Gennaro Cuofano's Blog, page 257
July 4, 2018
What Is a Value Proposition? Value Proposition Canvas Explained
A value proposition is about how you create value for customers. Value Proposition Canvas is a methodology which integrated with the business model canvas can help you design a value proposition for your business model.
In fact, the value proposition canvas starts from understanding the customer profile and creating a value map to achieve a fit and draft a compelling value proposition to plug into your business model canvas.
In this article, we’ll see step by step how to draft your value proposition with the value proposition canvas.
It all starts with a profitable and scalable business model
A value proposition design is critical for the success of a company. Yet it is important to insert it in but to make it work you need to insert it in the context of a scalable and profitable business model.
Thus, before jumping into the value proposition design, you can deeply understand what a business model is and how it works from here:
What Is a Business Model? 10 Successful Types of Business Models You Need to Know
Once you understand what a business model is you can start designing it. There are several methodologies to do it, I’d suggest you start with the business model canvas:
What Is a Business Model Canvas? Business Model Canvas Explained
As you will notice, while the business model canvas is a great tool at “hindsight” to analyze and understand other organizations’ business models, you might want to use the lean startup canvas to draft your startup business model:
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
Once you get through those resources you’re ready to dive into the value proposition canvas.
In fact, the value proposition canvas is like a plug-in to the business model canvas.
In fact, the value proposition canvas focuses on two segments of the business model canvas: “value propositions” and “customer segments.”
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What is a value proposition? The value proposition is about how you create value for customers.
In short, it describes the benefits customers can expect from your products and service, and how it can help them solve pain points and generate short and long-term gains.
What is a value proposition?
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The value proposition is really about understanding your customer’s problems and needs.
In short, this is the primary reason that makes you unique compared to others.
You don’t need a thousand words to communicate your value proposition. You need a line:
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In this blog, we analyzed several aspects of DuckDuckGo business model and how DuckDuckGo challenged Google with a compelling value proposition “the search engine that doesn’t track you.”
In fact, today one of the most critical drivers for DuckDuckGo growth is privacy.
Where Google has built its business model on the data of its users, DuckDuckGo throws that data away to make the search experience as private as possible.
Thus, with a single line, DuckDuckGo is communicating what makes it unique compared to other search engines, what issue can it solve (privacy) and what gains a user has (avoid tracking from Google).
As pointed out on strategyzer.uservoice.com there are several elements of the product or service that help craft a compelling value proposition:
Newness
Performance
Customization
“Getting the job done”
Design
Brand/status
Price
Cost reduction
Risk reduction
Accessibility
Convenience/usability
Those elements are critical to putting together a value proposition which comprises two main aspects: customer profile and a value map.
The customer profile
A customer profile needs to be understood in function of the market in which the customer is served.
In other words, it doesn’t make sense to make grandiose plans or assumptions about your customers.
Those need to be tested and validated by looking at three aspects.
Understand what’s important and what’s insignificant about customer jobs
Understanding customer jobs might comprise the set of tasks your customers are trying to perform what problems they are encountering and what needs they’re trying to satisfy.
The aim is to prioritize and find what’s important and what’s insignificant. There are several types of jobs to take into account as explained by strategyzer.uservoice.com:
Functional jobs
Social jobs
Emotional jobs
Supporting jobs
Understand what extreme and what’s moderate about customer pains
One of the most valuable aspect of a product or service is its ability to relieve customers from a pain point, a problem they have, the obstacle that prevents them from getting the job done.
Thus, this process is really about understanding customers frustrations, problems and pain points.
The main aim is to understand the intensity of those problems as a sort of thermometer that tells you what issues are extreme and what are moderate.
For instance, with the team at WordLift, we’ve been having dozens of interactions with potential customers (SEO experts and publishers), and they were all reporting similar issues, related to technical SEO stuff, such as structured data creation.
Understand what’s essential and what’s nice to have by generating customer gains
Those comprise the gains that customers required, expects, and desire within the product or service to make them come back.
Also, there is another critical aspect which is about unexpected gains that can be a powerful lever to hook your customers.
Once profiles the customer it is essential to create a value map.
The value map
Once understood the customer profile, the value map is the tool to fill in the blanks and make the customer profile reflected in the product or service.
In short, the value map allows you to be clear and structured on what specific steps to take to make you customers happy, avoid them pain and what particular features will help.
Thus you want to focus on three aspects:
products and services
pain relievers
gain creators
It’s all about product-market fit!
The goal of the Value Proposition Canvas is about designing the value proposition that can make you reach the so-called product-market fit.
Have you reached it yet? If not, it’s time to design your value proposition with the value proposition canvas:
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Source: businessmodelsinc.com
Key takeaway
Small businesses and startups need tools to get clear about their business models and how to create value for their customers.
The value proposition canvas is a great tool any entrepreneur can leverage on to understand the needs deeply, wants and pains of customers to craft and design a compelling value proposition to plug into a scalable and profitable business model.
That is how you build long-term success for your business!
The post What Is a Value Proposition? Value Proposition Canvas Explained appeared first on FourWeekMBA.
July 2, 2018
What Is Market Segmentation? the Ultimate Guide to Market Segmentation
This is a guide about market segmentation, the technologies that allowed marketers to create more and better-segmented audiences and how the way of communicating changed from mass marketing to one-to-one marketing starting 1920s until today.
The guide is divided into three main sections:
a brief history of advertising
everything you need to know about market segmentation
the most powerful online tools for the marketers
Each of those sections will give you an understanding of three main concepts. First, how marketing evolves with new technologies and how new technologies are used by marketers.
Second, you’ll learn all the aspects of market segmentation. From how, why and when to create market segments. To the requirement necessary for creating market segments and the types of market segmentation.
Third, you’ll learn what tools today marketers can leverage on to create audiences and small segments with utmost details.
A brief history of advertising
Marketing has evolved through the technological devices that allowed marketers to convey the same message to millions of people a the time, like mass media.
To technologies that instead allowed marketers to speak to millions of people with customized messages, like social media and SEM.
Let’s dive a bit into the story of marketing associated with the technological devices that made it possible for marketers to develop new ways of reaching an audience.
I argue that as new technologies at the beginning of the 1900s became available for marketers, those allowed to speak to vast audiences.
That also meant crafting a message that could be understood by the masses. It was the rise of pop culture.
As technology has evolved, it allowed marketers to have accurate data about users. Thus, the marketer could finally craft a personalized message for each user.
It is interesting to notice also the change in terminology. From masses to users. From television viewership to the user experience.
That is also why marketing is now back to building communities, tribes, and personal relations. This is the story of how we went from mass markets to one-to-one conversations.
Radio and Mass market
As reported in the book The A to Z of Old Time Radio Frank Conrad, an electric engineer who worked for Westinghouse held more than 200 radio-related patents he started off with his own radio transmitter.
Initially, radio broadcasts consisted just of transmitting location and equipment used. Yet Mr. Conrad was soon to be bored by this kind of set up.
That is why in 1920 he started a new format called The Radio Amateur News. During the show, Frank Conrad took his phonograph and began to transmit it. At the time 400 people listened to that show.
When another executive at Westinghouse noticed the potential for advertising, he understood they should test the same concept with a broader audience and more structured programming.
The chance to test that came with the Election Day:
When KDKA became the radio’s first commercial programmer, it started by asking “Will anyone hearing this broadcast, please communicate with us, as we are anxious to know how far the broadcast is reaching and how it is being received?”
In that occasion, more than a thousand listeners were reached.
Technology and marketing walk hand in hand. In the 1920s, radio had become the primary medium of communication.
Across the U.S. and Europe, broadcasting stations such as KDKA and British Broadcasting Company (BBC) began to rise.
The power and potential of mass media were still hard to foresee at the time. Experimentation allowed those first marketers to understand its potential.
In fact, disciplines like growth hacking claim to have brought the scientific methodology into the marketing world. In reality, good marketing has always been about experimentation.
Also, Frank Conrad was an electrical engineer, and for what we know he might have been the first mass media marketer. Even though he reached just a few hundred people, he changed the rules of the game.
We think of Sergey Brin and Larry Page or Mark Zuckerberg as a new expression of a tech world dominated by engineers.
Yet as this story shows broadcasts made it possible for companies to send advertising messages to large, undifferentiated audiences at once, giving birth to the mass market concept and the first mass marketing techniques.
Then television came, and mass markets became even more prominent.
Television and mass market
The Brooklyn Dodgers are playing the Philadelphia Phillies. It is July 1, 1941. Suddenly, before the game begins a 10-second advertisement from a watch company – called Bulova – gets broadcasted:
This ten-second spot was the first TV commercial US people saw. Imagine the effect of it – if any. From there a multi-billion industry was born. A bunch of commercials became part of the pop culture:
TV dominated the advertising together with other media outlets dominated the advertising industry:
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Source: eprints.lancs.ac.uk
Until 2017 came:
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One of the things for which 2017 might be remembered is the take over of the advertising spending by digital over TV.
The internet, Google, and its AdWords
Mountain View, California – October 23, 2000, Google makes the following announcement:
Google Inc., developer of the award-winning Google search engine, today announced the immediate availability of AdWords(TM), a new program that enables any advertiser to purchase individualized and affordable keyword advertising that appears instantly on the google.com search results page. The AdWords program is an extension of Google’s premium sponsorship program announced in August. The expanded service is available on Google’s homepage or at the AdWords link atadwords.google.com, where users will find all the necessary design and reporting tools to get an online advertising campaign started.
The beta debut saw the involvement of 350 businesses and advertising agencies worldwide. However, Google AdWords would be rolled out broadly in 2002:
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In 2003 Google reported over $790 million in turnover!
Google’s advertising revenues have grown exponentially to monopolize the digital advertising market together with Facebook. [image error]
In 2017 Google’s revenues from its properties came primarily from AdWords. Revenues reached almost eighty billion in 2017!
On Jun 27, 2018, Google announced Google Ads:
The new Google Ads brand represents the full range of advertising capabilities we offer today—on Google.com and across our other properties, partner sites and apps—to help marketers connect with the billions of people finding answers on Search, watching videos on YouTube, exploring new places on Google Maps, discovering apps on Google Play, browsing content across the web, and more.
The aim is to provide under the same umbrella access to Google Marketing Platform:
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Social networks, Facebook, and its advertising network
Facebook announced Facebook Ads:
“Facebook Ads represent a completely new way of advertising online,” Zuckerberg told an audience of more than 250 marketing and advertising executives in New York. “For the last hundred years media has been pushed out to people, but now marketers are going to be a part of the conversation. And they’re going to do this by using the social graph in the same way our users do.”
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If you want to know where the advertising money is, just follow the eyeballs
New technologies influence human behaviors for better or worse. Companies or people operating in the business world use those technological advancements to understand how to alter the responses of people to specific stimuli.
Technologies like Radio and TV allowed companies to speak to a broad audience. They also created a monologue between corporations and the public.
This also incentivized companies and marketers to use a sort of “universal language” that could be understood by anyone. It was the era of pop culture.
This kind of advertising model made sense because companies knew little about who they had on the other side.
Thus, they either used mass marketing campaigns that were undifferentiated, or they used invented customer groups based on what they thought were their ideal customer.
When tech giants like Google and Facebook entered the advertising industry, it all changed. Advertising was no longer something “magical.”
Those companies founded and run by engineers looked at advertising and tried to make it accountable, and measurable.
So that any business paying for advertising could stop focusing on metrics used in TV advertising like gross rating points (audience reached by the frequency of its exposure to the message during a given period); and focus more and more on conversion targets with PPC (pay-per-click) also known in the business as CPC (cost-per-click).
The reason why in the history of modern advertising I included mainly Google and Facebook is that those two companies combined took over the advertising industry. In fact, as Statista points out:
Over the past two decades, advertisers have gradually shifted their budgets away from traditional media (e.g. TV, newspapers and magazines) towards online ads. The rise of the smartphone has only accelerated this shift, as smartphones have fundamentally changed the way that people consume content. Ad dollars have always followed eyeballs and thus it doesn’t come as a surprise that mobile ad spending is currently growing at a breathtaking rate.
As reported by Statista 25% of global ad spend goes to Google or Facebook.
Part of this process has been driven by the change in behaviors of users driven by new technologies. In fact, as mobile devices are becoming less and less expensive, most of the consumption of content and information is connected to those devices. That is why ad spending has followed.
This short history of advertising could have well been called “history of eyeballs.”
In this landscape, we’ll see also how advertising has changed and how it has evolved from mass marketing, with the so-called shotgun approaches, to hyper-personalized approaches.
In other words, market segmentation moved from undifferentiated to highly personalized.
Those changes were driven by a word that today represents the most important asset any company is willing to fight for: data!
Everything you need to know about market segmentation
As Peter Drucker pointed out in his book Drucker Management, “there will be always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.”
In this guide, we’ll see how market segmentation is aiming at just that, allow marketers to know customers need and pain points so well as a sales enablement device and tactic.
