Traits of unique business models

Alex Osterwalder, with his Business Model Canvas, made the world realize the significance of thinking through the business model of an organization. The nine building blocks, suggested by him are so simple to understand at the first glimpse, that they sound like common sense. However, when you sit down to answer the questions that Osterwalder raises in each of those blocks, the profundity of it all strikes and you realize how little you have thought of your business model all these years that you have been in business. That’s the time when you feel, ‘How mindlessly I have been running my company? Had I thought of these simple-looking questions earlier, my company would have been in a different trajectory, five years back.” Mind you, this feeling is not restricted to a start-up founder, it equally captures the thought process of honchos at large corporations too.

One strong realization that Osterwalder’s canvas has left the business world with is, “You don’t need breakthrough technology or products to capture market share, you only need ingenuous ways of doing business, be it creating new revenue streams, creative collaborations or unique relationships with your customers.”

With this realization, about three years ago, I began to look at businesses (small and large) which DID NOT HAVE ANY BREAKTHROUGH TECHNOLOGIES OR PRODUCTS yet commanded good customer traction. As I came across more and more such businesses, I started seeing some typical traits that these businesses displayed. In this interesting exploration, I was joined by some of my enthusiastic students viz. Tanvi Raorane, Meet Ganatra, Priyal Kumar, Zoya Versey & Anirudh Naik who helped me identify more such companies. Tanvi helped lend a much deeper focus to the study with the analysis.

Our quest spanned ninety companies functioning across all continents. The focus, as mentioned earlier, was not on companies with blockbuster technology or products, but on companies that went around doing their business differently, i.e. companies offering regular products or services but doing so in extremely unique ways. We looked at companies from multiple sectors ranging from RETAIL, HOSPITALITY, FMCG, MOBILITY, EDUCATION, FASHION, RECRUTING, ENTRERTAINMENT to NGOs. Here are the traits:

Traits of Unique Business Models

Use of technology as an enabler was a major driving force behind the functioning of these companies. Almost all these companies made great use of technology (web and mobile platforms) to entice consumers, network with vendors and service providers, promote their wares, optimize costs etc.

Claiming that ‘Use of Technology’ is a unique trait is a no-brainer. Any business, worth its salt, today, is using it.

However, following are some interesting findings that we stumbled upon as a result of this study (for each trait, I have listed out an example or two in the following text).

1.   Double Whammy: Milking both ends of the value chain, i.e. making money from the consumers as well as the service providers.

Hair styling salons, by Jawed Habib Hair & Beauty Ltd, with its brand of Hair Xpresso outlets, offer the Indian youth designer haircuts at an extremely affordable price (beginning as low as Rs.99). All the stylists employed at these outlets are trained at and certified by Jawed Habib’s Hair Academy. The company charges these trainees a regular training fee and these trainees, in turn, get to hone their newly acquired skills on paying customers. In effect, the company makes money from consumers as well as the suppliers (in this case the trainees), i.e. from both ends of the value chain.

2.   Monetising a Non-Value-Adding activity (NVA): Identifying an activity or an asset that is idle and using it as a platform to enable a service provider to reach out to its customer base.

Cashurdrive Marketing Pvt. Ltd.is a creative media company, based out of New Delhi that offers innovative media solutions. ‘Vehicle wraps’ is one such solution that they offer to advertisers. They register car owners who are willing to let the outer shell of their car be used for putting up advertisements of various companies. The registered car owners get a monthly/ quarterly/ annual fee in return which subsidizes their loan EMI.                                    What has this company done here?  Simply put, they identified a Non-Value-Adding asset (the outer shell of one’s car) which is a great advertising space 24x7x365 and created a revenue stream for themselves as well as the car owner.

Duty Free Shoppingon long haul flights. Once a passenger boards an aircraft for a flight that is longer than five hours duration, she/he first figures out ways in which to spend that time productively and more importantly, without getting bored. Retailers identified this platform as a means to peddle their wares to bored passengers long back. In effect, they identified a non-value adding activity (in this case idle time of the passenger) and pushed sales through.

3.   Aggregating a fragmented market to create freebies for consumers: Many a time, demand for a product or service is catered to by multiple unconnected business entities, i.e. the supply of that product/service is catered to by multiple vendors spread all over. One can create a platform where the entire demand for a product/service is aggregated and serviced. Consumers availing this service can encash their discount coupons at selected vendors.

www.phokatcopy.comis one such service which enables students get their photocopying free of cost. What? Free of cost? Yes, absolutely free of cost. HERE’S HOW? They have tied up with various Photocopy vendors, who give a scratch card for every 20 photocopies that students buy from them )The vendors do not give any discount on their service). This scratch card has a unique PIN number, which when entered onto www.phokatcopy.com generates redeemable discount coupons that can be encashed for an equivalent amount with mobile service providers for buying talk time. The company has aggregated the fragmented demand across various photocopying outlets with the help of technology and directed that traffic to their own web & mobile platforms. Thus creating a revenue stream for themselves (commission from mobile service providers who benefit from the traffic). Another revenue source is banner advertisements on their web & mobile platforms.

