Business Model: "CASH MACHINE"

?? PRICING MODEL pattern ??

Prologue

The Cash Machine business model is a powerful strategy that leverages negative working capital to generate additional liquidity and fuel growth. This innovative approach focuses on optimizing the cash conversion cycle by collecting revenue faster than paying suppliers, creating a financial advantage that can be used for various purposes, including debt reduction and new investments.

?? Key Takeaways

1. Negative Cash Conversion Cycle: The core of the Cash Machine model is achieving a negative cash conversion cycle, where revenue is generated faster than payments to suppliers are due. Collect revenue before paying suppliers Generate additional liquidity for growth or debt reduction
2. Supplier Relationships: Negotiating favorable payment terms with suppliers is crucial for implementing this model successfully. Secure generous payment terms from suppliers Maintain strong relationships to sustain favorable conditions
3. Customer Payment Terms: Ensuring prompt payment from customers is essential to maintain the negative cash conversion cycle. Implement efficient billing and collection processes Offer incentives for early or upfront payments
4. Inventory Management: Minimizing inventory holding time through strategies like build-to-order can significantly improve the cash conversion cycle. Adopt just-in-time inventory practices Implement efficient order fulfillment processes
5. Industry Applicability: The Cash Machine model is particularly effective in industries with high inventory turnover and strong bargaining power with suppliers. Ideal for e-commerce and technology sectors Can be adapted to various industries with proper strategies

?? Implementation

To successfully implement the Cash Machine business model:

1. Analyze and optimize the cash conversion cycle
2. Negotiate favorable payment terms with suppliers
3. Implement efficient inventory management systems
4. Develop strategies for prompt customer payments
5. Continuously monitor and adjust financial processes

?? Questions to guide you

• How can you make a build-to-order process beneficial to the customer?
• Is it possible to renegotiate contracts with suppliers? Can we effectively pay suppliers only after receiving payments from our customers?
• What benefits can we create for the customer by establishing a build-to-order process?
• Will we be able to renegotiate contracts with suppliers?
• Is it possible for us to postpone finishing our products and services until they have been paid for?
• How would XYZ company manage our business?

?? Real-world examples of successful implementation include:

• Dell: Pioneered the build-to-order strategy in the computer industry, achieving a negative cash conversion cycle.
• Amazon: Maintains a negative cash conversion cycle through rapid inventory turnover and negotiated supplier terms.
• PayPal: Utilizes upfront fees and float interest to generate liquidity before settling transactions.
• Zara: Fast fashion retailer known for its quick inventory turnover and efficient supply chain management.
• Walmart: Leverages its size to negotiate favorable supplier terms and maintain a negative cash conversion cycle.

???? Japanese Companies (Implementing Cash Machine Model)

1. Fast Retailing Co., Ltd. (Uniqlo) Fast Retailing (株式会社ファーストリテイリング): The parent company of Uniqlo, is known for its efficient inventory management and fast-fashion business model. Their approach to inventory turnover and supplier relationships suggests they may be utilizing aspects of the Cash Machine model
2. Rakuten Group, Inc. (楽天グループ株式会社): As a major e-commerce platform, Rakuten likely benefits from collecting payments from customers before paying suppliers, a key aspect of the Cash Machine model
3. Seven & i Holdings Co., Ltd. (株式会社セブン&アイ?ホールディングス): The parent company of 7-Eleven stores in Japan and other retail chains may employ this model in their convenience store operations, where inventory turnover is high and customer payments are immediate
4. Nitori Holdings Co., Ltd. (ニトリホールディングス): This furniture and home goods retailer is known for its efficient operations and may utilize aspects of the Cash Machine model in its business practices

Other Companies (in Asia)

1. Alibaba Group Holding Limited (China): As one of the world's largest e-commerce companies, Alibaba likely benefits from a negative cash conversion cycle in many of its operations
2. JD.com, Inc. (China): Another major e-commerce player in China, JD.com's business model suggests it may employ Cash Machine strategies
3. Sea Ltd. (Singapore): The parent company of Shopee, a major e-commerce platform in Southeast Asia, likely utilizes aspects of the Cash Machine model in its operations

?? Challenges to Implementation

• Negotiating and maintaining favorable supplier terms
• Ensuring consistent and prompt customer payments
• Managing inventory efficiently to minimize holding costs
• Balancing growth with financial stability
• Adapting the model to different industries and market conditions

?? Bottom Line

The Cash Machine business model offers a powerful strategy for companies to generate additional liquidity and fuel growth without relying heavily on external financing. By optimizing the cash conversion cycle through efficient inventory management, favorable supplier terms, and prompt customer payments, businesses can create a self-sustaining financial engine.

This model is particularly effective in industries with high inventory turnover and strong supplier relationships. However, successful implementation requires careful management of supplier and customer relationships, as well as robust financial processes. For startups and established businesses alike, the Cash Machine model presents an opportunity to improve financial performance, reduce reliance on external capital, and gain a competitive edge in the market.

PROFESSIONAL: I conduct academic research by interviewing CEOs of small and medium-sized businesses (SMEs) in Japan, known as Japanese Global Niche Top (aka "Hidden Champion").

• I am also conducting a holistic four-year study that examines the growing entrepreneurial ecosystem in Japan, which includes interviews with startups, incubators, accelerators, studios, living labs, venture capitalists, and government officials (to date, individuals have been interviewed in Tokyo, Osaka, Kyoto, and Hiroshima).

PERSONAL: I am a polymath and love all types of topics typically reading 2-3 books each week. Now, I have a chance to share my insights with readers!

References

Afuah, A. (2014). Business model innovation: concepts, analysis, and cases. routledge.

Gassmann, O., & Frankenberger, K. (2014). The Business Model Navigator ePub eBook: The Business Model Navigator: 55 Models That Will Revolutionise Your Business. Pearson UK.

Kraemer, K. L., Dedrick, J., & Yamashiro, S. (2000). Refining and extending the business model with information technology: Dell Computer Corporation. The Information Society, 16(1), 5-21.

Mullins, J., & Komisar, R. (2009). Getting to plan B: Breaking through to a better business model. Harvard Business Press.

Zhu, A. (2020). Business Plan for a type of cash machine to the rental bike and scooter companies. The Frontiers of Society, Science and Technology, 2(14).

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