What is market segmentation?
Market segmentation is a marketing practice that allows companies to divide their customers into groups, thus classify them based on specific characteristics.
Market segmentation isn’t new. In fact, it has been used since the 1920s when mass manufacturers needed to offer a more comprehensive product line that could fit broader groups of people.
Market segmentation at the time (up to the 1980s) was mainly based on demographic, socio-economic and lifestyle factors.
In fact, those were the main characteristics that could be figured out about a group of people that companies were targeting.
As more and new data became available market segmentations took into account also so-called psychographic segments, organized according to activities, interest, and opinion.
From the 1980s going forward, there was a shift in market segmentation that allowed companies to narrow the segments they were targeting to include more sophisticated features of those groups.
The ear os the so-called hyper-segmentation begun and in a way, we are still living it today. With new kinds of market segments that allow one-to-one and personalized experiences, thanks to the ease of data acquisition through digital devices.
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Graph from Google Ngram Viewer shows the mention of the term “market segmentation” in millions of books throughout the 1900s to 2000s
What are the bases of market segmentation?
It is important to point out that proper market segmentation is about starting with the customer in mind.
In short, the reason for segmenting a market is based on differentiating the otherwise undifferentiated offer to fit the customer needs based on their preferences.
Thus, market segmentation is justified when it provides customers with better products or services.
Market segmentation is also critical to understand the distribution channels needed to grow your business.
In fact, with tools like the business model canvas or the lean startup canvas, one of the main aspects is understanding customers based on their needs and pain points are and what kind unique value proposition you can bring with your product and service.
Therefore, there isn’t a fixed number of segments that can be created. In fact, there can be many examples of market segments based on the following characteristics:
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Those include market segments based on gender, age group, income, place, occupation, usage, lifestyle and more.
For the sake of keeping things simple, we’ll discuss the four main types of market segments. At the same time, we’ll also look at why, when and how to create a market segment.
Why, when and how to create a market segment
For an ideal market segment, there are different criteria to take into account. In fact, the more you can divide up the market into small groups of people the more the marketing effort it will be easy to plan and execute.
It doesn’t always make sense to create segments unless you have available data about those segments.
In fact, as more data becomes available (think of the billions of queries that each day goes through Google or the social knowledge graph Facebook has at its disposal) so new segments become possible.
Therefore, segments must be measurable. At the same time market segmentation makes sense when it can generate enough profit from your marketing effort.
Imagine the case in which market segments might be comprised of a small group of people with a low spending availability. Your marketing effort would be wasted.
Also, you need to make sure to target a group of people with characteristics that will last in time.
For instance, imagine the case in which you set up a market segment, and a marketing campaign based on that.
When the campaign is about to get rolled out. If that segment doesn’t exist anymore. It becomes a wasted marketing effort.
At the same time, that market segment needs to be reachable through several channels. Think of customers that can be reached through your website, social media accounts, events and so forth.
Also, would you be able to persuade that market segment? If that is too hard or not possible, the market segment itself loses relevance.
The last element which is critical is about having enough data to support the creation of that market segment.
Those are the requirements for market segmentation. Let’s see them more in detail.
Requirements for market segmentation [image error]
Measurable and identifiable
Can we measure those segments so that they can be identified?
Accessible
Can we reach those segments through communication and distribution?
Different
Do those segments respond differently to different marketing mixes? In short, do they have unique needs?
Substantial
Is this segment large enough to be profitable, thus justify the marketing effort required?
Durable
Are those identified segments stable enough to allow proper marketing campaigns?
The aim is to provide a better product, service or experience to customers. Which will, in turn, lead to an improved marketing effort rewarded by more sales.
Types of market segmentation
We can identify five main categories and types of market segments:
Demographic: sex, age, race, generation, occupation, etc.
Geographic: geographic regions such as county, state, city, neighborhood.
Behavioral: knowledge of, attitude towards, usage rate, response.
Psychographic: activities, interests, and opinions (AIOs) of customers.
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What is demographic segmentation?
Demographic segmentation is about classifying people based on characteristics such as age, gender, relationship status, education, workplace, and more.
This is among the most common market segmentation techniques. In fact, it was also the first market segmentation used which comprise factors like age, life cycle stage, gender, income, religion, race, nationality and more.
A demographic segmentation might be useful to companies also to create several product lines.
What is geographic segmentation?
This market segmentation is based on reaching people in areas that are closer to the final customer.
For instance, take McDonald’s, the chain has restaurants all over the world, yet the strategy will be localized, as much as possible:
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In this picture, you can see how McDonald’s uses a famous Italian-American chef as a testimonial for a selected menu. In a country like Italy where high-end food is critical, McDonald’s associated its brand image with quality food.
What is behavioral segmentation?
This market segmentation strategy is base on customers based on benefits sought, occasion, usage rate, brand loyalty, user status, buyer readiness status.
In short, it looks at purchasing behaviors, device usage, and other activities.
What is psychographic segmentation?
Psychographics startes as an attempt to go beyond demographics. As computational power grew more data became available, this gave a chance for marketers to better segment potential customers.
As recounted on archive.ama.org when Emanuel H. Demby, one of the founding fathers of psychographics when he was asked “What do you call what you’re attempting to do?” he said “Psychographics!” which was meant as a combination of psychology and demographics.
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Source: archive.ama.org
Another founding father of psychographics was Paul Lazerfeld and his associates during the 1950s at Columbia University’s Bureau of Applied Statistics.
As pointed out by Emanuel H. Demby, Paul Lazerfeld taught that any market research that wanted to understand consumer behavior had to “involve an interplay among three sets of variables; predisposition, influences, and product attributes.”
Therefore, psychographics is an attempt to move away from just demographics and give meaning to numbers by focusing more on individuals with feelings and tendencies.
Give meaning to numbers is the primary aim of a marketer. Imagine those two scenarios, Mr. X earns $40K per year. With the other situation, Mr. X earns $40K, after getting a 10% rise compared to the previous three years salary.
Without going too far we can put ourselves in the shoes of Mr. X, how accomplished he feels and the purchasing tendencies he might have after such raise.
Maybe he wants to buy a new car or a new TV set. Keep in mind that marketers focus is to increase sales. And there is no better salesperson that whom has insights and personalized information about her target customer.
While in the past it was tough to get valuable psychographics data, that isn’t the case anymore.
For instance, at the time of this writing, tools like Google Ads and Facebook Ads allow marketers to go quite in-depth with psychographics definition of their audience:
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Source: searchengineland.com
Above an example of how Google Ads enable marketers to target specific interests and psychographics traits of a group of people. This allows a segmentation that can be laser targeted.
The four level of market segmentation
As Philip Kotler suggests in “from mass marketing to mass customization” to reiterate, the four steps of market segmentation which are: probing, partitioning, prioritizing and positioning. This is an ongoing feedback loop.
He also divides the market segmentation into four levels:
mass market
segmented markets
micro-markets (distinct from segmented markets)
and individual markets
Mass marketing and the shotgun approach
As Philip Kotler recounted in “from mass marketing to mass customization” it all started in Japan where he noticed market researchers going to one household as a sample for a product launch.
Philip Kotler noted, “how can you generalize from the sample of one?” and as the story goes, the Japanese market researches replied “We Japanese are homogeneous. We’re all alike. If this family likes the product, everyone will like the product.”
This kind of “market segmentation” can be referred to as a shotgun approach.
In short, just like a shotgun is used to aim at moving targets in the air, so the shotgun approach tries to reach a wider audience, with no specific focus.
In short, mass marketing runs along mass production, mass distribution, and mass promotion. In this scenario, Mass media has played a crucial role.
This kind of approach favors such large audiences that can be reached with mass marketing media, like radio and television.
While this kind of approach might have had sense in the 1980s, it has become obsolete now. Large corporations, like Coca-Cola, still spend a significant amount of money as a branding effort to feature TV spot shown to millions of people.
For large corporations that want to keep a strong brand and be on “top-of-mind” for their consumers, this strategy is still robust. For small businesses or startups using a similar approach might lead to bankruptcy.
That is also why startup has made of the scientific method and measurable results more and more their credo, with disciplines like growth marketing and growth hacking.
Segmented markets
When a market gets segmented based on several characteristics (like demographics: sex, geographic, behavioral and psychographic), this is where marketing and communication campaigns can be customized to the need of the still large group of people, yet in a way, those are differentiated.
Thus, we move from an undifferentiated approach of mass marketing to a differentiated approach to segmentation.
Niche marketing and micromarketing
To give you a visual representation of niche marketing, think of it as being a big fish in a small pond.
Niche marketing is about becoming an authority for a small community of people of which you know their main characteristics.
As Peter Thiel, co-founder of PayPal, pointed out successful companies target at monopolizing markets instead of going where competition is.
In his book Zero to One, there are four steps to take to dominate a market:
Start small to monopolize
Scale-up
Stop with the BS of disruption
Be like a chess player, think about the endgame
Is First Mover Advantage a Myth? When the Last Mover Takes It All
While niches are mainly based on interests, when we move toward micromarketing this might become more localized. Therefore, where niche marketing focuses more on behaviors, benefits, feature, lifestyle and so on.
Micromarketing focuses on small localized groups. The niche and micro-marketing approach are more suited for a small business or startup as it allows them to have a way higher and measurable ROI on their marketing effort.
Also, in small segments, it might be easier to create a feedback loop that allows small business to learn and grow faster!
One-to-one marketing
One-to-one marketing is the approach that starts with creating personalized interactions with the potential customer and personal relationships with customers.
In an article dated 1999, HBR asked “Is Your Company Ready for One-to-One Marketing?” defined as “being willing and able to change your behavior toward an individual customer based on what the customer tells you and what else you know about that customer.“
The main aim of one-to-one marketing is to establish a “learning relationship” with your potential customers and customers.
In short, for any interaction, there will be a learning experience, a better understanding of that customer needs.
Most companies opted for the mass marketing approach. It consisted of reaching the highest number possible of people with a message that needed to be simplified.
The one-to-one marketing starts from the opposite assumption, and it is based on two types of one-to-one marketing:
Personalized: Think of Amazon personalized experience:
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Customized: Think of Converse where they give you a basic shoe, and you can customize it with your own creativity:
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In the era of large tech companies like Netflix, Amazon, and Spotify which have built their success on subscription business models (Amazon Prime is still a small part of Amazon revenue, but it is very promising) the one-to-one marketing has become the norm.
In fact, the reason why many people stick with those services is due to the degree of personalization.
Netflix algorithm knows your TV series preferences better than your best friends, while Spotify knows the kind of music you like better than yourself.
This is possible thanks to algorithms that based on behavioral patterns create predictive models based on customers data.
As data becomes critical for one-to-one marketing, the essential asset for those companies become the so-called User ID, which contains the whole history and interactions of customers with those personalized platforms.
The most powerful online tools for the marketer
In this section, I want to show you some practical tools today marketers have at their disposal to segments customers, users and grow a business with the power of data.
Google Analytics: from behavioral to psychographics advertising
As defined on neilpatel.com:
Behavioral advertising is a technique used by online advertisers to present targeted ads to consumers by collecting information about their browsing behavior.
What kind of data does behavioral advertising aim at? Once again Neil Patel helps to define the sort of data it targets:
The pages browsed on a website
The time spent on the site
The clicks made
The recency of the visit
The overall interaction with the site
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With Google Analytics you can quickly get any data that goes from demographics to psychographics:
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As a user navigates between web pages, Google Analytics uses cookies to store and remember valuable pieces of information.
In short, Google creates a so-called Client ID used to identify users and their activities on the site (anonymously).
Retargeting and the art of repeating the message
Retargeting starts from the assumption that message repetition brings to conversion.
In fact, traditional sales funnel (an imagined path a person goes through before becoming a customer) looks something like this:
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This path seems linear. However, in the real world the path a user takes before it becomes a customer is very unpredictable.
Retargeting might help in making the path of a user more predictable by repeating the message.
For instance, have you noticed that after you visit an e-commerce store, when you land on an unrelated website through Google, you find that same store as a banner ad? That is retargeting in action.
Google’s in-market audiences
With Google in-market audiences you can target a wide number of variables:
Apparel and Accessories
Autos & Vehicles
Baby & Children’s Products
Beauty Products & Services*
Business Services*
Computers & Peripherals
Consumer Electronics
Consumer Software
Dating Services*
Education
Employment
Financial Services
Gifts & Occasions
Home & Garden
Real Estate
Sports & Fitness*
Telecom
Travel
Google knows a lot about you based on the data it collects. For instance, if you go to adssettings.google.com/u/0/authenticated you can see how Google has profiled you just like it profiled me:
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What about Facebook?
Facebook audience insights
For years users have been giving to Facebook a growing amount of critical data about themselves.
Facebook has built a business on that data. In fact, marketers can select their audience with a laser target:
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Source: facebook.com
What does Facebook know about you?
