In the beginning...
Innovative and disruptive new businesses have been emerging since time began. From the 1950’s information and communication technologies made it possible to create and build very large businesses based on the new technology. In the 1990’s the Internet arrived and we saw the dotcom boom. Many of the companies started in this phase proved to be founded on thin air and they disappeared very quickly during the bust of 1999/2000.
After the Dotcom Bubble burst, new ICT companies were out of fashion for a while although many were still founded. Fashion began to shift and it was given a huge new burst of momentum by the launch of the iPhone in 2007. Apple simultaneously made tech cool again and created a whole new platform for ideas. This was quickly followed by the financial crisis which drove many talented people and some money into starting new businesses.
The Start Up movement
The iPhone, the financial crisis and a tremendous amount of passion, energy and talent have fuelled today’s wave of innovation - start ups. Start ups have attracted increasing amounts of funding. This together with attention and support from Governments has turned today’s wave of innovation into a global movement.
The survivors of each wave of innovation are today’s established technology giants - HP, IBM, Microsoft, Apple, Oracle, SAP, Google and so on. Each wave has also left behind a legacy of fears and concerns. Learning the lessons of previous busts has been a driving force in business and management thinking.
Business model thing and innovation
Business thinking has become one of the major sources of innovation and disruption in the start up movement today. The first landmark is the Lean Startup by Eric Ries. If you haven’t read this, go get it. It is a very well thought out description of the process by which innovation happens and the business mechanism which drives growth and scale.
If the Lean Startup described the how of creating a great start up, Business Model Generation by Alex Osterwalder (@alexosterwalder) and Yves Pigneur (@ypigneur) mapped out the structure and components of a successful business. Although the title says business model, this is really a modern and well developed view of the elements and process of business strategy. It is comprehensive and influential. Perhaps the most influential factor is the tool that underpins the book, the Business Model Canvas.
The combination of lead concepts and the canvas inspired another founding text of start up theory, Running Lean by Ash Maurya (@ashmaurya). Ash is an entrepreneur not an academic and this makes his book and the materials which of with it more practice and less theory. As a result, his tool, the Lean Canvas, has become even more widely used than the Business Model Canvas.
An important strand of start up business thinking has focused on customer development and growth. Here the founding text is Steve Blank’s (@sgblank) 4 Steps to the Epiphany.
Taking the next step
Taken together these ideas have transformed the way start up pitches and investment analysis are presented. The language of lean, customers and growth and the canvases permeates the whole ecosystem. Incubators and accelerators teach these concepts to budding entrepreneurs enthusiastically. The web and social media offer hundreds of variations to anyone who is interested.
More importantly there are some great ideas and founders have a much better chance of building a successful business as a result. Many start ups are growing using these ideas and as a result some proven routes to success are emerging. I believe this practical experience provides the foundation for the next step.
We now have enough knowledge and experience to create a set of practical tools that can be used to design and build business activities and interactions based on the 6 most common business models - SaaS, Usage, eCommerce, Marketplace, Advertising and Licence.
A business model toolkit based on these principles will put start up entrepreneurs, investors and analysts on the same page by linking business operations with numbers and value.
This is my last post of 2014. I wish everyone a great Christmas and a Guid New Year. If you have a few minutes, I would love to hear your ideas for successful business models in the mobile and digital world.
Advertising has acquired a very challenging reputation as a digital business model. This is a bit of a conundrum because one of the major trends of the digital era is advertising dollars moving from traditional media to the web. Mobile has accelerated this shift with analysts forecasting massive growth in mobile advertising. Gartner (@Gartner_Inc) for example predicts mobile ad revenues of $18 billion in 2014 will more than double to $42 billion by 2017.
Part of the problem is the prevalence of get rich quick schemes which tempt people with promises of six figure incomes for doing nothing but posting the occasional blog. This is a pity because there is no doubt that advertising is a potential large source of revenue and there are billions of dollars still to move from old media to mobile and digital.
So what is needed to build and grow an advertising based digital business? I have been working with the great team at Mallzee (@Mallzee) who are building a powerful business based on advertising in various forms. These are my 8 top tips for success.
The web has allowed businesses to reach much larger audiences than was ever possible in the past. Many advertising models depend on these large numbers with extremely low click through rates still able to generate a return. All very well but building an audience of millions is not possible for everyone. A much better strategy is to establish a niche and be able to clearly demonstrate that you are reaching a well defined set of potential customers.
Digital and especially mobile allow you to engage you audience. This is very attractive for advertisers. It is also becoming essential for customers. Simply driving the message home is no longer enough. You must be talking to your audience and even more important listening to them.
Engagement depends on you having a clear identity. Your audience needs to feel they know your brand and style. Establish consistency amongst content, design and messaging.
Big data also has a major part to play in successful advertising platforms. You can now measure everything and your job as an entrepreneur is to interpret those measures and target precisely the right potential buyers. Advertisers should demand ever more accurate audience demographics and a real time view of audience reaction to their message.
Real world connection
The best businesses in any field now link together the digital and physical worlds. This can be about timing, delivery and logistics or just convenience. Mobile has transformed this connection because users carry their digital lives in their pockets and handbags. Think of your platform as an adjunct to users lives and design accordingly.
There are many ways to source ads cheaply and easily. Pay per click (PPC) networks dominated by Google AdSense are the easiest but also offer pretty low returns. Similar networks such as Admob are also available for mobile. Affiliate ads offer better returns but are harder to convert. Best of all financially are ads you sell directly on your site but this requires a strong audience so may not be easy initially. Finding the right ads that fit with your audience is essential for success. Tracking which ads work is vital both for your business and for your advertisers.
Another way of generating revenue is by building a strong community, for example a LinkedIn group. Corporates often sponsor and encourage these communities allowing members to express a range of views and using the feedback as valuable input. Social media has made it much easier to share views and companies benefit from understanding customer opinion even when its negative. In an information dominated world the worst business position is to be in the dark.
Data, data, data
Building a successful business on advertising revenue is still tough but there are opportunities. In the next few years, the greatest growth will be from advertising associated with new streams of data. Mobile devices, the Internet of Things and all the elements of big data are creating customers insights of unrivalled breadth and depth.
Both selling data directly and linking sales, marketing and communications to new streams of data have tremendous commercial potential. Many of the innovative ideas arising from data will be essentially advertising based. Keep in mind the principles above and look to use data as a growth engine.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.