Archive for 'Business Models'
By Rajesh Setty on Sat 24 Dec 2005, 9:13 AM - 3 Comments
You only get to be a “first time entrepreneur” once. First time entrepreneurs are always special. An old friend used to say:
First time entrepreneurs have a major advantage – they don’t question everything before they leap into the business
First time entrepreneurs have a major disadvantage – they don’t question everything before they leap into the business 
If you are a “first time entrepreneur” cooking up your new business, try (honestly) answering these questions.
Disclaimer: The list of questions is more applicable to those that are planning to bootstrap their business. The list of questions, of course, is not complete. It’s meant to be a starter list.
1. What exactly is your idea?
Can you clearly articulate your idea? How compelling is your idea? Is it an idea whose time has come? Are you early into the game or are your late into the game?
2. Who will pay?
Chances are that your idea will be to create a new product or a service. Who exactly will pay for this product or service? Why? How much will they pay? Why do you think they will pay that price?
3. Why should someone care?
Yes, I am sure you have already identified a market segment. Whoever is your target, the key question is “Why should they care?”
The other way to look at this is to imagine that once you explain your complete idea, someone says “So What?”
What would be your response for the “So What?” question.
4. Why do you think you are the RIGHT person to execute on this idea?
While the idea may be brilliant and flawless, most often, the idea is only a tip of the iceberg. The bulk happens in the execution. What makes you think that you have everything it takes to execute brilliantly on this idea?
5. What are the roles of your team members once the business gets off the ground?
If you think of a startup group as crewmembers in a movie production unit, sometimes they tend to be stuck by a “Everybody is a Director” syndrome. Are the future roles for your team members identified? Are your team members comfortable with these roles? Are your team members willing to change (or step aside) when the time is right?
6. How are you going to split the equity?
One issue you have to deal with is the roles and responsibilities and the other one is how to split the pie amongst yourselves. Who is getting how much? What is the rationale behind this decision? Why do you think this is fair distribution? Do all of your team members think it’s fair?
This is an important question. I have seen instances where people work for more than a year without discussing this and at the end of the year, everyone wants to own more than 60% of the company.
7. How much money are you investing in the business?
Sometimes there is also a fantasy that just by working nights and weekends the business can be born. It may be possible but it is definitely not something that you can bank on. So, the question is “How much money are you and your team members investing in this new business?”
I have told this before but it is worth repeating – typically people are willing to squander their time but not their money (although time=money) So if you are just willing to put in your time and not a single penny of your own money – think again about your seriousness about this project.
8. Is anybody else doing it now?
If not, why not? Is there a reason why someone MIGHT have passed on this idea?
If someone is already working on a similar idea, how different will your company be as compared to the incumbents?
9. When are you planning to get into the business full time?
Yes, you have worked hard during nights and weekends to get the business off the ground? When will you leave your present job and join the business full time? What is the criteria used to determine this transition?
10. Do you have a mentor?
It all seems easy at the planning stage and if everything works according to the plan on the paper, then you don’t need to have anyone or worry. Unfortunately, the paper plan and real life are different and any new venture will be filled with surprises – good and bad. You need a mentor, a sounding board to work with. The questions you are reading are a small sample of questions a good mentor will ask and hold you accountable. It is worth your investment.
11. Why do you want to do this?
Each entrepreneur has a different reason to be an entrepreneur. What is yours? Once you answer this think whether becoming an entrepreneur is the only way to get what you want or become what you want to become.
12. How much does it cost?
It is our tendency to think only about the hard costs that are associated with the project. “Time away from family” is sometimes not counted as cost but IT IS A COST. Have you thought of all the costs (or “investments” for those with positive mental attitude) associated with this adventure? Is it all worth it?
13. What is success for you?
How do you know when you are successful? As you grow in this business several things happen – your dreams will grow, your opportunities will expand, problems will change and your needs will change. The key question therefore is “What should happen that will make you feel that you succeeded in this venture?”
Please answer this question with hard numbers rather than “something big” or “something remarkable” kind of answsers.
Posted under Business Models, Main Page.
By Rajesh Setty on Tue 29 Nov 2005, 9:25 PM - 3 Comments
Most of the people who have mentored me tell me that it’s not always the right answers that help – it’s asking the right questions.