You can check how Facebook profiled and segmented you here: facebook.com/ads/preferences, to see the information that best describes you (according to the Facebook algorithm), click your Information > your Categories:
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As specified in the ad preferences “the categories in this section help advertisers reach people who are most likely to be interested in their products, services, and causes. We’ve added you to these categories based on information you’ve provided on Facebook and other activity.”
Even though I seldom use Facebook the algorithm knows quite a few things about me and those are passed on to marketers that use Facebook Ads.
In fact, those marketers get access to Facebook audience insights:
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Source: facebook.com
With this suite, marketers can gain insights into demographics, page likes (thus interests), location and language, Facebook usage, purchase activity and more.
With this kind of tool, you can build smaller and smaller segments but also more qualified.
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Source: blog.hubspot.com
It is important to notice that targeting a narrow audience will make the marketing campaign way more expensive yet that same campaign will get better results regarding ROI!
Key takeaway
In this guide, you got an in-depth understanding of the advertising world through market segmentation, its evolution, and its tools. It is easy to lose the sight of what marketing is for. Too many times it becomes an end in itself.
Instead, I’d like to repeat Peter Drucker statement “there will be always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.”
Will the day come when marketing will have reached its final mission, make selling superfluous?
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The post What Is Market Segmentation? the Ultimate Guide to Market Segmentation appeared first on FourWeekMBA.
June 29, 2018
Top 12 Business Ideas with Low Investment and High Profit
Often being an entrepreneur is perceived as someone that takes risks for others, and becomes a “job creator.”
Thus, becoming an entrepreneur often becomes a matter of growing a business for the sake of employing as many people as possible, at a narrow margin.
In this article we’re going to challenge this assumption and use another definition of an entrepreneur as “someone that wants to work on projects he loves while generating high margins, working less and with an extra lean business model.”
Enter The State of Independence Report
Independents are the nearly 41 million adult Americans of all ages, skill, and income levels—consultants, freelancers, contractors, temporary or on-call workers—who work independently to build businesses, develop their careers, pursue passions and/or to supplement their incomes.
The report shows three strong trends toward a strong market for independent people that become quite competitive.
What are the reasons for millions of people to move out of traditional employment agreement and start on their own?
The report points out the following reasons:
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Source: mbopartners.com
As pointed out in the book The Million-Dollar, One-Person Business: Make Great Money. Work the Way You Like. Have the Life You Want by Elaine Pofeldt, solo businesses that hit the million-dollar range typically fall into six categories:
E-commerce
Manufacturing
Informational content creation
Professional services and creative businesses, such as marketing firms, public speaking businesses, and consultancies
Personal services firms, offering expertise, such as fitness coaching
Real estate
In many cases, those solopreneurs are choosing online marketplaces to start out their operations.
However, the most critical part if about finding the business model that best fits them and that creates most value to the group of people to whom it will serve.
In search of a business model
When I first started out in the digital marketing space, I thought you could get a sort of prepackaged business model, copy it and paste it to have your own business.
For how much I wished that to be true it didn’t work from the start. In fact, the most counterintuitive thing is that finding a business model is as essential for an entrepreneur for a person to find its meaning.
In fact, the business model for the entrepreneur is many things at once. It means creating value for a community while doing something you’re passionate about, and that can generate enough revenues at high margins to keep going in the long term.
Of course, initially, the experimentation might take years. That’s also why in the meanwhile many solo entrepreneurs keep their day jobs for a long time before dedicating full time to their side gig.
Another aspect is the willingness to experiment as much as possible. It is interesting the story fo DuckDuckGo where its founder Gabriel Weinberg, after selling a previous company was exploring dozens of side projects.
After tinkering for a few months the idea of putting together a search engine that focused on privacy stuck with him.
Toady DuckDuckGo is a valid alternative to Google and has created an alternative business model where the search engine monetizes even without getting data from users.
Scalable vs. non-scalable
Another critical aspect of starting a solo business is about the scalability of that idea. Some enterprises are scalable by nature.
For instance, selling info products, such as ebook and online courses is scalable. Offering a consultancy is not.
On the one hand, though, scalability might be riskier as a few people make money with scalable products, while most people don’t make a dime.
Thus, mixing both models can be a winning strategy in the short-medium term. In short, you might want to start by offering a non-scalable service.
Then, build up a scalable product. Let’s say, for instance, that you’ve been coaching bloggers for years on how to build and grow a successful website.
At that stage, you have all the experience to package it in ebooks and online courses to sell to a broader audience.
Your consultancy business will work as a more stable source of income, while your info products organically grow and you’re able to build a recognized brand across a broader audience.
Business ideas with low investment and high profit that you can implement now
A business idea won’t necessarily make you money right away. In fact, if you didn’t skip the previous paragraph, you’ve learned that finding the business model that works for you requires a lot of tinkering.
There is no better way to tinker than start experimenting with ideas and see what sticks and what not. Thus, I’m hoping you can find some inspiration below.
Become a blogger
Committing your time to start a blog isn’t an easy choice. In fact, when I started blogging I did because I loved writing and I do read on a regular basis.
Thus, start this blog a no-brainer. However, for those that do not wish, do not enjoy, neither want to write for living in the long run, blogging might not be suited.
For the rest of you, blogging is a great way to build your brand, connect with people and to experiment with several business models.
If I had to start from scratch with blogging, I’d do it again and again with WordPress.
It can be quickly set up, and it is easy to manage. That is why during my consultations with bloggers and small business owners, WordPress is always the content management system I suggest.
With blogging, you can experiment with affiliate marketing, info products, online teaching, and much more.
In fact, below you can find 26 ideas to monetize your WordPress blog:
Become an online instructor
If you’re good at explaining as much as you’re good at doing things then creating online courses might be your way to go.
If you’re starting from scratch, established platforms like Udemy might work well.
However, if you already have a community of people you follow, I suggest you look more into Teachable.
To validate your ideas for online courses, I suggest you do a bit of keyword research or use some of the free tools available to validate the topic idea.
Also, you can use Udemy Insights to uncover profitable niches:
Udemy Insights: How to Find Profitable Online Course Niches to Make Money Online
Become a professional photographer
Companies like Airbnb pay professional freelance photographers to take pictures of the homes part of the portal.
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This isn’t per se a high paid job. Yet it’s remote and as a freelancer. Thus, this might give you the change to travel, get paid while honing your skill as a photographer.
Become a ghostwriter
Getting paid at high margins as a ghostwriter depends on how you positioned yourself, your experience, competence and your negotiation skills. As reported on Chron:
Ghostwriters cover a range from several thousand to hundreds of thousands of dollars. A new writer can expect $7,000 to $9,000 depending on the length of the book — generally 200 to 300 pages — and the time needed to research and write it. A more experienced writer with a verifiable track record can earn $10,000 to $15,000, according to Writers Weekly, while a writer who’s very experienced can demand $20,000 and up. As a benchmark, the Canadian Writers Union sets the minimum fee for ghostwriting a book at $25,000
Thus, even in this case if you’re starting up, you might not make much.
Yet you’re getting paid to gain experience that you can resell for more to the next project. Also, once you become an experienced enough ghostwriter why not publishing your own book?
Take the story of Andrew Crofts that after writing over 80 titles that sold over 10 million copies then published Confessions of a Ghostwriter. As Andrew Crofts reported to theguardian.com “It’s a perfect arrangement. You get the commission, have the adventure – anywhere from a palace to a brothel – and return to the security of your own home.”
He also admitted his fees would average six figures. Of course, this didn’t happen overnight. Yet a career as ghostwriter can be quite rewarding and highly profitable.
Become a Chatbots maker
When the web took off anyone wanted to have a website. Yet at the time as having a website was something unique you could charge crazy amounts of money.
Today, as we’re moving toward voice search and things like Natural Language Processing technologies, have become advanced every business will want to have a chatbot.
Developing a chatbot requires some skills, yet they can be learned quickly, especially if you’re already a developer or have a technical background.
The approximate cost to build a chatbot from scratch can be anywhere from $6000 to $12240.
Become an affiliate marketer
Affiliate marketing is about selling someone else’s product or service for a small commission.
If you become good at it, you can generate a consistent and highly profitable income in the long run.
I often covered affiliate marketing because if done correctly can be a great business model. In fact, many believe that affiliate marketing is a scam.
But that might be because a few affiliate marketers use pushy (to put it blandly) and aggressive sales strategies that turn people off and make brands they feature, look bad.
Yet if you are honest, share the tools you use and provide value to your community, affiliate marketing can be a great business model.
For instance, if you run a successful blog, for sure you’re using a hosting provider, paid SEO tools and other editorial tools that help you be on top of your game.
You could suggest the tool you use to be a successful blogger to your community (if you teach them how to start a blog).
That creates value to them, while you openly share your experience with those tools and brands.
Become a career coach, resume writer or LinkedIn profile writer
As I’ve been in the job market for years. Thus, I forgot how hard it is for a fresh graduate to learn the HR jargon needed to get into the door of a corporation.
Yet this is a skill you can sell at high margins. In fact, services like career coaching, and resume writing can range in the hundreds of dollars.
For instance, career coaching sessions might cost anywhere from $100 to $500 for a two-hour session.
New social platforms, like LinkedIn, also opens up opportunities in this industry.
In fact, I give for granted to be able to find qualified customers, close deals and find job opportunities through LinkedIn.
However, when I think about it, it took me years to build those skills and mindset. If I decided to pass this competence to someone else, I would do it at least at $500 for a two-hour consultancy session.
In fact, I know that by the end of that session that person will be able to get qualified job offers. The same applies to find leads, which is the next point.
Become a business development contractor
Large companies and corporations spend thousands of dollars to get qualified leads.
They don’t do it because they have money to waste (this might be true in some cases). Instead, those companies know how much each customer is worth to them.
For some of those corporations, the lifetime value of customers might be in the order of thousands of dollars. Also, companies operating in competitive industries are willing to spend tons of money to grab a lead from a competitor.
If you have competence in closing complex sales, you can get paid as a business development contractor. For each qualified lead, you might get in the order of hundreds if not thousands of dollars.
If that sounds too good to be true, it’s because it is. However, to be able to find qualified leads you have to be extremely competent in the industry you operate.
You need to know the companies from which you’re contracting from the inside out (thus, having years of experience as an insider is critical) and understand the potential customers better than those companies might.
Become an infopreneur
Making money with info products (ebooks, guides, checklist and so on) isn’t easy anymore.
Yet if you’re able to find a niche that is still unexplored, you can make money at high margins. Websites like Examine.com generate at least seven figures from info products.
One option is you can do it all. Another is to contract designer and experienced writers to write those info products. What you need at that point is proper distribution.
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If you take Examine.com, it has more than two million visits per month and is among the most popular websites in health and nutrition.
Thus, before you can have a similar kind of success you need to be good at SEO, content marketing, social media, and SEM to create a proper distribution channel for your products.
Become a websites flipper
A website is an estate. Just like people in the real world gets homes, flip them and sell them at a profit.
On the web, there is a group of online entrepreneurs, the website flippers, that get a crappy site, flip it and sell it for a profit.
Selling an online estate can be as much if not more profitable of flipping and selling a real estate asset.
In fact, if you go on a site like flippa.com, a marketplace to buy and sell online businesses you’ll notice websites selling anywhere from $500 up to $500k!
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Become an SEO consultant
Google is the most popular search engines in the world. Each day billions of queries get processed by it.
The great thing is that Google shares many of those queries data. In short, with simple keyword research, you can uncover many ideas on how to create content for business.
The other news is that many don’t know how to use that and don’t have a clue of how Google works.
Even though the great content is the baseline for SEO, the rest is about doing experiments and keeping up with search engines evolutions.
If you have enough expertise, you can start offering your SEO services to small and medium businesses for a retainer fee.
In fact, in a recent study by Ahrefs SEO agencies charge anywhere from $500 up to $5,000 per month for SEO services.
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Source: ahrefs.com
Become a contractor headhunter
Just like companies are willing to pay hundreds if not thousands of dollars for qualified leads.
The same companies are eager to pay the same amount of money for qualified candidates to fill their open vacancies.
The logic is that for companies to find qualified candidates can get quite expensive. Thus, so-called incentives programs might do the job.
Thebalancecareers.com reports that employers referral program can pay anywhere from “$250 to more than $25,000 (for executive positions) with the most common range being about $1000 – $2500 according to a survey by WorldatWork.”
Key takeaway
As cloud services, automation tools and business processes become easier and accessible to a larger number of people. Solo businesses that make seven to eight figures are becoming more and more the norm.
Those solo entrepreneurs run organizations that are extra lean and focused on doing one thing right while contracting the rest. The interesting part is that those solo businesses are creating an unlimited number of business models.
Thus, while in the past companies would create organizations out of prepackaged business models. It has become unusual now to start from those premises.
Instead, those solopreneurs tinker with monetization strategies until they don’t find a balance between what they’re passionate about, what creates value for their community and at the same time offers high margins to the solo business owner.