Freecharge.in is India’s leading online service for prepaid mobile charges, post-paid mobile payments, DTH and online data cards. When a user makes a payment through www.freecharge.in she/he gets equal value rewards, offers and benefits that can be encashed at multiple outlets across the country. Freecharge has directed users to its web and mobile platform by effectively incentivizing them through encashable reward points. Earlier, all these users would go to various different vendors to pay their prepaid rentals or to the mobile service providers’ galleries to make their payments. Freecharge aggregated all this fragmented supply onto their webportal by incentivising the visit to the portal. Freecharge’s business is not just collecting payments on behalf of other service providers but also connecting with establishments across various categories such as food, travel, e-commerce, travel, lifestyle etc. where people spend money. And people use www.freecharge.in because of the encashable reward points they can use at various outlets.

4.   Zero Inventory: Eliminating the need to hold inventory by connecting the supplier directly to the customer. We observed smart companies reduce their inventory holding costs to a virtual zero in many ways. Prominent among these methods are the following two (we are not considering the marketplace model, pioneered by eBay, that eliminates the need of holding inventory by connecting buyer & seller using the internet, because there’s nothing new in it today):

a.    Utilizing & monetizing NVAs (Non-Value-Adding assets): We have discussed this concept earlier. However, companies like UBER and Airbnb have taken it to galactic proportions. Uber helps cab owners to monetize their idle time by providing customers using a real-time geo-tagging platform. A study claims that cabbies and cab rental companies used to face around 35-40% idle time (obviously an NVA) earlier. Cab aggregators like Uber have been instrumental in reducing that idle time by a few percentage points. It’s a win-win situation for both the cab aggregator as well as the cab owner. Airbnb too, does much the similar thing for people wanting make an extra buck with the extra room (an NVA) in their house.

A thing to note here is that, both these models are aggregating a fragmented demand and supply situations onto one platform using technology.

b.   Creating virtual shortages via ambush sales: An American internet portal, Woot offers a unique deal every single day. And the deal ends every midnight (US central time). The deal changes at midnight every day. So invariably, people buy out that item during the day at a pace that keeps the sound of the cash registers at Woot sweet throughout the year. At midnight, every single day, Woot is left with practically no inventory. Cash flows (which kill other retailers) must never be a worry for Woot. Xiaomi, with it’s now famous ‘one-hour only’ sales window, too achieves the same result as Woot, although Xiaomi, being a manufacturer cannot run away from holding inventory required for manufacturing but much lesser than a Samsung, Apple etc. Moreover, by keeping the time window small, the advertising rates for banner ads on these sites for those hours fetch a whopping multiple by way of advertising premium.

5.   Pay for how much you use and not just ‘Pay per use’. SAAS (Software as a Service) is now a thing of the past, where you pay for only the module that you use from the cloud. However, within the module too, one may not use a lot many features, but still one has to pay for it. ‘Pay for what you use’ lets you pay for exactly how much you use.

Samoan Air, charges you by weight and not per seat. Their online booking page says, “Give us your weight… within a kilo or two would be fine, then tell us how much baggage you want to take, you can take as many bags as you like but just give us the intended total of your baggage in kilos (a kilo is 2.2 pounds). We or the system will add all of this together and charge by the kilo against the sector fare which is always in our local currency (the Samoan Tala) and that is your total airfare… simple”. What have they done here? They have told us that they would charge us exactly on the basis of how much we use.

6.   Crowdsourcing: Getting people involved into the company’s effort, be it content, ideas, services or contributions. Crowdsourcing is common knowledge and everybody has been talking about it, however, on delving a little deeper, we figured out some specific triggers that make crowdsourcing tick. Companies basing their businesses on crowdsourcing tend to predominantly adopt the following three principles:

a.    An appeal to the Good Samaritan: A few organizations focus on appealing to the innate goodness in human beings by which they want to help out. Mind you, these are not NGOs or charitable organisations, they are self-sustainable business entities. Kickstarter, a New York based company’s stated mission is to help bring creative projects to life. Kickstarter has reportedly received more than $1.5 billion in pledges from 7.8 million backers to fund 200,000 creative projects, such as films, music, stage shows, comics, journalism, video games, and food-related projects. Seva Café , with outlets across a few metros of India, does not charge you for a meal. Their motto reads, “Your meal was a gift from someone who came before you. To keep the chain of gifts alive, we invite you to pay it forward for those dine after you." It is operated by modest a staff and a number of volunteers helping out. The entire profit is used to support social service projects. Peer to peer generosity is a great principle to base an organization on.