There was a discussion a few months ago on whether being small had its
advantages – agility, speed etc. My response then was that it all
depends and I stick to the same opinion even today. While being small
has its advantages, it has its disadvantages too – especially if you
are a small technology business.
For those companies, I created this list of questions. Some of the questions may have broader applicability.
1. Do you have a sound business model?
Silicon Valley is fun. When I am at
Starbucks
having coffee, I know that in the same room there are at least a few
other people discussing new ideas, hatching business plans and crafting
their visions etc.
A few weeks ago, I met an old friend and he mentioned to me how
frustrated he was coming to San Jose Downtown as there is a lot of
trouble finding a reasonably priced parking spot. That frustration made
him think through a business idea which revolved around creating an
online business to compare parking lots and deals on parking spots. He
said lot of people like him will flock to the site.
Long story short. The idea was shot down by the end of the coffee
session as there was no viable business model surrounding that idea. I
am using this as an example where this entrepreneur cut his losses
(this
time at the idea stage) but there are probably thousands of other
businesses where there is no viable business model and while the
passion and dreams are great, if there is no business model to support
it, it’s not worth your time.
Answering the first question with absolute honesty is key.
2. Do you have the right resources to execute on the vision?
Starting a business is the most easy
part. I see people starting businesses all the time. They tell me that
they have contacts that can give them the business. What they don’t
realize is that not all personal contacts want to do business with
them. They are happy to be your personal contacts but they won’t bet
their company’s future on a startup. Also, you will run out of your
personal contacts soon. So, just depending on personal contacts is not
a good enough reason to start a business.
The key resource is people. Do you have the right team to run the
business? If not, can you afford to get the right team and what are you
willing to give up to attract the right team?
The next key resource is money. Do you have enough for now and for the
forseeable future. If not, do you have visibility to get that money
when you need it?
Note: When you are small, you make compromises on things (just because
you can’t afford everything on a limited budget) but when you start
growing you have an option to not compromise. Just being aware of this
will help.
3. Are you willing to change?
They say change is easy as long as you
are not part of it. As your business grows, there will be some changes
that won’t affect you directly and there will be some that will affect
you directly. What is your appetite for change?
What is the extent to which you are willing to change? If it requires
that you need to unplug yourself from the business for the good of the
business, would you be willing to do it?
4. Can you influence the influencers?
When you are small (or in general for that matter) it is always a great idea to have a plan to
influence the influencers.
Most people prepare and always look out to get to the decision makers
when the journey can be a lot smoother by going after the influencers.
5. Can you scale?
While not having enough customers is
one problem, having too many too early and not being prepared for it is
another problem. Do you have a plan in place if (or when) such a
thing happens?
6. Can you think “systems”?
Systems thinking is one of my favorite
topics and if you are a small business, it is even more important to
understand systems thinking.
Systems thinking is a way of understading the inter-relationships
between the parts of a system and the impact each part will have on the
whole system or on the other parts. When you build a business, you get
plugged into an eco-system that comprises of at least:
* employees
* customers
* partners
* government
* suppliers
* competition
* consultants
* world
You need to understand how each part relates to the other within the
system and should be able to quickly understand the impact of change in
one or more of the parts.
The Fifth Discipline
by Peter Senge provides a great introduction to
Systems Thinking and if you are an entrpreur or wanna be one, you got
to read it and digest it.
7. Do you have the right tools?
If everything remains same, the person
or the company that has better tools will win. Tools may be something
that will save you time, money, share knowledge, increase productivity
or improve efficiency. Have you thought of what tools you need to have
to run this business in the most optimum fashion?
What is your plan for acquiring these tools? What is your plan to
implement these tools? How do we make sure that everyone uses the tools
that are already in place?
8. Do you now how to market in the new world?
The advertisement model of yesterday is
almost dead. The new world requires new ways of marketing or reaching
out. Have you explored blogs, podcasts, viral marketing, word of mouth
marketing etc. Your particular business may require something totally
new altogether to get it going? How willing are you to experiment?
The keyword for today is findability. Clients will find you rather than you finding them. Are you findable on the web?
9. Are you willing to kill your darlings?
Sometimes we hang on to something good
for too long. Selling ice was a good idea at some point in time. When
the world changed and refrigeration started showing promise, it was
time to move on even if there was a good business going. Now this
example seems like an obvious one. What if one of your offerings was to
sell ice when someone was developing refrigeration technology out
there? Are you watching the trends and innovation outside of your world
to see if there are things out there that can impact your business?
