality

That’s how Uber brings people from point A to point B, which is the unit of the Uber business model.

Based on its mission Uber formulated eight cultural norms:

We do the right thing. Period.
We build globally, we live locally.
We are customer obsessed.
We celebrate differences.
We act like owners.
We persevere.
We value ideas over hierarchy.
We make big bold bets.

Resources for your business:

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Published on April 20, 2019 01:24

April 18, 2019

Uber Business Strategy: Liquidity Network Effects To Spark Growth

One of the key elements of platform business models is their ability to create strong network effects. One major issue when kicking off a platform from scratch is to create “liquidity.”

As pointed out on Uber Financial Prospectus:

Our network becomes smarter with every trip. In over 700 cities around the world, our network powers movement at the touch of a button for millions, and we hope eventually billions, of people. We have massive network scale and liquidity, with 1.5 billion Trips and an average wait time of five minutes for a rider to be picked up by a Driver in the quarter ended December 31, 2018.

In order to trigger network effects, Uber needs to think in terms of nodes of a graph, rather than just customers. Indeed:

Every node we add to our network increases liquidity, and we intend to continue to add more Drivers, consumers, restaurants, shippers, carriers, and docklesse-bikesand e-scooters.

Looking at the future Uber will be widely investing in other areas as well:

We also hope to add autonomous vehicles, delivery drones, and vertical takeoff and landing vehicles to our network, along with other future innovations.

This means the ability to generate enough supply, which improves the service. Thus it generates even more demand. This flywheel effect is the key to trigger the network effects needed to unlock growth.

As pointed out:

Our strategy is to create the largest network in each market so that we can have the greatest liquidity network effect, which we believe leads to a margin advantage.

Thus, Uber looks after liquidity network, which allows it to create a competitive advantage, which over time becomes a margin advantage!

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Source: Uber Financial Prospectus

Uber leverages on a liquidity network effects, which starts from creating driver’s supply, which determines lower wait times and fares for riders. In turn, this attracts more riders.

Thus, with more riders per hour, there is a higher earning potential for drivers. When this happens more drivers join the platform, thus making this network effect speed up. That’s how Uber kicks off growth from its platform!

As explained in its financial prospectus:

Increasing scale, creating category leadership and a margin advantage.We can choose to use incentives, such as promotions for Drivers and consumers, to attract platform users on both sides of our network, which can result in a negative margin until we reach sufficient scale to reduce incentives.

Therefore, to focus on growth, Uber kicks off a market by eating up its margins, that become negative, until sufficient scale is reached. At that stage, incentives are reduced. Thus, Uber subsidized a market when it first enters it.

That is also why and how Uber has been able to build up a global presence:

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Source: Uber Financial Prospectus

In certain markets, other operators may use incentives to attempt to mitigate the advantages of our more liquid network, and we will generally choose to match these incentives, even if it results in a negative margin, to compete effectively and grow our business.

Uber here clarifies even further how Uber eats up its margins, by making it them negatives, and to prioritize on Growth. This aggressive growth strategy, it’s described by LinkedIn’s founder Reid Hoffman, as Blitzscaling:

[image error]At its core, the concept of Blitzscaling is about growing at a rate that is so much faster than your competitors that makes you feel uncomfortable. In short, Blitzscaling is prioritizing speed over efficiency in the face of uncertainty.

Generally, for a given geographic market, we believe that the operator with the larger network will have a higher margin than the operator with the smaller network.

In short, Uber prioritizes in making its network larger, so that over-time it can gain higher margins on its operations.

To the extent that competing ridesharing category participants choose to shift their strategy towards shorter-term profitability by reducing their incentives or employing other means of increasing their take rate, we believe that we would not be required to invest as heavily in incentives given the impact of price and Driver earnings on consumer and Driver behavior, respectively.

Therefore, according to Uber, those players that prioritize on “short-term profitability” makes it easier to Uber to be competitive.

In addition to competing against ridesharing category participants, we also expect to continue to use Driver incentives and consumer discounts and promotions to grow our business relative to lower-priced alternatives, such as personal vehicle ownership, and to maintain balance between Driver supply and consumer demand.