The post Top 12 Business Ideas with Low Investment and High Profit appeared first on FourWeekMBA.
June 28, 2018
The Power of the Subscription Business Model
With the subscription business model, customers or members pay a set amount each week, month or year, and in return, they get a service.
Today the subscription business model has become the standard for many tech companies.
From Netflix to Spotify and Amazon Prime, the subscription business model allows companies to build a more stable turnover.
In fact, you can easily understand the power of the subscription business model compared to a traditional product or one-time service sale.
Let’s take two scenarios. In the first, you launch a product that sells at $200 to 100 people. In the end, you have $20,000.
Let’s take the case in which you sell a service for $100 to 100 people. In this case, you made $10,000.
Yet, the coming month or year, you’ll not start from zero but from a predictable revenue. That is why many businesses are adopting the subscription business model.
Also, today the way of consuming things, in general, has changed. We’ll see in this article, why the subscription business model is taking over entire industries.
We’ll also evaluate if and when this is an effective business model. Many talk about the subscription business model as something new.
Yet it’s not. In fact, this is the way the traditional media industry has worked for centuries.
The subscription business model is as old as the newspaper
As reported via psprint.com:
At first, newspapers were only available to wealthy Americans, those who were literate and could afford to pay for subscriptions in advance. The subscriptions typically cost what a general laborer would make in an entire week of work, so most could not afford them.
That all changed in the 1830s, when advances in printing and papermaking made it possible to sell newspapers for one cent per copy.Increased literacy as well as technological advancementssuch as the telegraph – which made it possible to quickly share news over great distances – and the rotary press contributed to newspaper growth. The “Penny Press” made newspapers affordable to the entire public and spurred an explosion of newspaper publishing across the United States.
Thus the subscription business model isn’t new. However, what’s new about it is where it is getting applied.
For instance, since a few decades back it was hard to think of music as a service (see Spotify) or media that before was consumed at fixed time slots now it gets served at any time with streaming (see Netflix).
Is it really the end of ownership?
Is it the end of ownership?
As Tien Tzuo, chief executive officer and co-founder of Zuora pointed out:
The signs are everywhere — ownership is on the outs. From Spotify’s IPO to Amazon Prime hitting a hundred million memberships to Lyft’s new monthly pass, more and more people are opting for fluid services rather than static products. In fact, our physical world seems to be rapidly diminishing all around us. Companies aren’t buying buildings, they’re renting from WeWork or Servorp. Teenagers aren’t saving up to buy cheap cars, they’re catching rides with their phones. Even the malls are disappearing. The world is switching from capex to opex.
The reason for opting to usage rather than ownership can vary. Some of the major drivers of change are related to the fact that as technology allows us to track and connect people some services that wouldn’t’ have had since a few decades back now do.
Also, as on-demand services have become available, the total cost of ownership has become too burdening.
The total cost of ownership and why cars become expensive in the long run
When you purchase a car, its initial cost is just one part of the expense. In fact, real costs associated with the car will be the whole set of maintenance costs and operating costs to keep the car working.
As pointed out by consumerreports.org “many brands have low ownership costs during year three. Keep in mind that some—including BMW and Mini—have free maintenance for the first few years, making them relatively affordable out of the gate. But costs can skyrocket when the warranty and free maintenance periods are over.”
If you own a car you know what we’re talking about. When you purchase a car you might have coverage for a few years but the more the car gets older the more expenses you’ll have. At the point in which maintenance expenses skyrocket.
The same issue applies to home ownership. If we take an estimate from caniretireyet.com you can see many of the hidden costs of homeownership:
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In short, in the example above for a house valued at around $100k, we have several costs on a monthly basis which amount at $834.
Thus, if you could rent the same home for a lower price than renting might be the right choice.
One thing is important to point out. In many cases, ownership vs. renting is not about financial considerations alone. In many instances, emotional reasons apply.
At the same time companies like Airbnb are building their success more based on the home as a place to share and around experiences.
Online vs. physical? That might be the wrong dichotomy
As remarked on Zuora:
Retailers are mistakenly seeing the issue as e-commerce versus brick and mortar, but that’s not the problem,” says Tien Tzuo, chief executive of enterprise-software firm Zuora. “Online, in-store, it shouldn’t matter, it should all be blended: Consumers can shop wherever they want–it’s the retailers that build one-on-one relationship customers that will win.
Thus, it’s not about the channel it’s about the relationship. In fact, Tzuo remarked, “Amazon isn’t successful just because it’s an e-commerce site, but because it knows how to think like its customers.”
In other words, what makes Amazon strategy effective it isn’t the fact that it has online stores.
Instead, it uses data to make the user experience as personalized as possible. In fact, when you go to an Amazon store, the way books are organized isn’t random.
Why subscription model might actually be easier for consumers
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Source: neilpatel.com
What makes the subscription model so successful today it isn’t only about ownership vs. usage.
That is also about how things get consumed. In an ownership model, the interaction between the provider and the consumer is entirely different compared to a model where the provider needs to establish a relationship with the “member.”
In fact, where a provider that sells a product won’t need to know its customers.
The subscription business model to be successful requires an ongoing relationship with continuous feedback from member to the service provider.
This is also the reason why companies like Spotify and Netflix spend billions on producing TV Series and Music.
In short, to avoid the members to churn from their accounts any time soon they need to keep providing great experiences on a regular basis.
Also, as companies like Netflix gain a better and better understanding of their members (through the data fed to its algorithms), waiting for the next big hit coming from the Hollywood Studios might be too risky.
Instead, with all that data, Netflix can produce series that its members will find more compelling and stick to their premium plan longer.
That is also why as of the end of 2017, Netflix reported over $17 billion in streaming content obligations “primarily due to multi-year commitments associated with the continued expansion of our exclusive and original programming.”
Building and maintaining a relationship it’s quite expensive. Let’s dive a bit into the numbers of the subscription economy.
The Subscription Economy
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Source: mckinsey.com
According to McKinsey report, top five subscription business models include companies like Amazon Subscribe & Save, Dollar Shave Club, Ipsy, Blu Apron and Birchbox:
Amazon Subscribe & Save
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Dollar Shave Club
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Ipsy
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Blue Apron
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Birchbox
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As pointed out by McKinsey report:
Both men and women, buying for themselves or for others, use many of the leaders, but women are more likely to subscribe to beauty and apparel services, including Stitch Fix (apparel), AdoreMe (lingerie), and ShoeDazzle (shoes). Men, by contrast, are much more likely to gravitate to razors (Harry’s is the third-most-popular service for men but the seventh overall), video-gaming gear and collectibles (Loot Crate), and meal-kit or food-delivery services (Home Chef and Instacart’s subscription delivery option, in addition to Blue Apron and HelloFresh).
The interesting part of the Subscription Economy is that any kind of product can be transformed into an experience, thus a service that can become a subscription business model.
In fact, in some cases, the subscription business model depends upon creating a surprise box.
In other cases building up a subscription business model is really up to your creativity. Don’t believe me? See the next example.
Take a snack box mix it up and you get Gaze mini-snack subscription box
Graze is a mini-snack subscription box that sends a customized selection of treats weekly, bi-weekly, or monthly.
The process is simple:
Create your account and tell them what you like
Graze tailors your box and delivers it for free
Once receive your snacks you can rate them so that Graze will learn your preferences
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One thing you might notice. This isn’t a one-time relationship but a continuous process.
A feedback loop, between Graze and its members. After a few iterations Graze will know the tastes of the members so well that with no effort at all Graze will be able to deliver the best experience ever.
Three models of subscriptions
Although subscription business models can have unlimited applications. They can be categorized into three main groups.
Replenishment subscription
In the Replenishment subscription model, consumers get an automated purchase process of commodity items.
Think of razors or diapers that can be bought with one click.
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You might think that the Amazon Dash Button is about making a transaction frictionless (in fact it is).
Yet this is only part of the story. Dash Buttons can be used by the “exclusive” Amazon Prime Members.
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Thus, this is just one of the many strategies Amazon is employing to get more subscribers.
In addition, all the data provided via those buttons will be a precious asset for Amazon in the long run!
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You get toilet paper effortlessly. Yet Amazon receives valuable data about you, anywhere at any time.
Curation subscription
Just like we saw in the Graze business model above. That is based on “curation.”
In fact, Graze does a great job in personalizing the experience from time to time, until it gets better over time:
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For a curation subscription to be sustainable it has to surprise and delight with highly personalized experiences.
Access subscription
The Amazon Dash Button above can also be included in the access subscription.
In fact, here you pay a monthly fee to obtain lower prices or members-only perks.
Getting the dash button is itself a “perk” exclusively granted to Amazon Prime customers.
Another example might be Apple Music. Rather than buying a single song you can get a membership and listen to any:
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Other subscription business model examples
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Source: medium.com/the-graph/subscription-economy
Netflix
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Spotify
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Slack
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Amazon Prime
Those companies financial success depends upon their ability to keep their members to churn.
Beware of members churn
Getting a fixed amount of money in the bank account each month is the dream of any company.
Yet, having members stick might be the hardest task. Why do members churn? Hubspot mentions five main reasons:
Lack of (or Zero) Engagement
Poor Product-Market Fit
Product Bugginess
Difficult User Experience
Lack of Proactive Support
9 Ways to Improve Customer Retention and Loyalty
To make sure your subscription business model is sustainable in the long run you want to keep a careful eye on some key metrics.
The magic metrics
Running a successful subscription business model is about balancing things up.
Just like having your revenues cover your expenses, in a subscription business model your customer acquisition costs have to be lower compared to the lifetime value for your customers.
Thus, the following metrics are critical:
Subscriber acquisition cost
The subscriber acquisition cost comprises aggregate costs, such as marketing, sales commissions, installation for acquiring one subscriber.
Monthly recurring revenue (MRR)
This is the magic number many subscription-based startups need to look at to grow their business in the long run. This is the amount of fixed revenue retained every month.
This metric is pretty simple to compute: multiply net users per month by the subscription fee. A growing MRR is critical for the healthy growth of your subscription business model.
Churn rate
This is computed by multiplying net users left per month by the subscription fee. Keeping the churn rate in check is critical.
Monthly recurring costs (MRC)
The monthly recurring costs are the cost incurred to earn the recurring monthly revenue.
For instance, if you offer a software as a service you will have server costs and support costs for those accounts.
They do bring you money each month, but also costs.
Lifetime value (LTV)
The Lifetime Value is the total revenue earned per subscriber.
Monthly active users (MAU)
Another key metric, especially used by tech companies which survival depends upon the continuous interactions of its users with the platform is the monthly active users. Spotify is an example:
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Does a freemium work with the subscription business model?
The freemium business model has become omniscient in the tech startup world. Thus, many associate it with the subscription business model.
In reality, the freemium makes sense when the cost structure allows it. I suggest you dive into this article:
What subscription models can you apply to your business?
According to The Automatic Customer, there are seven models you can apply to your business.
Membership website model
All-you-can-eat content model
Private club model
Front-of-the-line model
Consumables model
Surprise box model
Simplifier model
Network model
Peace-of-mind model
Key takeaway
The subscription business model has become by itself an economy. In fact, if you look more carefully and dive deeper you’ll find examples of subscription business models anywhere.
The subscription business model is the financial dream for many companies because you can create a constant stream of revenues each month from your business.
However, maintaining that revenue stream is also quite costly. We saw how companies like Netflix and Spotify spend billions in content just to have their members stick.
A subscription business model requires community building, continuous engagement and a feedback loop to keep personalizing the experience of the members.
What to read next?
What Is a Business Model? 10 Successful Types of Business Models You Need to Know
The post The Power of the Subscription Business Model appeared first on FourWeekMBA.
June 25, 2018
What Is a Freemium? The Freemium Business Model Explained
The freemium business model is based on a service that the majority of users get for free, while a small percentage of users convert into paying customers. Those paying customers become the basis for the long-term financial success of the company. While the free users keep guaranteeing a viral growth, more effective branding and a fluid sales funnel that – in theory – allows the company to scale up without a complex salesforce.
Freemium business model origin story
On March 2006, venture capitalist Fred Wilson wrote an article entitled “My Favorite Business Model” which said:
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
He mentioned examples of this successful business model like Skype, Flickr, and a few others.
According to Fred Wilson, the advantages of a Freemium business model were multiples, but he made clear that it had to be as frictionless as possible:
A customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently. It is important that you require as little as possible in the initial customer acquisition process. Asking for a credit card even though you won’t charge anything to it is not a good idea. Even forced registration is a bad idea. You’ll want to do some of this sort of thing once you’ve acquired the customer but not in the initial interaction.
The main aim was to “eliminate all barriers to the initial customer acquisition.” He didn’t have yet a name for this kind of revenue model.
The Freemium business model started with a comment
At the end of his article, Fred Wilson had clear in mind what the Freemium business model looked like. However, he didn’t have a name for it.
