Tag: Business Model

Categories
Entrepreneurship

Building for Change

One of the themes that everyone is required to contend with today is change. Change is inevitable and necessary in these times. Radical changes are being forced upon us and the world is adapting rather quickly to these changes. 

Humans hate change!

Change in itself is not something that we take to, naturally. Humans tend to push back to change. It is our natural reaction to it. 

Having said that, we have been subjected to rapid changes. The second world war was the starting point.

Aviation, automobiles, television, food processing and several others. There have been consistent changed hurled at us and we have changed ourselves to adjust to those changes. Each of these has changed our lives in meaningful and irreversible ways. These are important and critical to our comfort and our productivity. Also, they have spawned several new businesses that would not have been possible before their introduction.

Think about it, 10 years ago you could not have imagined pulling out a slab of glass from your pocket and summoning a cab. Today you cannot imagine a world without it.

Over the years, there are several changes that the world has seen. Over the past 3 decades, the world has been in a paradigm of accelerated change. The only difference with the current situation is that this change is being thrust upon us rather than chosen by us. 

Startups are created and thrive at the cutting edge of change. If you look at the graph above, each jump was accompanied by pioneering companies that took advantage of that change. The last time such a change was brought upon us was when the smartphone was unleashed. Back in 2007, the world was a much different place. Since then, smartphones have not spared any business. From retail to transportation; from supply chain to finance; everyone had to bow to the power of the smartphone and the cloud.

The wave swept the world in a matter of 7 years and everything changed forever. So much so that the next world war will not be fought on a battlefield but the internet.

The current pandemic is unprecedented in our lifetimes. Also, it is taking place at a time when we have the ability and the technology to make changes at unforeseen speed. This is the time to get on the next curve.

Smartphones reached maturity (~80% market penetration) in a matter of 7 years. The revolution that this situation is going to unleash will reach maturity in a matter of 3 or 4 years. There will be winners who will emerge from this and their fortunes will turn in a very short period. 

To illustrate this – Temple Run was a company founded by a couple who operated out of their bedroom. The game was launched in 2011. In 2014, the company had over a Billion downloads and generating Millions in revenue. Not bad for 3 people. There was never a game, before 2011 or thereafter that has been this successful in such a short time and with so little resources.

The current situation can give birth to equivalent businesses in certain industries ripe for change. Any thoughts on what those changes are going to be? Most would say video-conferencing. But no.

The industries that are currently at the throes for radical change and whose future no-one knows are Real Estate, Travel and Tourism, Automobile, Education and Healthcare, amongst others. Each industry is broken in their unique way. The pandemic has broken them. They are going to be altered radically by the changes that this pandemic is unleashing. 

Instead of going ahead and building on business models which existed 5 years ago; the questions entrepreneurs should be asking is which business models would be thriving in 5 years? Where will this settle?

Categories
General Thinking

What would our grand children consider classics?

It is safe to say that; content is in a state of 911.

I find very few sources where I can get content, where a great deal of though and analysis has been put in. Interestingly, I find many more sources where I can get cat videos and snarky two liners. Truth be told, not too many people are reading thoughtfully written stuff.

Why?

Quantity is opposed to Quality

The advent of digital mediums has meant that it is possible for everyone to create content. If you wanted to write a piece like the one I am writing and distribute it in 1900, you needed a newspaper editor to feel that your article was going to be interesting to the readers. With blogs, today pretty much anyone is able to put out their thought for public consumption. But the problem is much worse that anyone being able to write a blog.

This is statistics that the IBM Watson team put out; In 1900 the content available to mankind was doubling roughly every 100 years. By 2020 it will double every 11 hours. This is insane. The amount of content that would be at our disposal is being estimated at 44 Zetabytes. All of us have limited time available to us and the amount of content at our disposal is fast accelerating.

The consequence of limited time at our disposal is limited attention span. We want content that can be consumed quickly and without extending too much effort. Reading a well thought out piece forces us to think and understand; this is not primed for fast consumption.

How many of us have read the Iliad or Plato? How many of us have seen the latest trending video?

When you think of content that can be consumed without much effort, video ends up on top of the charts. Youtube is making money hand over fist, not by accident. Over the next 20 years, ‘text’ is going to move to the lowest rungs as far as content format go. Video is already moving up and this trend will gather pace in the coming years with formats such as Vine finding more and more traction.

Read the responses to this one… People know.

 

Advertising – A Boon or a Bane?

The other thing that is simultaneously destroying content is the fact that most of the income for content comes out of advertising. This implies – firstly, you need to make sure people arrive at the content (click-bait headline); secondly, you need to make the content super easy to consume (so they keep coming back and/or spend the next century clicking though the rest of the stuff). The more time they spend on the site, higher are the odds that they will click on an ad, at least by mistake. Most of what qualifies for this in entertainment and not analysis.

Given a choice between an 8000 word essay on a subject which would take 20 minutes to consumer; and a sequence of 15 videos of guys getting hit in their nuts; which would garner me more clicks and therefore more advertising revenue? The choice for the content creators is clear.

Advertising as a business model has done everything to destroy the quality of content. Thanks Google. Thanks Facebook.

 

Thanks to all this Music has gone to dogs

Songs have been a means though which emotions and stories were communicated. What makes a song beautiful is the poetry and the metaphors, which make several interpretations possible. It automatically implies that you must give it time to grow on you, for the interpretations to set in and for the songs to get internalised.

