Getting meta on business model: MODELCRAFT

Business Plan: Collect underpants...profits!

There are a lot of startups out there that don’t make a lot of sense as businesses. That’s not what this post is about — after all, a great product and clean execution can often trump less-than-ideal models. However, when we’re talking about a small team with limited time, chasing wild geese in different directions can have a precious cost.

I’ve been asked a lot recently to put my apparently legend(wait for it)dary whiteboard skill to help people focus their efforts, and came up with the slide below in the process.

I’ve used this to help guide friends away from the ledge, and to inspire new ideas for projects that I may bring to life one day. The thought is that a successful business must do at least one of these things well, and great businesses often do well a full path from discovery to transaction.

The basic theory is that across categories and customer groups, a customer must discover a product, do some analysis (even if for a split second), decide that they want it, and then pay for it. A business can facilitate just one or all of the above. In each specific case, there are strategic tradeoffs to how these things come together — and that, my friends, is Modelcraft.

I’ll put down a few of my favorites:

Apple App Store:

Apple sells a bunch of cool products, obviously. But the App Store platform is interesting in ways that the phone/pad/mac businesses are not. They get people involved, and turn out some really interesting nuggets of software. The Apps themselves are curated – you have to apply to get in – and nearly half of their big advertisements are for apps or the app store. Reviews are encouraged, and many are available for free or in light versions. At an impulse price point, you can easily go overboard without noticing it, and even though lots of people write apps, Apple collects all the money.

Netflix Streaming:

Netflix has two main products: the discs and instant streaming. This is about the streaming. I’ll treat the iphone/ipad and other ways of delivering the streaming as the same thing for a moment.

They’re an aggregator — and do a lot of work getting content from studios and other content owners. The movies are reviewed by millions of users — and instant playback means you can try watching something for a bit before really deciding if you choose to. Besides, movies are movies — no surprises in what you’re getting. Since picking a new movie is very easy, and doesn’t cost anything when you’re already signed up, you can do it on impulse — you’re already paying (or can now choose to) for a subscription.

Don’t even get me started on the Qwikster fiasco.

New York Times Web:

The Times is a well known brand, but for a while, struggled with their web edition. Every single article is something of an advertisement for the service, and you can read a bunch for free. To many people, the news is objectively useful, especially as it relates to the world and its opportunities. There’s real FOMO here too, as not receiving the right news in a timely fashion is as much a liability. Once you’re signed up, no need to pay again, you’re on the subscription.

Is this perfect? Of course not. Business are nuanced and tender things. However putting down what you’re trying to do and really looking at it rationally might spark new ideas or save you from expensive mistakes.

Do with it what you will. I’m out!

How to read this chart: This section has more detail on each of the components of the Modelcraft chart.

Step 1: Discovery — if people don’t know about your product, they can’t buy it.

  • Advertising – The product is seen in ads and discovered the old-school way
  • Press – people learn through mentions in the press or stories about the benefits of the product
  • Live/Events – A human interaction delivers an introduction to the product. This includes parties and other fun stuff.
  • Social – Customers share the product with their friends, typically through a social network and typically incentivized or otherwise designed by the company.
  • Curated – Part of the value being offered includes a creative cut on a subset of products available in the category.
  • Aggregated – Part of the value being offered includes an expanded selection of products in and around the category, typically with searching or filtering to help discover a particular product.

Step 2: Analysis — Why is the product great? There are many ways to find out.

  • Reviews – People consider the product by reading the thoughts of people that have bought or tried it already.
  • Trial – The product is available for free (usually in some limited way) to get people to see that they want it
  • Social – People can ask their friends what they think of the product (like ‘reviews’ but from people they know)
  • Experts – Thought leaders in the category or in the customer group offer their endorsement or expert critical review.
  • Value – When products create tangible or objective benefits, the cost/benefit leads to a value-driven analysis
  • Utility – When a product is itself useful for some kind or work or activity, its usefulness is considered
  • Coolness Factor – Sometimes, stuff is just hot. Great design, trend, pop-culture and more can lend a product coolness

Step 3: Decision Components — with all the facts in place, how does the customer decide?

  • Impulse/Gut – Usually reserved for small/inexpensive items, the right placement and positioning can create fast purchase decisions
  • Fear of Missing Out – Limited availability or exploding deals can create urgency to buy
  • Unique/Standard – Depending on the customer, having a product that is so different can be a decision factor; for others, having something very normal can do the same.
  • Need – When a product solves a known and current issue, legitimate need is a factor
  • Price – When something’s a good deal — it’s a good deal.

Step 4: Point of Transaction — Once you have the yes, where does the cash go?

  • Brand – The brand that produces the product takes the money.
  • Multi-brand – A retailer who is not the brand is reselling it
  • Affiliate – A third party is neither the brand nor a reseller – but are affiliate to the product
  • Peer – People can buy from each other
  • Subscription – People choose to buy once, but future transactions happen automatically

How does your model look? Feel free to download and use this. I know it isn’t perfect, but I’ve found it useful. Would happily take any feedback on ways to make it better.Modelcraft (PowerPoint)