That is why he invited people to comment and to come up with a proper name for this business model. A commenter, Jarid Lukin suggested the name Freemium model.
Thus, a service and product wholly free and frictionless, where most users don’t pay, and a small base of users pay for a product that has premium features.
Over the years Fred Wilson kept emphasizing the importance of free. Today the freemium business model has taken over also the gaming industry. But it has also become the most debated business model in the software industry.
On the power of free
Building a free product and make it available to anyone and then expect to make money isn’t the right strategy.
Instead, the “free” within the freemium, if appropriately used, can be a lever for quick success.
As Fred Wilson pointed out in October 2008 “freemium is far from dead, in fact, it may be the business model de rigueur.”
What did he mean? He recounted in a later article:
Facebook is a perfect example of freeconomics at work. A woman who works for a major media company was in my office recently. She quoted her CEO as saying “why doesn’t Facebook just charge a monthly subscription fee, they’d be making money hand over fist?”. Well I believe that if Facebook did that, they’d be vulnerable to other networks offering a free service. And certainly not every one of those 200mm users are going to cough up a monthly subscription. But by offering a friction free service, they have built a powerful and growing network that they are now starting to monetize in various ways and that they will monetize even further in additional ways. And they are super hard to compete with because they are free.
Freemium isn’t new
As pointed out on broadstuff.com:
The new Free! plan is in fact Freemium – where a small number of people subsidise the majority, who get it for free. But “Freemium” models have existed since antiquity, they work in some situations, don’t work in others. This is also likely to be true for Digital goods. The issue lies in the price sensitivity
This point is critical, as freemium is not a size fits all monetization strategy (yes the “free” in it is meant to make money).
In fact, that also depends on the cost structure of the company offering the service. Also, freemium seems to work well in conjunction with advertising spending.
Think of the most popular services and apps we use today, like Facebook and Google. Those are in fact freemium services.
In fact, as millions of users are accessing them for free and with the least friction possible. Thousands of businesses are paying and financing those services through advertising.
This is also the power of the hidden revenue business model. In other cases, free needs to be offset with different monetization strategy, just like the razor and blade monetizations strategy. Where you get something for free, but then a complementary service associated is costly.
Key metrics for the freemium
To make the freemium business model work it is critical to look closely at a few key metrics. Some of those metrics are matured from the gaming industry but are also used by traditional freemium business models:
The average cost of serving a free user
The rates at which free users convert to premium (paying) customers
DAU (Daily Active Users) is used to show the number of people who engage with the product, service on a daily basis. For other platforms, other metrics like monthly active users might be more appropriate
ARPU: Average Revenue Per User
ARPDAU: Average Revenue Per Daily Active Use
ARPPU: Average Revenue Per Paying User
LTV: Lifetime Value
Daily Sessions: The number of play sessions a user engages each day.
CPA: Cost Per Acquisition or Cost
Freemium is not a size fits all business model
In 2015 a SaaS company, Baremetrics, started to experiment with the Freemium business model. In short, they created a version of the product the was entirely free.
That product version allowed users to switch to the premium if they wanted to add specific features or capabilities.
As the story went, the conversion rates on the freemium business model turned out to be also quite good compared to the traditional subscription-based business model.
In fact, in 11 weeks over a thousand accounts were created. The math on those new accounts wasn’t exciting, but it worked. In fact, as explained on Baremetrics blog:
So, of the 1,000 accounts, 461 were actually eligible to even think about becoming a paying customer.
Of the 461 eligible paying customers, 53 actually upgraded.
53 as a % of 461 = 11.5%
Considering a 3-5% conversion rates on B2B the rates from the freemium seemed to be promising, until…
Beware of the cost structure
As pointed out by Baremetrics on the experiment they run with the freemium:
Quickly, we started coming up against a lot of performance and database issues. Within a few weeks our “free” customers were outnumbering our “paying” customers and the amount of data were both storing and processing had doubled.
This, in turn, created an adverse effect on the revenues:
[image error]
Source: baremetrics.com
In short, the freemium resulted in higher server costs and the loss of active paying customers, rather than an increase in revenues.
Free isn’t free after all
With the advent of free services like Google, Facebook and many other tech giants that have become part of our daily routine the assumption that everything needs to be free has become pervasive.
In some cases, free isn’t free after all. In fact, the reason a company opts for the freemium it isn’t because it wants to benefit the public.
But rather because it expects higher revenue growth and scalability from it. Thus a free service has to generate higher revenues to make sense. That’s why it has to come with built-in “psychological traps” that make users become paying customers.
That doesn’t mean that other subscription-based products or services are “less evil.” But the nature of free is meant to create addiction and leverage on the lack of breaks.
For instance, the Facebook newsfeed is thought with the logic of a slot machine, where the more you get the more you want. For freemium models to work they need to bring in a continuous flow of users that keep using them indefinitely.
Also paid services leverage on the same psychological traps. Yet, those paid services have breaks based on the fact that those services aren’t free. Thus, the business can keep growing even though users aren’t necessarily trapped into it.
Is your one big enough to pay the bills?
On September 2009 MailChimp went freemium. Its user base went in one year to 450,000 users. Ever since MailChimp has grown into a successful company.
As pointed out one year after the experimentation with the freemium business model, a critical question to ask is “whether or not your “one” is big enough to pay your bills yet.”
In fact, MailChimp didn’t start as a freemium. When they launched the company back in 2001, they didn’t even have a free trial.
They didn’t have an idea of what the freemium was. They only started to consider that freemium business model as a viable option when they realized that that paying customer was able to keep them going with other nine unpaying customers.
As remarked by MailChimp:
We’d never consider freemium until our “1” was big enough. Enough to pay for 70 employees, their health benefits, stash some cash for the future, etc.
Are you using the freemium just to get VC money?
In the Silicon Valley archetype “users” have become the most important asset a company seems to need to be eligible to get billion dollars of capital.
However, this system – I argue – is broken because it draws on the myth that once you have users then monetizing them is easy.
However, for anyone that has ever tried to grow a startup you know that monetization is the hardest part.
It might seem a trivial concept for small business owners that to build a sustainable business you need to balance things up so that your revenues will exceed your expenses.
Yet the so-called “profit” seems to be a thing of the past. Thus, they use a large users base to get VC money to keep growing revenues without focusing on profits.
Cases like ConvertKit are a great example of why generating profits is critical for your business. Many counterargue by mentioning cases like Google and Facebook.
Yet they forget that Google and Facebook were extremely profitable not long after they launched their services. At the time of this writing, companies like Snapchat are struggling just because they never managed to become profitable.
A final remark on how to do the Freemium right
I want to close this article with the extract from MailChimp Freemium business model. The reason being, MailChimp has been one of the most effective companies in applying the freemium, and this is the greatest lesson learned:
I think there are too many startups out there who are interested in going freemium because that big “10” number is so attractive. This is dangerous when they don’t even have the “1” yet. How will they pay their bills while they figure out how to “monetize?” Answer: they will need to borrow that money. Does your VC have the patience for the long term, while you try to figure out how to “monetize” and build up that measely “1” number? Answer: No — no they don’t. Build up that “1” before you chase the “10.” After you’ve got your “1” all set, use VCs to help you chase after that “10” (if you must). That’s my personal opinion. Disclaimer: I’m wrong about 99% of the time.
Key takeaways
Today the web has used us to think that everything needs to be free. This comes from the belief that the cost of products and services have gone down to almost zero. That might be true up to a certain extent.
In fact, for many software companies offering a free service means having unbearing operating expenses related to server costs. Thus, a free service that doesn’t convert enough free users into paying customers won’t succeed in the long run.
The Baremetrics case has shown it well. There is also another important aspect. For many companies, the freemium has become just a way to get money from VC. MailChimp case study has shown how to do the freemium right.
Until you don’t have the “one” paying customer big enough to pay your bills the freemium might not be the right strategy for you. Unless of course, you have VC money to burn!
What Is a Freemium? The Freemium Business Model ExplainedSource: FeedPublished on 2018-06-25What Is Scrum? The Agile Framework to Make Your Startup More ProductiveSource: FeedPublished on 2018-06-24How Does Venmo Make Money? the Peer-To-Peer Payment App for MillennialsSource: FeedPublished on 2018-06-24How Does PayPal Make Money? The PayPal Mafia Business Model ExplainedSource: FeedPublished on 2018-06-22What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13
The post What Is a Freemium? The Freemium Business Model Explained appeared first on FourWeekMBA.
June 24, 2018
What Is Scrum? The Agile Framework to Make Your Startup More Productive
Scrum is a methodology co-created by Ken Schwaber and Jeff Sutherland for effective team collaboration on complex products.
Scrum primarily for software development projects with the goal of delivering new software capability every 2-4 weeks. It is a sub-group of agile. In fact, while agile is a set of principles that drive the activities in software development.
Scrum is a methodology that applies those principles to make software development faster and more productive. However, Scrum has also become a methodology for project management in the startup world.
Trust the process
When Jared Dunn (the character in Silicon Valley Series) in the vest of business developer convinces Pied Piper’s founder, Richard Hendricks to use the Scrum methodology, Richard was skeptic.
Why would a group of smart software engineers fall into a management strategy? Well, it turned out he was wrong. In fact, Scrum is a process envisioned to make software development lighter, faster and more suited to customers need.
The method is now also used by startups for project management. Yet in reality, Scrum was a methodology born from the Agile Manifesto a set of principles put together in 2001 by software development experts.
Heavyweight vs.lightweight software development
The agile manifesto started out as a movement that wanted to challenge the assumption of the so-called heavyweight methods for software development that were based on more sophisticated and regulated approaches.
In fact, Scrum evolved as a lightweight software development method. The main difference between heavyweight vs. lightweight is fundamental. In fact, heavyweight software development methodologies, which prevailed a few decades back, consisted of many rules and protocols to follow.
Instead, a lightweight methodology is based on few basic guiding principles. And it all started with the agile manifesto.
Agile manifesto: the guiding principles of Scrum methodology
In 2001, a group of seventeen software developers met to discuss these lightweight development methods, with the aim of challenging the old assumption of heavyweight software development.
They forged “The Agile Alliance,” as a group of independent thinkers about software development, which agreed on the Manifesto for Agile Software Development.
Together they published the Manifesto for Agile Software Development. It comprises twelve guiding principles from which many applications (comprising Scrum) were born.
Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.
Welcome changing requirements, even late in development. Agile processes harness change for the customer’s competitive advantage.
Deliver working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale.
Business people and developers must work together daily throughout the project.
Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.
Working software is the primary measure of progress.
Agile processes promote sustainable development. The sponsors, developers, and users should be able to maintain a constant pace indefinitely.
Continuous attention to technical excellence and good design enhances agility.
Simplicity–the art of maximizing the amount of work not done–is essential.
The best architectures, requirements, and designs emerge from self-organizing teams.
At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.
Some of those principles might be given for granted today yet they were not at all back in 2001. This manifesto represents the founding document for the Scrum methodology.
What are the benefits of using Scrum?
The benefits of using Scrum can be linked to the advantage of using an agile development methodology. Organizations that have adopted agile Scrum should experience:
Happier customers due to more responsive to development requests by the software development company
Higher returns are given by the ability of the software developer to focus on high-impacting features
Better organization of work based on team’s ability to work together
Reduced time to market due to the more efficient organization
The Scrum elements
The Scrum methodology comprises three main components and a set of rules.
The Scrum Team
Within the team, there are three primary roles. It is important to remark that there is no hierarchy in the Scrum methodology. But each of the team members will be accountable for a specific part of the project.
The Product Owner: this person is primarily accountable for managing the completed increments of work.
The ScrumMaster: this person does anything possible to help the team perform at the highest level.
The Development Team: There are no titles in the Development Team. The main aim is to break down the product into items that can be incrementally implemented
Scrum Events (so-called Ceremonies)
The Sprint: 2-4 weeks period in which a specific part of the work is completed
Sprint Planning: those are meetings to assess which part of the product can be completed
The Daily Stand-up: it is a short meeting of no more than 15 minutes to evaluate the progress of the project
The Sprint Review: a demonstration to present the work completed during the sprint
The Retrospective: final team meeting to assess what worked and what didn’t to improve the process
Scrum Artifacts
Product Backlog: outlines every requirement for a system, project or product. It can be a to-do list consisting of work items
Sprint Backlog: list of items to be completed during the sprint
Increment: is the list of items completed after the last software release
Scrum Rules
The team will define those rules according to the organization values and expectations. Thus there isn’t a simple set of rules to follow.
Scrum guide
You can start right now to learn everything you need to know about Scrum from the official Scrum online guide.
Key takeaways
The Scrum methodology is based on the Agile Manifesto created in 2001. It is a project management process which primary aim is to make complex product development more effective.
This methodology that has mainly been used for software development can be applied to startup project management processes. The important aspect of Scrum is that there are not hierarchical structures or roles.