The bigger question is: When you do find that your biggest offering is
losing relevance, are you willing to kill it or commodotize it and move
forward?
10. Is your business GYM-proof?
I think GYM is a term coined by
Robert Scoble
- stands for Google, Yahoo and Microsoft. The question is “How do you
know that one of these big companies come up with the same offer as
yours but give it away for free?”
Recently Google announced “Google Analytics”
- a simple, sophisticated Analytics solution for the web for free. I am
confident that a few boutique firms whose bread and butter was to sell
these solutions are worried like hell. It is hard to get information on
what all projects that these companies are working on but sometimes
they give a hint. For example, it would not be a good idea to work on
something that is already being showcased in Google Labs
unless you are pretty sure that you have some amazing technology and
you know that your solution will be far superior than whatever Google
will eventually come up with.
On a lighter note:
When I shared this with one of my close
friends, he said, “Raj clear this list. I have only one question to
replace the whole list – What are you doing today that will ensure that
one of the GYM companies will pick you against others in their next
acquisition spree?”
PS:
This list is in no way complete. However, I have to end this post somewhere
Posted under Business Models, Innovation, Main Page.
By Rajesh Setty on Mon 11 Jul 2005, 1:29 PM - Leave Comment
Paypal has a service to let non-paypal users to pay using their credit
card. However, if you have a Paypal account and you choose to pay with
your credit card, Paypal does not like it. Here is the message from them
Our
records indicate that this email address is already registered to an
existing Paypal account. To complete this transaction, please enter a
different email address.
To log in to your existing PayPal account, please click the Login button below
First, they made it easy for non-paypal users to transact. Then they
make it hard for existing Paypal users to pay from anything other than
a Paypal account.
It’s an annoyance and hopefully Paypal is working on fixing it. Very simply, Paypal can provide three options
1. I have a PayPal account and I want to pay using PayPal
2. I have a PayPal account and I want to pay using a credit card
3. I don’t have a PayPal account and I want to pay using a credit card
That should take care of it, I guess.
Posted under Business Models, Main Page.
By Rajesh Setty on Mon 27 Jun 2005, 1:03 AM - Leave Comment
DVR is an example of a game changing innovation. Just like Napster forever changed the way music industry thinks and works, DVRs are out to change the way TV industry thinks and works. TiVo and ReplayTV are the two prominent players and I am sure there are many more to come.
When I last checked, there were close to 1.9M TiVo subscribers and the
number is growing rapidly. This is a small number compared to the total
number of TV viewers but I am sure there is a point at which DVRs will
start causing a serious shift in the way the whole TV industry
operates. Here is a wild scenario (at that imaginary point)
* the number of people who don’t own a DVR does not make sense for advertisers to pay a ton of money for TV spots
* Ad rates for TV spots will drop
* Reduced revenue for TV spots means reduced spending by TV folks on quality programs
* Lack of quality programs provides lesser incentive for advertisers to advertise on TV
Add to this popularity of citizen journalism, podcasting (soon videocasting) will all put increasing pressure on TV channels.
On a positive note, whenever such a major shift happens, a ton of
opportunities open up for other innovators. Something to think about.
Posted under Business Models, Innovation, Main Page.
By Rajesh Setty on Thu 16 Jun 2005, 10:45 AM - 3 Comments
I talked about the topic of Social networking on June 4. David Batstone provides an interesting perspective on this topic on his blog today (link: I don’t want to be your friend-ster)
David explains why it’s hard to be “linkedin” to every friend. It is a
delicate balance who you get “linkedin” to. If you don’t get linkedin
to someone, does it mean they are less of a friend – may be not. There
is no one right answer. You have to find your own balance.
One thing is sure – if you are big on social networking, never take
unfair advantage of it. It won’t last long. It has to be GIVE and take.
Posted under Business Models, Main Page.
By Rajesh Setty on Sat 11 Jun 2005, 11:54 PM - Leave Comment
Joe Wikert blogs about why google adsense does not make any sense. This follows a story last month about a secret army of clickers trying to fool google adsense program.
Interesting articles – both of them. Google Adsense is probably one of
the most popular of google offerings (apart from search) and now it’s
under fire.