With the lack of time and attention, musicians are forced to produce music that is catchy and will hook you up soon. This also means that most songs do not have a soul. Most songs use a particular word repeatedly to get you to like the song.

Count the number of time the word ‘Hello’ is used by Adele in her song ‘Hello’.

Taylor Swift is popular not because a lot of college girls sit around listening to her, although that may be true. She is popular because she makes an attempt to tell a story. At the end of the day a song will stay with you if it connects with your soul. The issue with most of the songs written today is that they have no shelf-life, they are meant to grab attention.

Often I go back and listen to some of the songs I had been listening to a couple of years back because of their popularity and I am genuinely ashamed that I had considered them good. If you do not understand what I am talking about, check this link.

The low shelf life means nobody wants to own any music. Hence Streaming.

Take a great song from 20 years ago, you can still enjoy it. Not the same with a song which is 3 years old.

 

Everything is about Entertainment

The proliferation of content and the ad economy has resulted in what can be best described as the attention economy. In fact this article beautifully lays out, how scarcity has evolved from food, to land, to labor, to information, and now to attention.

Consequentially, the only thing anybody is vying for is attention. News reporting is going down the drain. The world has a lot of real problems to deal with, inequality, poverty, terrorism, climate change, etc. but all the news is about things that will be entertaining.

Why?

Ads.

The news has been a part of the entertainment industry for a fairly long time now. Look at what praying at the alter of entertainment has brought us – Donald Trump might be nominated to fight for presidency.

 

If this trend were to persist, and I have no reason to believe it would not, 100 years from now the classics that our great grand children will be reading would be some shit Kim Kardashian wrote (Or worse shot in her bedroom)!

Categories
General Thinking

What makes a business, a ‘Startup’?

All too often I come across young entrepreneurs, who are just starting a business through which they intend to hawk their skills. Starting a business does not necessarily make it a startup. It makes you an entrepreneur certainly, but not a startup.

Anybody, who engages in any kind of business is an entrepreneur but only a few among them can be deemed startups. I can’t go around saying, I have a startup just because I setup a Dhaba on NH7!

Unless… the business meets certain conditions; I shall list them below.

 

Attack a problem that has not already been solved

When you attack a problem that has not already been solved, you are creating a market for yourself. The kind of solution that you offer cannot be bought off the shelf and hence it makes the offering compelling.

I know web development and hence I started a web development company. Well, sure you did! But the problem with that is, you are not solving anything new, you are invariably going to compete with the many thousands of web development agencies that are out there already. You lack experience and most certainly the manpower that some of the more established peers have. From that point forward, it is an uphill climb. Besides, since this is a well-worn path, many entrepreneurs have tested and tried all kinds of permutations and combinations of selling the product or service. I do not deem such a business a startup.

Unless… you have found a way of doing the business differently.

 

Building a business model which breaks convention

Take a company like Uber; it is able to get into a business that is as old as the motor vehicle and able to find scale like no other business has been able to, till date. Many companies have tried  running a taxi business. Invariably the biggest problem with running the business successfully has been that the incentive of the owners and the drivers has been misaligned. This has meant that there is no global taxi business; until, Uber.

Uber used a mix of technology coupled with a business model, which is unlike any that existed till then. Most importantly, the company does not own any inventory of vehicles unlike every other cab business prior to it. They own the platform through which they are able to generate demand and they manage to match that with individual taxi owners who are able to deliver a standard product quality.

Uber is just one of the examples of how an old world business has found a new avatar through an innovative business model.

Examples of such companies include Airbnb, HotelsTonight, Google, Spotify, Pandora

The success of each of these businesses hinges on the fact that they did things differently. They changed the way the business was done in the past. Before Google, all search engines used to push the sponsored listing up on the search results without informing the users; precisely why the ‘Don’t be evil’ motto was coined. Spotify and Pandora changed how music was consumed and thereby changed how users pay for them as well. Airbnb changed the ad-hoc renting market forever; not only for home-owners who wished to rent out their houses/rooms as holiday accommodation but also for travellers who seek for cheaper stay options. Each of them have been able to change the way business used to be done, which brought them leadership role in the market and helped them get recognised.

 

Ability to grow across geographies and scale, providing exponential returns

Most of the businesses established prior to the onset of computers usually consisted of certain assets, which cost a lot to replicate across countries, which in turn slowed down the growth of the business. In the case of most startups, one of the defining features is that they are easy to replicate in different geographies and hence lead to rapid expansion across not only domestic but also international geographies. [Caveat: Certain problems are country specific and therefore cannot be scaled in a similar manner internationally]

In all of the cases mentioned above the companies were able to quickly spread the same model across boundaries and ensure rapid growth of their businesses. The increase in scale means exponential returns for any investment that has been made in such businesses.

Despite being restricted by copyrights, companies like Spotify and Pandora have been able to expand to tens of countries resulting in very high turnovers for them.

Scale is by far the greatest defining attribute of a startup. Companies that can cater to a relatively large market can scale continuously and therefore generate greater value for the investors in the long run by unlocking value in untapped markets. Squeezing more money out of the same set of customers often proves challenging and also results in companies acting in a manner which is seem to be contrary to the interests of the consumer.

 

These three attributes are by far, the most important for the business to be classified as a startup.