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What Is Scrum? The Agile Framework to Make Your Startup More ProductiveSource: FeedPublished on 2018-06-24How Does Venmo Make Money? the Peer-To-Peer Payment App for MillennialsSource: FeedPublished on 2018-06-24How Does PayPal Make Money? The PayPal Mafia Business Model ExplainedSource: FeedPublished on 2018-06-22What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13Is First Mover Advantage a Myth? When the Last Mover Takes It AllSource: FeedPublished on 2018-06-12
The post What Is Scrum? The Agile Framework to Make Your Startup More Productive appeared first on FourWeekMBA.
How Does Venmo Make Money? the Peer-To-Peer Payment App for Millennials
Venmo got acquired in 2012 by Braintree. Braintree was acquired in 2013 by PayPal. Thus, Venmo is part of PayPal ecosystem.
Venmo is a peer-to-peer payments app that allows users to share and make payments with friends for a variety of services.
When you send money using your Venmo balance the fees are wained. Thus the service is free. However, the 3% fee applies to credit cards. That is how the company generates revenues.
Who owns Venmo?
Today Venmo is part of the PayPal ecosystem. In fact, as PayPal was acquired by eBay in 2002, ever since it started an acquisition campaign of several brands, including Braintree (in 2013).
For PayPal expanding its product line has been a critical move. Thus, Venmo has directly contributed to PayPal growth in the last years.
Why is Venmo free?
Venmo generates revenue through transaction fees. While most free-to-use mobile apps turn to advertisements for revenue purposes, Venmo has managed to avoid this path
In a way, Venmo can afford to be free as part of the PayPal ecosystem. In fact, Venmo is the mobile app that allows PayPal to enter a market, those of the millennials:
[image error]
Is Venmo safe?
After several complaints about how the company handled privacy disclosures, there was a settlement with PayPal, as reported by Tech Crunch.
As claimed by Venmo in terms of security “Your personal and financial data is encrypted and protected on our secure servers to guard against unauthorized transactions.”
The P2P transactions industry in a nutshell
As of 2017, the person-to-person transactions (P2P) represented an important growth driver for PayPal. In fact, as specified in the 2017 annual report:
Transaction revenues grew more slowly than both TPV and number of payment transactions in 2017 due primarily to a higher proportion of person-to-person (“P2P”) transactions, primarily from our PayPal and Venmo products from which we earn lower rates and foreign exchange hedging losses. The percentage growth in transaction revenues was lower than the percentage growth in TPV and payment transactions in 2016 primarily due to a higher proportion of P2P transactions (including our Venmo products) for which we earn lower rates, and a higher portion of TPV generated by large merchants who generally pay lower rates with higher transaction volume. The impact of increases or decreases in prices charged to our customers did not significantly impact transaction revenue growth in 2017 or 2016 .
Even though the margins on P2P transactions have lower rates and carry foreign exchange hedging losses compared to large merchants accounts which make up most of the so-called Total Payment Volume (this is a key financial metric for PayPal long-term success), the P2P market is massive:
[image error]
As reported by emarketer.com:
The use of mobile peer-to-peer (P2P) payment apps such as Venmo in the US will continue to grow by double digits through 2021, according to eMarketer’s latest mobile banking and payments forecast.
Thus, besides the current amount of revenues provided by Venmo in order to affect PayPal bottom line, the strategic importance of this mobile app will have a long-term financial impact too.
Venmo origin story
As recounted by Andrew Kortina, Venmo co-founder via kortina.nyc:
We noticed that we were still using cash and checks to pay each other back and thought this was silly. Everyone should be using PayPal to pay each other back, but no one we knew was. We thought something must be not quite right about the PayPal experience for casual use, and we decided to design something that felt “right,” something that felt consistent with all of the other mobile tools we used to interact with our friends, like SMS, Gmail, Facebook, etc.
As roommates at the University of Pennsylvania in 2001 with Iqram Magdon-Ismail that is how the friendship was born.
During the senior year, Iqram and Andrew built their first real project together, a college classifieds site called My Campus Post.
Then, the two started to build websites for local small businesses, at any price that would allow them to survive.
It was a real door to door selling experience that taught them about rejection but also how to make things work.
After that, they joined an NYC based company called iminlikewithyou.com, which was backed by Y Combinator.
When the company pivoted to become a games company the two young men left and they temporary split.
In fact, while Iqram Magdon-Ismail joined Ticketleap as the VP of Engineering for a few years. Andrew Kortina bounced around and ended up spending time working at Betaworks, on Bit.ly.
They knew they wanted to do something together. They just didn’t know yet what would become their next venture.
That’s way when they browsed several ideas, they also thought of a music app. This is a scatch of the music app idea shared by Andrew Kortina via kortina.nyc:
[image error]
Until finally the idea of Venmo came about:
[image error]
Source: kortina.nyc
This is how Venmo unique value proposition was drafted.
What happened next?
When “Venmo me” became a verb
Today Venmo is quite popular among millennials. It is also interesting to see how the company name over time evolved to become a verb “venmo me:”
[image error]
Of course, having your company name become a verb doesn’t guarantee success. Yet, we know for a fact that when that happens, that company is close to becoming a cult.
Like when Google became a verb “google it.”There can’t be any comparison yet between Venmo and Google as verbs:
[image error]
You can see how Google is a cult on the web. However, it interesting to see how Venmo is on a right path to becoming a mainstream phenomenon.
How did they do it?
Branding campaigns to make Venmo into a cult
The success of a brand name at the point of having it join the everyday language isn’t – I argue – something that you can predict neither plan.
However, you can help it through dedicated branding campaign. In fact, Venmo has been pushing a lot with some effective branding campaign to transform its name into a verb:
Venmo “Blank Me” campaign
[image error]
Source: brandchannel.com
Some interesting Venmo campaigns are funny and compelling:
Let’s not make it awkward, just ___ me,” and “If you ___ the wrong person tonight, you’ll regret it in the morning,
Venmo voice search command for Siri
Just like Google is continuing millions of people to talk with its voice assistants, with a simple command, that says “Hey, Google!”
Venmo is using a similar strategy for Siri, the voice assistant for the Apple devices:
Make the brand Venmo fresh, fun and cool
Other branding campaigns have been used to address millennials:
Why do millennials like it so much? As reported by millennials interviewed via clickondetroit.com:
“Venmo has essentially eliminated the use of checks for our generation,”
said recent Michigan State University graduate Nick Bognar.
“Having the ability to immediately pay a friend at dinner or split a bill with roommates over the phone is extremely convenient.”
Bognar, 25, said the social aspect of Venmo is a huge selling point.
“I also enjoy the network effect they have created. Venmo has a live feed similar to your Facebook timeline, and I can quickly see my friends paying each other,” Bognar said.
How much money does Venmo make?
As we’ve seen Venmo is now part of the products offering for PayPal. Thus, although we don’t have any sales breakdown, we can assume that Venmo does add value regarding ecosystem and product offering for PayPal.
Even though the P2P transactions might have lower margins for PayPal, they do bring benefits concerning market reach, product offering and brand recognition.
How does Venmo work?
Whit Venmo you can primarily perform a few activities like:
Make and Share Payments
Connect with people
Make purchases
Quickly transfer money to your bank
As claimed on the Venmo website:
Pay family and friends with Venmo accounts using a phone number or email. If they don’t have a Venmo account, they’ll just need to create one. Find friends automatically by syncing your Facebook or phone contacts.
Venmo is free unless you pay with credit cards:
When you send money using your Venmo balance, bank account, debit card or prepaid card, we waive fees so it’s free. Our standard 3% fee applies to credit cards. Receiving money and making purchases in other apps is always free.
Key takeaways
Venmo is a peer-to-peer mobile app, trendy among millennials, and part of the PayPal ecosystem.
Its popularity is also based on the ability of the company to make its name become a verb among millennials.
It is also the app that allows PayPal to enhance its product offering and make it more suited for younger generations.
Venmo together with other apps, part of the PayPal ecosystem have taken over the peer-to-peer transaction industry.
What Is Scrum? The Agile Framework to Make Your Startup More ProductiveSource: FeedPublished on 2018-06-24How Does Venmo Make Money? the Peer-To-Peer Payment App for MillennialsSource: FeedPublished on 2018-06-24How Does PayPal Make Money? The PayPal Mafia Business Model ExplainedSource: FeedPublished on 2018-06-22What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13Is First Mover Advantage a Myth? When the Last Mover Takes It AllSource: FeedPublished on 2018-06-12
The post How Does Venmo Make Money? the Peer-To-Peer Payment App for Millennials appeared first on FourWeekMBA.
June 22, 2018
How Does PayPal Make Money? The PayPal Mafia Business Model Explained
PayPal makes money primarily by processing customer transactions on the Payments Platform and from other value-added services. Thus, the revenues streams are divided into transaction revenues based on the volume of activity or total payments volume.
And value-added services, such as interest and fees earned on loans and interest receivable. As of 2017 PayPal generated over $13 billion in net revenues and almost $1.8 billion in net income.
You might not see PayPal’s business model as the most interesting one. Yet, the story of PayPal is compelling as this is the place where the so-called PayPal mafia was born.
This group of talented individuals would create among the most valued companies in the Silicon Valley. Let’s start with the deal that made this possible.
The financial information provided in this article is in no way meant as an investment advice. The financials are simply a way to dissect PayPal business model.
Who owns PayPal?
Before we dive into the PayPal business models, it is important to notice that as of the time of this writing PayPal is a sub-organization of eBay, purchased for $1.5 billion in 2002.
That was the deal which made rich people like Peter Thiel, Elon Musk, and Reid Hoffman, which respectively founded companies like Founders Fund, Tesla and LinkedIn.
The deal was sealed just a few months after PayPal went public. In fact, at the time eBay customers made up up the bulk of PayPal’s users.
As reported on cnet.com “63 percent of dollar volume for transactions in the first nine months of 2001 came from settling auction purchases, particularly on eBay.“
It is interesting to dive a bit into PayPal origin story, as it uncovers some critical strategic insights on its early growth and users acquisition, until its deal with eBay.
PayPal origin story
PayPal founded in 1998 by a company called Confinity. In fact, just in 1999 PayPal was launched as a money transfer system.
At the time Confinity had a fierce competitor, called X.com. This was a company founded by Elon Musk (yes that Musk!). The companies rather than compete with each other, they just merged to take over the payment industry.
Once the company merged, they could finally focus on the commercial strategy. Rather than boiling the ocean, PayPal started with a small niche at the time, until they monopolized it and grew further.
Little business strategy note: If you’re familiar with Peter Thiel’s book Zero to One, he explains how the business world is about monopolies rather than competition. In fact, if you attended even for a day business school, you might have learned about the myth of market competition and how this is what makes capitalism work. In reality, how Peter Thiel pointed out capitalism is way more about monopolizing a market to grab most of its profits. In fact, in a situation of perfect competition, margins are so thin that companies can go easily go bankrupt. The real market dominator is the one that takes it all. Thus, the reason why many are not aware of this can be attributed to the fact that monopolies reframe their market position to hide the fact that they control a particular market. They do it because this is the secret that makes them successful. The moment when regulators and market players will find out about a monopoly they’ll try to bring it down.
PayPal’s first growth hack: The bot that gave the company a bit of traction
In his book “The PayPal Wars” Eric M. Jackson, part of the so-called PayPal mafia (the group of people that would be part of PayPal before its acquisition by eBay) were looking for a way to grow their users’ base, fast.
PayPal management understood they had to acquire users, quickly on an already established platform. At the time they identified eBay as the place where “power users” would help PayPal scale up.
There was an issue though. They were trying to use a classic growth hacking strategy, called OPN (others’ people network). In other words, when you start a venture and can’t leverage yet on your branding (it’ll take years), you need a faster route.
One way is to leverage on distribution agreements with large platforms. However, it’s very hard at the beginning to close any of those deals. Why? For several reasons. First, as your start-up is still small, you don’t have yet anything to offer to the distributor.
Second, a distribution agreement requires at times a certain level of organizational structure to handle the deal, which a start-up might not have. Third, and most important. A large corporation like eBay at the time has a strong brand.
This is an asset but also a liability. In short, getting into a distribution agreement with a start-up that is now yet “known” would represent a too high risk to bear for the established companies.
As PayPal could not leverage on a distribution agreement with eBay, it had to find a “growth hack” to scale up. In short, an unofficial way to use eBay to grow their users’ base.
At the time eBay had purchased a startup, named Billpoint, to make the transactions on the website smooth.
However, also covering the transactions side of the site for eBay was still too risky, as fraud detection was a primary concern. As Eric M. Jackson explains in “The PayPal Wars” this was too much of a concern for eBay as a listed company.
This, in turn, gave PayPal time to come up with a strategy before Billpoint could be rolled out.
The strategy was meant to wipe out competition and take over the payment market. At that point, one idea came to mind, which was to enter in as many actions as possible and then convince the other part of the transaction to use PayPal as payment.