That’s why we can expect in the coming years, Uber to keep using this strategy to fuel growth. This isn’t that far from Amazon cash machine strategy, where Amazon voluntarily reduced its margins to prioritize on aggressive growth and acquisition of market shares.

It is important to remark that Amazon has been profitable for many of its years of operations.

This business strategy used by Uber is a clear example of how platform business models can gain long-term competitive advantage by tapping into larger and larger networks!

Resources for your business:

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Published on April 18, 2019 16:31

Uber’s Flywheel: How Liquidity Network Effects Spark Growth

One of the key elements of platform business models is their ability to create strong network effects. One major issue when kicking off a platform from scratch is to create “liquidity.”

[image error]

Source: Uber Financial Prospectus

Uber leverages on a liquidity network effects, which starts from creating driver’s supply, which determines lower wait times and fares for riders. In turn, this attracts more riders.

As explained in its financial prospectus:

Increasing scale, creating category leadership and a margin advantage.We can choose to use incentives, such as promotions for Drivers and consumers, to attract platform users on both sides of our network, which can result in a negative margin until we reach sufficient scale to reduce incentives.

That is also why and how Uber has been able to build up a global presence:

[image error]

Source: Uber Financial Prospectus

In certain markets, other operators may use incentives to attempt to mitigate the advantages of our more liquid network, and we will generally choose to match these incentives, even if it results in a negative margin, to compete effectively and grow our business.

Generally, for a given geographic market, we believe that the operator with the larger network will have a higher margin than the operator with the smaller network.

In short, Uber prioritizes in making its network larger, so that over-time it can gain higher margins on its operations.

To the extent that competing ridesharing category participants choose to shift their strategy towards shorter-term profitability by reducing their incentives or employing other means of increasing their take rate, we believe that we would not be required to invest as heavily in incentives given the impact of price and Driver earnings on consumer and Driver behavior, respectively.

Therefore, according to Uber, those players that prioritize on “short-term profitability” makes it easier to Uber to be competitive.

In addition to competing against ridesharing category participants, we also expect to continue to use Driver incentives and consumer discounts and promotions to grow our business relative to lower-priced alternatives, such as personal vehicle ownership, and to maintain balance between Driver supply and consumer demand.

It is important to remark that Amazon has been profitable for many of its years of operations.

This business strategy used by Uber is a clear example of how platform business models can gain long-term competitive advantage by tapping into larger and larger networks!

Related:

Resources for your business:

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Published on April 18, 2019 16:31

Always Be Closing: Five Effective Strategies For Closing A Sale

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.

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Published on April 18, 2019 04:10

April 16, 2019

The Ultimate Guide On How To Develop A Content Strategy

Content rules the internet. It ruled the internet in the past, and its importance has increased even more now. The black-hat marketers were able to game the system and rank high in the search engine with crappy pieces of content in the past, but it is nearly impossible today.

Understanding Content Marketing and Strategy

We can define content marketing as a type of marketing that deals with the publication and promotion of online content that offer value to the targeted audience to stimulate interest in them. There are various types of digital content, and they are a blog, video, case studies, social media posts, e-book, and more.

On the other hand, content strategy is a plan for the management and optimization of various types of written, downloadable, visual, and different types of content for establishing brand authority and making an impact on targeted audience to get more leads and sales eventually.

In today’s world, it is incredibly crucial for marketers to have a solid content marketing strategy in place. With so many online articles, videos, and other types of content published per day, you cannot expect people to find and interact with your content without a strategy.

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Image Source: Fourdots

However, a solid content strategy can give you a substantial return on your investment for a long time.

The study shows that it only costs one-third of traditional marketing cost to implement content marketing and it produces three times more leads.

Whether you are in B2B or B2C space, you need a content strategy in place. According to recent surveys, over 90% of B2B marketers (Source) are using content marketing, while over 85% of B2C marketers are using content to market their products/services (Source).

Tools that will help you to create a better content strategy

Keep in mind that I’m not recommending you to sign up for all the tools that I’m about to mention in this section. It depends on your strategy and goals.

However, you need essential software to manage your marketing and customer relations. A HubSpot marketing automation and HubSpot CRM software will help you achieve your marketing and customer relationship from a single platform. HubSpot does not charge a dime for its basic plan, and that free package alone is powerful to help you out.