b.   Connecting people with similar issues: People who face similar problems can empathize best with each other and share a lot of relevant information. www.patientslikeme.com is one such company. Patients suffering from all kinds of diseases come to the website and write about their experiences with medicines, treatments, symptoms, reliefs etc. All of this data is collated, analysed and shared with institutions (such as pharmaceutical companies, associations of health practitioners/ care givers etc.) that benefit from the findings. A lot of unknown information comes out through this sharing and helps fuel pharmaceutical research. Patientslikeme is a ‘For Profit’ company but not a ‘Just For Profit’ one.

c.    Challenging the competitive instinct innate to all of us: Announcing competitions that challenge people or making people play challenging games. LEGO,  the legendary Danish company, recently challenged users to upload anything new that they created using their LEGO sets. By doing so, they challenged the creativity of users and got a host of new designs that they could promote thenceforth. Their sales increased substantially.

7.   Fractional Ownership: An expensive product is sold not to a single individual but to group of buyers.

Netjets lets the well-heeled own an aircraft at a fraction of the cost. They provide the user the luxury of a private aircraft at an annual fee. A Netjets ‘owner’ can plan a last minute trip without having to depend on the schedule of a commercial airline. Netjets provides her/him with an aircraft to and for the destination of his choice (from a wide-ranging list covered by them). This is an ideal offering for owners of medium scale businesses, who cannot yet afford a private aircraft of her/his own but is also too busy to waste time being dependent on the schedules of commercial airlines.

8.   Bridging the trust deficit between the buyer and the seller: A buyer, inherently distrusts a seller. There is always a feeling, in the buyer’s mind, that the seller is going to cheat her/him in some way.

Flipkart, the largest Indian e-retailer, in its early years, realized that the Indian consumer found it intimidating to swipe a credit card online for a purchase. ‘What if I paid in advance with my credit card and the delivery never came?’ was the usual refrain in buying online. Flipkart was quick to realize this and about three years back in 2011 launched their ‘Cash on delivery’ scheme, which meant that the buyer could pay the courier delivery person when the purchased item reached the buyer’s destination. This addressed the insecurity of having to swipe a credit card online. What Flipkart managed to do with this simple gesture was to bridge the trust deficit and its stock has been rising exponentially.

So, figuring out ways in which to bridge the trust deficit is a good tenet to base your business model on.

9.   Buyer becomes the Seller: The customer is turned into a distributor of the company. Multi-level Marketing, in other words.

Tupperware is the first known exponent of this technique. By creating a margin-sharing cost structure, many a business has done away with the costliest component of the value chain, the retailer. By turning the users into distributors themselves, the company fuels the entrepreneurial instinct in people, without having to take the risks associated with entrepreneurship. 

10. Giving talent a platform: Giving upcoming talent the exposure that they seek and then monetize the outcome.

Youtube lets anybody create a channel of her/his own and via that channel, the person can upload any kind of content, be it an AV by a musician or a intense monologue by a wannabe actor or a short documentary by a budding director or a lecture by a spiritual guru. If the content is good, people follow these channels in large numbers and Youtube rakes in advertising dollars by monetizing their presence.

Quirky, based out of New York is an online community of inventors. Anyone can submit her/his idea on their portal. Everyone in the community votes online for or against the ideas received. Every Thursday, a group of industry experts and community members meet at the head quarters to debate on the ideas submitted and choose the best one that they would work on. The community gets to choose the features of the ideas chosen too. Quirky, then gets the product manufactured through its network of vendors using state-of-the-art processes. Once the product is made, then Quirky helps sell the product too. What Quirky gets is a small cut on every sale made. Quirky proudly says, “In the end, the world has access to an invention that wouldn't have existed”. In other words, it has given talent a platform and monetized the outcome.

11. Encouraging eco-friendly behavior: By giving an eco-friendly angle to their operations, many companies have ensured a loyal consumer base.

Peddler’s Creamery, is a Los Angeles-based company. Customers Churn their own ice cream using a bicycle. One goes into a café and orders an ice cream and can ride a stationary bicycle to spin the ice cream. People visit the place out of sheer curiosity and get hooked.

Teracycle, recycles packaging and products made out of non-recyclable products and converts them into affordable and usable ones.

All the above mentioned attributes are such that a business model could be based on. Some companies used more than one of the above principles in their operations. However, to capitalize on any of them, the business has to build Creative Partnerships with many other businesses to be successful, e.g. www.phokatcopy.com would not be successful if it did not collaborate with mobile service providers such as Airtel, Vodafone etc. Quirky would not be successful if it did not collaborate with manufacturers and retailers to help take ideas to fruition.

Conclusion: We have listed out only those traits that we felt were unique and could make as much sense to a young entrepreneur nurturing a startup as it would for a business head of a large corporation looking for the next big leap in market share. As you would have noticed, none of the above cited examples are of breakthrough products. They are all about figuring out different ways of reaching consumers via new channels, collaborating within the value chain and engaging with the user in unique ways.