This strategy would be expensive but a good marketing acquisition tactic. How to scale this up? One option was to hire a web farm in Asia. Or, employ a bot (a computer program) that would look for specific auctions and bid on them.
In the end, they went with the bot, on charity auctions with the aim of exposing PayPal to as many eBay users as possible. The bot together with other marketing and product initiatives brought PayPal to over 10,000 users per day.
Growth picked up yet the competitive landscape was still very challenging, with companies, like X.com that were threatening PayPal existence.
A little caveat: the story of this paragraph was inspired from the book “The PayPal Wars” a self-published book, based on account of a marketing employee at PayPal. Take this story as a reference, not as history as the account of the author might bias it.
The merger that brought together PayPal and X.com
As reported by Julie Anderson on Quora:
After the merger everyone tried to play nicely together at first, but – as has been widely chronicled from various perspectives – it took just a few months before the differences in opinion turned ugly. Elon took a vacation that year and I’ve always hated that I didn’t realize they were going to oust him as CEO in time; he called that day from somewhere in Africa and asked “How bad is it?” and I said “Not that bad. I think it’s going to be okay.” Middle of the night I sat straight up in bed and headed back to the office; the lights were blazing and everyone was there. It was done by morning, the company became known as PayPal, and that was that.
Whether or not the merger was painful and whether or not it created conflicts it also brought together a group of very smart people, the so-called PayPal Mafia.
The PayPal Mafia phenomenon
[image error]
Source: telegraph.co.uk
A group of people that were called PayPal Mafia after the eBay deal went on to create many prominent start-ups that would contribute in the later years to the Silicon Valley scene:
Jawed Karim (Youniversity Ventures),
Jeremy Stoppelman (founded Yelp with Russel Simmons),
Andrew McCormack (partner at venture capital firm Valar Ventures),
Premal Shah (non-profit organization Kiva),
Luke Nosek (Founders Firm),
Ken Howery (VP at Clarium Capital),
David Sacks (produced “Thank You for Smoking”),
Peter Thiel (created hedge fund Clarium Capital and Founders Firm),
Keith Rabois (held senior positions at LinkedIn, Slide),
Reid Hoffman (LinkedIn),
Max Levchin (Slide. Google bought it for $182 million in 2010),
Roelof Botha (Sequoia Capital),
Russel Simmons (Yelp),
Elon Musk (Tesla, SpaceX).
The PayPal acquisition by eBay
Finally in 2001, after a few months from PayPal IPO, eBay decided to buy the payment company. We don’t know the “real reasons” for eBay to acquire PayPal.
It seems though that at the time most PayPal users were coming from eBay. As reported by a release on July 2002:
The agreement also should benefit eBay shareholders. The combination of the two networks should expand both platforms while minimizing shared operational costs. Strengthening the marketplace and realizing the efficiencies made possible by the acquisition will increase the value of both businesses.
In other words, on the one hand, eBay users were already accustomed to PayPal. On the other hand, PayPal could allow eBay to tap into a new audience as reported in the same press release:
PayPal, which will continue to operate as an independent brand, is a leading online payments solution. Approximately 60% of PayPal’s business takes place on eBay, making it the most preferred electronic payment method among eBay users. The remaining 40% occurs primarily among small merchants who constitute a potential new audience for eBay. Likewise, eBay’s community of 46 million users worldwide represents a growth opportunity for PayPal. eBay’s current payment service, eBay Payments by Billpoint, will be phased out after the close of the transaction.
It is important to notice here that the acquisition of Billpoint that was to meant to allow eBay to have its own transactions system to speed up payments and enable fraud prevention was not successful.
As it failed, this might also have been a critical reason for eBay to purchase PayPal at that price.
PayPal business model dissected
We’re going to see the ecosystem the company was able to build throughout the years via acquisitions and international expansion. We’ll also look at the overall business model.
The PayPal family: the galaxy of payment systems and apps around PayPal
PayPal, as part of eBay over the years, has created an ecosystem of payments that comprise platforms and mobile gateways that allow it to penetrate several markets. Around PayPal there are other four primary brands:
Braintree
Venmo
Paydiant
Xoom
What is Braintree?
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Source: crunchbase.com
In 2013 Braintree, a company that allows acceptance and processing of payments got acquired by PayPal in 2013. This was an all-cash deal of $800 million, and as reported by Tech Crunch after the acquisition, eBay Inc.
President and CEO John Donahoe said: “Bill Ready [CEO of Braintree] and his team add complementary talent and technology that we believe will help accelerate PayPal’s global leadership in mobile payments.“
What is Venmo?
Venmo has become so prominent among millennials that it has become a verb (“venmo me money”):
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When your brand name becomes a verb (just like “Google it”) that company might be on the right path to success. Braintree acquired Venmo in 2012:
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Source: crunchbase.com
Thus, before Braintree would become part of PayPal, it acquired Venmo, an app that allows users to share and make payments with friends for a variety of services.
The social aspect of this app is critical, and it is also what makes Venmo so successful among millennials.
What is Paydiant?
The Paydiant Platform is a white label mobile wallet solution. Thus, it provides solutions for merchants and banks, as well as for resellers and distributors, and point-of-sale and ATM providers.
In short, they can deploy branded mobile wallet apps that work at the point of purchase at retail, restaurant, fuel site, cash access atm, and other in-person locations.
What is Xoom?
Xoom is a PayPal service that provides worldwide money transfers. It allows consumers to send money, pay bills and reload mobile phones from the United States to 52 countries.
As pointed out by PCmag “Xoom lets you send money to recipients in 66 different countries, as well as top up cell plans and pay utilities abroad. It’s a convenient and well-designed service, though its rates are less favorable than some of the competition.“
Revenue streams
PayPal revenue streams are classified into the following two categories:
transaction revenues: Net transaction fees charged to consumers and merchants primarily based on the volume of activity, or Total Payments Volume
Other value-added services: Net revenues derived principally from interest and fees earned on loans and interest receivable
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As pointed out in the 2017 annual report:
Transaction revenues grew more slowly than both TPV and number of payment transactions in 2017 due primarily to a higher proportion of person-to-person (“P2P”) transactions, primarily from our PayPal and Venmo products from which we earn lower rates and foreign exchange hedging losses. The percentage growth in transaction revenues was lower than the percentage growth in TPV and payment transactions in 2016 primarily due to a higher proportion of P2P transactions (including our Venmo products) for which we earn lower rates, and a higher portion of TPV generated by large merchants who generally pay lower rates with higher transaction volume. The impact of increases or decreases in prices charged to our customers did not significantly impact transaction revenue growth in 2017 or 2016 .
If you don’t measure it, you can’t improve it: PayPal key metrics to measure its business success
As Peter Drucker would put it, “if you can’t measure it, you can’t improve it.”
This principle applies to any business model. In a way, the metrics a business picks up to measure its success as a business are also indicative of its culture and values that it tries to create. Of course, financial metrics have to be easy to measure.
Which in some ways allow them to be very actionable. On the other hand, a business model will have several kinds of metrics that might in part be disjoined from the bottom line. In PayPal’s cases we have a few KPIs (key performance metrics):
Active customers accounts
Payment transactions
Total payment volume
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Source: 2017 PayPal 10K
What are active customer accounts?
An active customer account is a registered account that successfully sent or received at least one payment or payment reversal through our Payments Platform, excluding transactions processed through our gateway and Paydiant products, in the past 12 months.
This is the definition of active customer account given by PayPal. As of 2017 PayPal had 227 million active customer accounts, a 16% growth compared to 2016.
What is the number of payment transactions?
Number of payment transactions is defined as the total number of payments, net of payment reversals, successfully completed through our Payments Platform, excluding transactions processed through our gateway and Paydiant products.
As of 2017, 7.6 billion payment transactions went through PayPal, up of 26% compared to 2016.
What is TPV?
TPV is the value of payments, net of payment reversals, successfully completed through our Payments Platform, excluding transactions processed through our gateway and Paydiant products
The total payment volume was $451 billion, up of 27% compared to 2016.
Strategic partnerships
For PayPal success it is crucial the company keeps building new strategic partnerships to provide better experiences to customers, offering greater choice and flexibility. In short, the value of PayPal is given by the strength of the ecosystem it creates.
Seeking new areas of growth
PayPal growth is also part of the long-term plan. Tha growth can be driven by international markets expansion and innovation in the digital technology landscape.
What is the PayPal value proposition?
As highlighted in the annual report PayPal focuses on trust and simplicity, providing risk management and insights from our two-sided Payments Platform and being technology and platform agnostic.
Two-sided Platform
PayPal is a classic example of a two-sided platform. The platform connects merchants and consumers. Thus, it gains valuable insights into customer behavior through data.
The aim is to keep the platform both brand and technology agnostic. This aspect is critical as it leverages on trust.
Branding
Branding is a critical building block of PayPal overall strategy. In fact, over the years the company has been able to build a trusted brand. There’s no transaction without trust and PayPal is at this stage a globally recognized brand.
Competition
The competitive landscape shows several challenges:
retain and engage both merchants and consumers part of the two-sided platform;
show merchants incremental sales via end-to-end services;
safety and security of transactions
the simplicity of fee structure;
ability to develop products and services across multiple commerce channels
trust in dispute resolution and buyer and seller protection programs;
customer service;
brand recognition and preference;
the website, mobile platform and application onboarding, ease-of-use, speed, availability, and dependability;
the technology and payment agnostic nature of Payments Platform;
system reliability and data security;
ease and quality of integration into third-party mobile applications and operating systems;
quality of developer tools
other vital challenges are related to the regulatory landscape:
A quick glance at PayPal financials
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In 2017 the company recorded over $13 billion revenues and almost $1,8 billion in net income.
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Total operating expenses increased $1.7 billion, or 18 %, in 2017 and $1.5 billion or 19% in 2016. Operating income increased $541 million, or 34%, in 2017 and $125 million, or 9% in 2016. Net income increased by $394 million, or 28%, in 2017 and $173 million, or 14%, in 2016.
PayPal business model explained in an infographic
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Key takeaways
PayPal started out as a service launched by Confinity, and it eventually became a service offered by the merger between Confinity and X.com.
The team behind the initial traction phase and before PayPal arrived at the deal with eBay comprised brilliant people, the so-called PayPal Mafia. Many former PayPal employees would take part in the development of new startup that became critical in the Silicon Valley landscape.
After the deal with eBay, PayPal has grown to become a giant that comprises other companies like Braintree and Venmo. Today PayPal is a two-sided platform which success depends on its ability to cope with the competitive and regulatory landscape.
How Does PayPal Make Money? The PayPal Mafia Business Model ExplainedSource: FeedPublished on 2018-06-22What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13Is First Mover Advantage a Myth? When the Last Mover Takes It AllSource: FeedPublished on 2018-06-12The Innovative Business Models Using Blockchain TechnologiesSource: FeedPublished on 2018-06-11Best Qualified Traffic Growth Strategies from Five Top Digital MarketersSource: FeedPublished on 2018-06-10
The post How Does PayPal Make Money? The PayPal Mafia Business Model Explained appeared first on FourWeekMBA.
June 21, 2018
What Is the Minimum Viable Product? Why Use the Exceptional Viable Product Instead
An MVP “is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”
This is a concept matured through the lean startup movement that gave rise to the lean startup methodology. While the MVP development methodology has helped many startups build great products.
We’ll see throughout this article why this definition can often be misleading and what alternative you have.
The origin story of the lean startup movement
It all started with an HBR article of 2013 that referred to a new phenomenon in the business world “Why the Lean Start-Up Changes Everything:”
For a few years already, serial entrepreneur – Steve Blank – had noticed a new pattern in the business world, which he called the Customer Development Manifesto, which moved along 17 principles.
This manifesto started from a definition of a startup that moves along those lines:
A Startup Is a Temporary Organization Designed to Search for A Repeatable and Scalable Business Model
The interesting part of this definition is – I argue – the “search for” part. In fact, many companies in the past started from a prepackaged business model they could apply to their business to scale up.
In the real world, startups need to look for a business model. The process of iteration to find a business model is as tough as the process of iteration of a humans searching for meaning.
In fact, only when a startup has found the proper business model it will be able to unlock value in the long-run.
The Customer Development Manifesto moved around 17 principles:
There Are No Facts Inside Your Building, So Get Outside
Pair Customer Development with Agile Development
Failure is an Integral Part of the Search for the Business Model
If You’re Afraid to Fail You’re Destined to Do So
Iterations and Pivots are Driven by Insight
Validate Your Hypotheses with Experiments
Success Begins with Buy-In from Investors and Co-Founders
No Business Plan Survives First Contact with Customers
Not All Startups Are Alike
Startup Metrics are Different from Existing Companies
Agree on Market Type – It Changes Everything
Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
If it’s not About Passion, You’re Dead the Day You Opened your Doors
Startup Titles and Functions Are Very Different from a Company’s
Preserve Cash While Searching. After It’s Found, Spend
Communicate and Share Learning
Startups Demand Comfort with Chaos and Uncertainty
From then on the Manifesto became the starting point for The Lean Startup Movement:
What Is a Lean Startup Canvas? Lean Startup Canvas Explained
That also brought to the Lean Startup Methodology.
