Startup School: Adjusting the course

17/05/2013  |  There are 2 Comments. Leave yours!

Last week we began a 15 week journey guided by Seth Godin. Here is chapter two and here are the rules: Listen to the podcast, have a think, read the blog post bellow (which is mainly transcriptions of what hit me the most) and join the conversation. All you need to do is put about 40 minutes every week.

Creating business plans though the glases of the connection economy

The connection economy is a bigger deal in terms of the economic history of the world than the industrial revolution.

If we were having a conference in 1918, and we would have people such as Taylor (talking about scientific management) and Ford (talking about mas production) in the room, and we would be describing how to use the techniques of mass production, mass marketing and industrialization to make a business it would seem just as hard as being at the present moment discussing how the rules of the connection economy can be used to create a business.

By using the principles of the connection economy you will have a business plan that will let you see a path to probably succeed more than not. But that’s the easy part. The hard part is following the path and doing what it takes to make it happen. You will have little support form those around you. You need to keep on trying, learn and readjust your course.

As discussed in the previous podcast, the biggest source of unhappiness is not being clear weather you will be a freelancer or an entrepreneur.

Consultants
“Consultants” are always freelancers. Real entrepreneurship has to be measured with this question: if the geniuses behind the business take 2 weeks off, the business keeps on running?

Now, if you choose to be a consultant you will use the common model: get paid by hour/day to tell people what they are wrong about and move on. Looking at this model closely to make it work:

  • Easy part: are you smart enough to give good advice?
  • Hard part: do people trust you enough to pay you to give them good advice?

A second model of consulting that could be the base for entrepreneurship as it’s scalable: I’ll give you advice, if it works, you’ll pay me. If it works, I’ll keep part of the profit. This starts to shift as you are not just a consultant, you begin to be a risk partner.

Then, it comes to what you want to build and how aligned is to what you want to be and how you want to live. What kind of impact your want to have in the universe? How big a rocket you want to build, and specially, why do you want to build it?

If there is a mist match, you’ll want to flee. If not, you will be happier and have a bigger chance to succeed. You can be the smartest and most educated in the world, but if the voice in the back of you head pushes you to avoid opportunities, you won’t go anywhere.

There’s a great story about writing the “Best of the Net” book vs. building up Yahoo. Just listen to it ;) What do you get from it?

Now, let’s go though a few questions that you will need to answer as you create your business plan:

First question – Who is it for?
First level of the answer: Nothing is for everyone. If you think it sis for everyone, start over.

Second question – What do they believe?
A group always has subgroups. In terms of world view. People that live e.g. in USA, many of them say when they woke up the time morning “I’ll go buy something, but I don’t know what it is” For them, “shopping” is a fun and enjoyable activity.

For other people in the world, they have never bought anything that their family has not overbought before. Their economies might be very small, and if they buy something they don’t need. fi they do that, things can go overly wrong. “Shopping” would be a very stressful experience. they want to make sure everything starts stable everything is the same

World view in smaller groups:

  1. There is group of Apple buyers that will buy the new product the same day. Because it makes them happy
  2. There’s other group that will buy it 4 weeks latter, because that makes them feel smart.
  3. And there is different group of people that will wait at least 6 months to buy, because it makes them feel smarter than the other 2 groups.
  4. These 3 are typical stories we tell ourselves.

After a presidential debate and 2 people will have different views. 1 will have the wrong impression of what just happened. The other person is sure he heard the right things, but the person herd something completely different. Not because it was on TV, but because of the stories we tell ourselves

If you think about the product or service you are offering, and the group or subgroup you are offering it to ask: what are the stories they are telling themselves?

Listen to the example of barefoot running shoes. What do you think? We need to be really clear who are we doing things for.

Third question – has the group I’m doing stuff forever spent money to buy something like this before?

If you are tying to sell to virgins, is a lot harder. Selling mattress is easier: there are 2 types of mattresses buyers.
Some people only buy a mattress when they have no choose
People who buy mattresses because will help the sleep better, and thus they will buy many mattresses in their lives. Is much easier to sell to the sec on group than someone that don’t see the value on getting a new mattress.

There are 3 types of revenues here:

  • the revenue of cash
  • the revenues of attention and trust
  • the revenue of referral

There are many businesses they need the revenue of attention and trust. Eg a TV channel or a content based website. You don’t pay them in cash, but you pay them with your attention and trust.

Fourth question: Does the subgroup you are doing stuff for know about you?
do they know you exist? is easier to buy to people that know about you than to people that never heard about you.

Fifth (and huge) question – If they know you, do they trust you?
Sometimes getting people hearing about you is hard.. but building the trust is the much much harder. Always think: if a stranger comes to my shop, website or wherever I can welcome them to, how do they know they can trust me?

Back to revenue, and still on the value of trust:

BTB vs BTC: Selling to a business is the same as selling to a person ,except they are using someone else’s money and they are not trying to please themselves, they are trig to please their boss. A business purchaser asks usually is not “will this improve my profitability?”, but they tend to ask “will this make my boss happy” (and that’s why you need a good leader of course;) boss being happy = stuff that makes sense for the people in the organisation and makes it profitable).

So usually a business buyer will rather buy something for a brand who has a big sense of trust attached to it, because that wail the boss will be happier, in contrast of buying something form someone they have never heard of. The story they tell to their boss is actually what they are buying when they buy something from you.

In the connection economy, you need to think about the value your business creates. there are a lot of business models. Here Seth mentions the book Business model generation: A Handbook for Visionaries, Game Changers and Challengers. It turns out the book is just a component of a connection economy based model itself as you can see here if you analyse it though the glasses of this post. Take a look after you have finished the podcast. And they have built a iPad app as well called Strategyser.

  • The industrial model of value creation is: Here is a widget, you should buy it from me. The widget cost is 29 dollars, if is worth 30 to you, you should buy it. The company makes a product, offers it to you (probably using a middle man), you both it. End.
  • The connection model of value creation: there are many business models that exist to connect one person to other person. That’s a fundamentally different thing. In Facebook you don’t’ way ago hear from Mark Zuckerberg or the advertisers.

Latter on the podcast series Seth will go into the importance of connecting people with one another, by for example crating events when your subgroups can interact, and how this is part of a very seductive and powerful business because that’s what’s missing: people is lonely in business settings and they are lonely on personal settings. If you run a trade show, people will not come to hear from you, they are coming to hear from each other. Building those connections becomes really powerful.

Are you trying to connect one customer to what you make, or are you trying to connect one kind of customer to another kind of customer? Eg. Google:

  • if you are a human being, come here to find stuff in the internet
  • if you are and advertiser and want to reach human beings, come here to reach human beings.

And both sides are very happy with the deal. In terms of business model, Google has crated a bridge between one kind of customer (the surfer) and the other rind of customer (the advertiser).

Smaller example: You could be a broker between philanthropists and charities.
You tell the philanthropists: I am only going to represent a dozen of you. You need someone you trust to be a middleman. I’ll take care of the 12 of you and you will get to meet each other and interact. and I’ll handpick the charities that want to come and meet you.

You create value by connecting the 2 subgroups: charities needs philanthropists, and philanthropists need charities.

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