Some other tools that you can look out for are:

Buzzsumo to find out about trending content and influencers.
Use Evernote for organizing and sharing your content with your team.
Trello to manage your tasks and teams.
Clickfunnels for developing powerful sales funnels
Canva for designing visually appealing images
SEMRush for your SEO strategy development
MailChimp or other similar software for email marketing

Besides these tools, you can explore for more, according to your needs.

What types of content should you create?

There are numerous types of content like video, podcasts, social media posts, infographics, interviews, slideshows, webinars, and so on. Again, the content you should focus depend on the nature of your company and your content strategy.

For now, I only want you to be aware of the list of content marketing tools and the types of content.

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Image Source: Small Business Trends / Smart Insights

How to come up with a content strategy for your business?

After knowing about tools and the types of posts, let’s get into the steps for creating a content strategy.

Note down your goals

Producing content without goals is meaningless. Before putting your effort in creating different types of content, write down your priorities. What are your goals? Is it to generate awareness, get people to sign up for a free webinar, answer objections, get more sales, or others?

One must customize their content based on the buying cycle of the customer. For instance, a video works great for awareness, FAQ for answering objections, sales page to make a sale, and so on.

Know your audience

It is only possible to get great results if you know your audience. Try to know as much as possible about your targeted audience. Know about your potential customers’ age, interest, gender, interest, and so on.

There are plenty of ways to research your audience. You can use Facebook audience insights, Google Analytics, HubSpot analytics, and so on. Learn how to use these tools to extract more in-depth information about your audience and note it down.

Do not try to serve everyone

Not every single person in this world is your customer. Instead of trying to produce content for everyone, you should focus on your niche. There are tons of useless resources on the internet. If you decide to be a generalist, you might end up being yet another crappy content producer.

Focus on building authority in a space like a big fish in a small pond. Be knowledgeable in your niche and produce content that would stand out. By creating fantastic materials regularly, you will slowly start gaining hardcore followers of your brand.

Do content audit

There are two important outcomes that you will get from the content audit:

You will know what types of content work best for your business.
You can increase your traffic.

Use tools like Google Analytics to go through your site pages or some other types of analytics to run a content audit. Here is a link to a resource that goes deep into the process of performing a content audit.

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Image Source: Ahrefs

Ahrefs saw a spike of 7.57% in their traffic after deleting 31.7% of their posts (Source). It will help you learn and adjust your strategy.

Alongside content audit, you should also use other analytic tools for checking out your landing page performance, social media posts engagement, conversion rate, and so on for learning from your mistakes.

Have a content calendar and a content management system

A content calendar is a calendar that mentions the list of materials to publish on a different point of time. It enables you to post content regularly without any interruption. Here are some of the ways to come up with content ideas:

Monitor your competitors
Use Google Alerts
Browse through forums, Q/A sites like Quora, Yahoo Answers, social bookmarking sites like Reddit
Use blog about, Feedly, HubSpot Blog Ideas Generator for getting suggestions
Utilize the power of Buzzsumo to know what types of topics are trending

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Image Source: Content Marketing Institute

You should also get your hands on the content management system for organizing your content and monitoring it. A HubSpot Software has its own CMS. Another popular CMS is WordPress.

Give rating to platforms and types of content

The types of content that you should focus depending on your goals, the nature of a business, and other factors. I talked about the kinds of content in an earlier part of this article. In that list, assign a rating that performs best for your business objective.

For instance, Pinterest and Instagram could work best for the fashion industry, and whitepaper may work best for a B2B consultancy. Focus more on platforms that work and allocate only a small portion of your time on lesser effective platforms.

Publish, Manage, Measure, and Update

Finally, you should publish content regularly and organize all your online materials. After some time, you should measure the performance and optimize your strategy based on performance. It is a regular cycle to follow for content marketers.

My Final Take

Only putting out a few articles or videos on the internet is not even enough to get a few visitors. You need a solid plan to gain attention for increasing your list and conversion rate.

Now that you have read this article, I believe you will not have a hard time creating a content strategy for your company. You need to do your research to come up with a plan, but this article will act as a blueprint that will give you a direction. You will notice that you will get much more return on your investment if you take actions with a clear strategy in place.

I hope you have found what you need to develop a content strategy. If you want to add more to this article, let us know your opinion below.

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