The lean startup methodology in a nutshell
In a nutshell, the lean startup methodology aims at creating a scientific, repeatable process for product development that allows the startup to build products and deliver them fast. In other words, the lean startup moves around three stages:
build
measure
learn
This process of build > measure > learn will need to be repeated over and over, thus creating a feedback loop. The main purpose is to initially come up with a minimum viable product (MVP). In fact, that is a critical aspect of the lean startup model.
What really is an MVP?
A Minimum Viable Product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.
What is not an MVP?
As Ash Maurya pointed out the definition of MVP got overtime simplified with “the smallest thing you can build that lets you quickly make it around the build/measure/learn loop”
This kind of simplification brings to flaws and mistakes that can also lead to great failures. In fact, more specifically Ash Maurya defines the MVP as “the smallest thing you can build that delivers customer value (and as a bonus captures some of that value back).”
That is where the Exceptional Viable Product definition given by Rand Fishkin comes in handy and in a way it connects with the stricter definition of MVP given by Ash Maurya.
When does an MVP make sense?
If you just starting up, you don’t have an established brand and your reach is limited, the MVP might be the way to go. That’s because the risk of failure and the cost in terms of branding is very very limited.
Thus the value captured from the iterations is high. All that changes if you have an established brand and a broad reach.
What is an Exceptional Viable Product?
My proposal is that we embrace the reality that MVPs are ideal for some circumstances but harmful in others, and that organizations of all sizes should consider their market, their competition, and their reach before deciding what is “viable” to launch. I believe it’s often the right choice to bias to the EVP, the “exceptional viable product,” for your initial, public release.
When should you use the EVP instead?
Depending on your brand’s size and reach, and on the customers and potential customers you’ll influence with a launch, I’d urge you to consider whether a private launch of that MVP, with lots of testing, learning, and iteration to a smaller audience that knows they’re beta testing, could be the best path.
In other words, he takes into account two main variables. On the one hand, you have the attention, customers, and evangelism.
On the other hand, you have the product quality. The greater the attention, customers base and ability to evangelize the more you’ll need to have a solid product before its launch.
In Rand Fishkin vision, an EVP has to have two minimum features:
have a decent exposure
and be truly impressive, at least at one must-have – identified – feature customers are looking for
He learned that lesson at Moz when he was trying to build a new tool to identify spammy links. As Rand Fishkin recounted:
Our research had already revealed what customers wanted. They wanted a web index that included all the sites Google crawled and indexed, so it would be comprehensive enough to spot all the potential risky links. They wanted a score that would definitively say whether a site had been penalized by Google. And they wanted an easy way of knowing which of those spammy sites linked to them (or any other site on the web) so they could easily take that list and either avoid links from it or export and upload it to Google Search Console through a disavow file to prevent Google from penalizing them.
That would be an exceptional product.
But we didn’t have the focus or the bandwidth to build the exceptional product, so we launched an MVP, hoping to learn and iterate. We figured that something to help our customers and community was better than nothing.
I think that’s my biggest lesson from the many times I’ve launched MVPs over my career. Sometimes, something is better than nothing. Surprisingly often, it’s not.
Key takeaways
The lean startup movement and the lean startup methodology gave an important contribution to the startup ecosystem. A core part of the lean startup methodology is the MVP.
Thus, a scientific method of building up a product which allows a startup to create a feedback loop to get valuable data and have a finished product.
The definition of MVP has been often misunderstood and it has led to many failures. That is why Ash Maurya likes the strict definition of MVP that consists in building “the smallest thing you can build that delivers customer value (and as a bonus captures some of that value back).”
Moz.com founder, Rand Fishkin also helps us with a new way of defining a viable product, based on the EVP.
In short, he points out that while for small startups, that have low exposure building up an MVP might be less risky. For an established brand using the MVP approach, might be too risky.
In fact, this often leads to the “something is better than nothing syndrome.” Rand Fishkin learned the lesson at the hard way. You can avoid that failure by adopting the EVP approach to product development.
What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13Is First Mover Advantage a Myth? When the Last Mover Takes It AllSource: FeedPublished on 2018-06-12The Innovative Business Models Using Blockchain TechnologiesSource: FeedPublished on 2018-06-11Best Qualified Traffic Growth Strategies from Five Top Digital MarketersSource: FeedPublished on 2018-06-1026 Ideas on How to Monetize a WordPress BlogSource: FeedPublished on 2018-06-10
The post What Is the Minimum Viable Product? Why Use the Exceptional Viable Product Instead appeared first on FourWeekMBA.
The Marketing Lessons Learned from Rand Fishkin
If you don’t know Rand Fishkin, he is a mythological figure in the digital marketing world. Founder of Moz.com – among the most prominent software and website in the SEO industry – he recently left the company and started over again.
In fact, after leaving Moz, he created a new company called SparkToro. I admire Rand Fishkin’s style, as he usually brings a fresh perspective in the otherwise monoculture of digital marketers, which all polarize around the same ideas.
I want to show you some excellent strategies I’ve seen him use since he started his new project and what I believe makes him so successful at what he does. Those strategies in a way are part of a broader mindset Rand Fishkin has acquired throughout the years.
Tools as marketing, Trending: will it become the Hacker News for marketers?
You might think that for someone like Rand Fishkin, with his contacts and success; starting a new website is a joke.
Yet, there is one thing to point out. Google doesn’t care. You might be Rand Fishkin, but if you’re building up a website from scratch there’s no way it will be successful without a proper marketing strategy:
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SimilarWeb estimates (take them as a pinch of salt) tell us that in just a few months SparkToro has gained traction. It is also interesting to look at the marketing mix:
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As of now, SEO is not the most critical channel for the acquisition of traffic. It is important to notice that it takes time to build a proper SEO strategy.
Thus, even though, over time we can expect to see SEO as a prominent “distribution channel” for SparkToro, as of now it’s not.
It is also important to notice that the direct traffic represents the most critical acquisition channel. That is a clear indicator of the strong brand Rand Fishkin has built over the years.
I believe though the real traction will come from a tool that SparkToro has launched recently. This is called “Trending.”
This tool aims to provide a single page where marketers can find the most important articles of the day. This is how the tool looks like:
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As explained on SparkToro, the trending tool gets the twitter accounts of marketers connected to it; it gets all the URLs from those accounts; a ranking is assigned based on how many accounts have tweeted a given link.
If they have received enough tweets a list of the day will comprise those URLs that have been tweeted the most. At the same time, over time, Tweet accounts connected to the Trending tool are weighed based on their “historical authority.”
In other words, if they have been sharing quality links from several sources, they will weight more on the Trending page. The exciting part is that Trending algorithm doesn’t take into account followers.
And a link loses relevance over time unless it gets reshared more and more (the aim is to provide fresh links each day).
Whether or not this tool will prove sticky, it is a great marketing tactic to grow a website, quickly. I’ve been using it on a daily basis in the last weeks.
The only thing I’ve found not practical is that I have to keep a tab open and refresh it the tool to keep using it. I’d expect to see in the next future something like a Chrome Extension that allows users to have it opened automatically. Communities like Zest.is have done it successfully.
Do you want trust? Share everything you got
If you read Rand Fishkin book, Lost and Founder, you might have noticed that one trait of his character is about sharing everything openly, even the most embarrassing things.
Rand Fishkin applies the same principle in business. Lately, he shared all the legal documents about a recent funding campaign, publicly:
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Those resources are precious to anyone operating in the startup world. It is counterintuitive to think that sharing everything openly does impact positively your business.
In fact, I’m not sure if there is any proof for that. However, one thing is true, helping others grow by “giving away” your failures and resources is an element of trust. I don’t know Rand Fishkin personally. Yet I trust his words because those are backed up by actions.
The art of hustle: the outreach campaign a la Rand Fishkin
We all want to believe in the story of that fantastic piece of content that went viral. However, that happens very seldom. And also when that happens that success isn’t repeatable.
Thus, there isn’t a process you can put together for virality, it just happens. On the contrary, outreach might sound less “sexy” and just boring. Yet, it works. Rank Fishkin knows it very well, and that is why he has a process in place.
The process might be manual, slow or inaccurate. That is how Rand Fishkin calls it, but it works.
Promote without promoting: the art of arousing curiosity
None likes getting sold. We all want to believe in making decisions solely based on our rationality. That is why the best marketers and salespeople are those that sell us things without us ever realize it.
Rand Fishkin, I believe has a natural inclination for that. If you take a look at the previous post, there is one interesting aspect. He mentions a research he has performed with SparkToro. This is an anticipation of a piece of content that is coming next.
Needless to say, I look forward to it. This is a critical aspect. In fact, we all know that when it comes to products (also books) and services we need to start promoting them way before they are ready.
That’s because the best promotional strategy is about involving your audience and arousing curiosity. Rand Fishkin, before launching the next article or research is talking to his community.
That makes sense. In fact, a proper research takes time and effort. Making sure it reaches as many people as possible, it is crucial.
MVP vs. EVP: Why and when the MVP is too risky and when and why to use the EVP model instead
Rand Fishkin executed brilliantly the Beta launch of Trending:
Of course, when he launched it, the tool worked pretty well. It was not a MVP but as Rand Fishkin calls it, it was an EVP.
In fact, as he pointed out on a LinkedIn article.
The problem with MVPs, and with the “something > nothing” model, is that if you launch to a large customer base or a broad community, you build brand association with that first version. To expect your initial users (who are often the most influential, early-adopter types you’ll attract—the same ones who’ll amplify the message about what you’ve put out to everyone else in your field) to perceive an MVP as an MVP is unrealistic.
And he also pointed out:
For an early-stage company with little risk of brand damage and a relatively small following and low expectations, the MVP model can work wonderfully.
If you already have a big following with high expectations, publicly launching a traditional MVP (one that leans more to the “minimum” side of the acronym than the “viable” side) can be disastrous
In this case, he called this “MVP hangover.” In other words, the failure of an established brand with a large audience might be too risky to take.
Instead, you might want to go with what Rand Fishkin defined an Exceptional Viable Product. Thus, next time you’re about to launch if you have an established brand or large audience, ask yourself, “have I built an MVP or an EVP?”
Inbound works but keep it personal
One thing that strikes me the most about Rand Fishkin is that even though he has a huge following, he takes the time to connect personally.
This is the emails he sent to a group of people for the crowdfunding campaign to fund SparkToro:
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Rand’s initial email to one of SparkToro’s investors
When you get to the top, it’s easy to forget to take the time to connect personally with people. Yet Rand Fishkin takes the time to connect with people, and he seems to love that.
In fact, this is something – I argue – that you can’t fake.
Marketing is about an open mindset
In the end, you might find dozens of marketing tactics. However, they all start with a mindset of openness. It is easy said than done.
On a daily basis, we are taken by daily issues, deadlines and money, which get in the way. Thus, it’s very hard to keep all the qualities you wish to have as a person.
This is normal. We’re not perfect, even though each of us thinks to be the one who got it right, while the rest “can’t understand!”
However, keeping an open mindset means just that. When the time is right you’re ready to acknowledge your drawbacks and act on them.
Not because they’ll bring a certain result. Not because they will positively affect the bottom line. Not because they are “growth hacks.”
But only because they are the right things to do. Rand Fishkin, I believe is a great example of a person that tries really hard to bring a fresh perspective in a world of buzz, and monoculture, like the digital marketing world.
That is why he is one of the few people in the digital marketing world that I follow with great pleasure. That’s why SparkToro is one of the blogs you need to follow to keep a fresh and broader perspective about digital marketing.
What Is the Minimum Viable Product? Why Use the Exceptional Viable Product InsteadSource: FeedPublished on 2018-06-21The Marketing Lessons Learned from Rand FishkinSource: FeedPublished on 2018-06-21Three Effective Online Business Models for the SolopreneurSource: FeedPublished on 2018-06-17What Is a Lean Startup Canvas? Lean Startup Canvas ExplainedSource: FeedPublished on 2018-06-17What Is a Business Model Canvas?Source: FeedPublished on 2018-06-14How Does Netflix Make Money? Netflix Business Model ExplainedSource: FeedPublished on 2018-06-13Is First Mover Advantage a Myth? When the Last Mover Takes It AllSource: FeedPublished on 2018-06-12The Innovative Business Models Using Blockchain TechnologiesSource: FeedPublished on 2018-06-11Best Qualified Traffic Growth Strategies from Five Top Digital MarketersSource: FeedPublished on 2018-06-1026 Ideas on How to Monetize a WordPress BlogSource: FeedPublished on 2018-06-10
The post The Marketing Lessons Learned from Rand Fishkin appeared first on FourWeekMBA.