Lessons learnt: What worked
yesterday may not work tomorrow. This means that we should be ready to
embrace change. Not only that, we should be ready to adapt to faster
rate of change than ever before in the history.
Posted under Business Models, Main Page.
By Rajesh Setty on Sat 04 Jun 2005, 8:50 AM - Leave Comment
Robert Scoble talks about the problem with social networking and also provides a link to the CNET.com article Five reasons social networking doesn’t work.
There was so much of buzz and hype about Social Networking in the last couple of years. My take on this issue.
Social networking is a really cool concept and it works great if used
right. In a nutshell, Social networking is the technology
implementation of “six degrees of separation.” You can reach anyone
else in the world in six hops. While this may be true, trying to
exactly replicate it and think that it will work may be asking for too
much. Let me explain. Take a look below
1 – 2 – 3 – 4 – 5 – 6
Let’s say #2 wants to reach #6 and the introduction request reaches #4.
It’s a tricky situation for #4 as neither he knows #2 directly nor he
knows #6 directly. But the request came from someone he knows very
well. My take in this scenario – most of the times, the request will
stall and won’t move. It will also put a strain on the relationship
between #3 and #4.
One simple way to overcome this is to create a rule that you will only
connect people who are directly connected to you. For instance, if #3
wants to connect with #5 and the request comes along to #4, it should
be a “no brainer”
I think the jury is still out on this. More on this a few days later.
Posted under Business Models, Main Page.
By Rajesh Setty on Wed 01 Jun 2005, 11:39 PM - 2 Comments
Amazon announced their search engine A9 a few months ago. Now, they are offering a discount of (1.57%) for regular users of A9 search engine.
In order to continue to be eligible for discounts at Amazon, users need
to at least use A9 once per week (eligibility criteria might change)
and you need to sign in before using the search engine (otherwise how
will they know that you were using the search engine)
No other search engine that I know of requires a login before
searching. No other big-name search engine pays their users either. By
offering a powerful incentive (money!) Amazon is getting users to
reveal what they are looking for using the search engine and I am sure
ultimately this information will be used to present the right set of
products while they are browsing at Amazon. Neat!!
There is an innovation war going on between Google and Amazon and hats
off to both companies for setting higher standards for each other and
every other company in that space.
Posted under Business Models, Compelling Offers, Innovation, Main Page.
By Rajesh Setty on Fri 27 May 2005, 9:29 AM - Leave Comment
I saw this interesting story
about a bank in San Ramon coming up with an innovative mortgage banking
product offering. Mortgage banking is mostly commodity stuff and most
commodity offerings compete solely on price
CMG Financial Services, the company that came up with this innovative
product bucked the trend. The idea as I understand it is that with this
offering mortgage loan is tied to a checking account. When your payroll
check and any other checks are deposited to this account, they are
directly applied as credit towards the principal of the loan. As you
write checks, the loan amount increases and an interest is charged to
this loan amount. The final interest at the end of the month is added
to the principal owed. Interesting and different concept from the
traditional way mortage products operate.
They charge a steep premium for this (about a percentage point higher)
My point is not to make a case for this product but to point out that
whatever be the product, you defy commoditization and you get two
things:
a) you make news
b) you can charge a premium
Something to think about in our own professions. What could we do to de-commoditize ourselves?
Posted under Business Models, Innovation, Main Page.
By Rajesh Setty on Fri 20 May 2005, 8:59 AM - Leave Comment
When microsoft announced a subscription service to tackle spyware, I thought it was an interesting move. In fact, it reminded of a story my friend used to say. Here is the story:
Long ago, there was a salesman whose job was to sell maintenance contracts for fax machines. He would go around and pitch this idea to local businesses and as expected very few folks were interested in signing up for a maintenance contract for their fax machines. The simple reason was that fax machines had very few issues. They worked well!
The salesman was smart. After waiting for a couple of days, he would pick a few businesses (out of the ones that he visited recently) and fax them a black sheet of paper. Obviously, some of these business owners would get worried and would want to get their fax machines fixed. Since he had visited them recently, they would call him to discuss the maintenance contract. The salesman would make an offer they couldn’t refuse. He would say that if they signed on the same day, he would get the fax machine fixed under the new maintenance contract – free of charge.
I am NOT asking you to draw any parallels here. You make your own assessments.
Posted under Business Models, Main Page.
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