Asset-light business model is the key to success for start-ups
Asset-light business model is the ket to success for most start-ups. Around eighty percent of new businesses fail not because of a bad idea but because of choosing the wrong business model. They start with high fixed costs and no revenue. At the core of this bad implementation lies the ill-conceived notion that a heavily invested business would generate high revenues. Some have flourished, but most have floundered. People give too much concentration on acquiring operational resources for the company. But not enough gets done on generating at least break-even revenue. This has resulted in a majority of start-up flops.
Well, it doesn’t have to be that way. There is still hope for entrepreneurs. Seasoned business people have extolled the virtue of starting small with zero assets and leveraging the enormous power of technology. Put it another way, it means adopting an asset-light business model at the very early stage of the company.
At the Berkshire Hathaway Annual Shareholders Meeting held in April 2016, Warren Buffett commented that asset-light businesses are the ideal investment opportunities. They generated significant cash flow by investing in some asset-light businesses in the early years of the company. At the heart of today’s most successful start-ups lies the emergence of asset-light business model empowered by deep-pocket private investors who are disappointed by the returns from other investments. The business model helps companies exploit new revenue opportunities faster than more mature and established firms. On closer inspection, it is not hard to find some common traits and features of several new generation businesses.
The disruptive trend towards asset-light business model has bolstered the bullishness of Uber’s investors. The model has enabled its strategy of growth over the pursuit of profits because of the lower cost of expansion. Uber does not own or maintain any vehicles because it uses the gig economy for its survival.
What started off as a simple online business in 2008 selling flip-flops from a Berlin flat has developed into large e-commerce selling goods to 15 countries. Zalando sales revenue is rising by around 15% a year. Guess their business. Selling other brands through the Internet. Surely, the asset-light approach is nimble and sustainable.
One of the ways to adopt an asset-light business model is through outsourcing as Wendy’s has done. It has reduced capital and the amount of real estate they own and managed through franchising their American outlets. Many fast food giants have followed suit and have taken advantage of such scalability.
Capital equipment OEMs
Most OEMs have transferred the task of designing and manufacturing the systems and subsystems to suppliers as new parts sold by vendors are replacing certain obsolete ones thereby passing on the operational complexities and costs associated with producing them using the capital-intensive equipment.
An innovative business model whereby partnering with existing hotels and getting a percentage of commission from them has made OYO Rooms a huge success. The brand owns hotels without having to build them from scratch thus resulting in huge savings, less risk, and exponential growth path.
From homegrown online start-up to an e-commerce giant Snapdeal has managed to garner a huge customer base just by leveraging technology. The Internet has made it possible to reach a wider range of market than ever before with lower asset requirements. In just over five years it has managed to achieve a valuation of USD 5 billion making it attractive to future investors.
Accor group of chain hotels and InterContinental hotel franchises some outlets to other hotel operators. They manage but not own some others. Only a minority of the outfits is owned or leased by the companies. Here the bricks-and-mortar is the property of someone else. Similarly, Marriott owns only a tiny fraction of the hotels that bear its brands.
Utilization and not the acquisition of aircraft is key to stellar returns in the aviation industry. Lan flights use their aircraft to service both passengers and cargo. Likewise, DHL and Cathay Pacific share aircraft for their cargo and passenger routes respectively enjoying the advantages of increased utilization of their capital intensive wide-bodied aircraft.
Types of asset-light business models
Boston Consulting Group points out the most common types of asset-light business models based on the sources of differentiation. They are outsourcing, asset-sharing, licensing in, and licensing out. Inherently these models help companies to keep costs low, diversify risks, and to branch out into new markets. Companies outsource the supporting systems so that they can free up their resources and concentrate on their core business. Similarly, asset-sharing helps in lowering operational and labor costs. Licensing in and licensing out has helped companies to foster valuable strategic alliances in a cost-effective manner.
Lessons for start-ups
It is only natural for a wide-eyed entrepreneur to get overwhelmed and intimidated by the sheer enormity of all these successful businesses. But they all started off with zero capital. All they had was the founder’s drive. Their success lay in adopting an asset-light business model that had virtually no cost and was easy to exit in case the business failed. An asset-light business model start-up company to be successful and to have the edge over others in the market should have the following essential qualities:
- Start with the potential for future growth by paying attention to the market demands
- Do strive for a wider and deeper reach of the target market to achieve quick scalability
- Follow the trends consistently and continuously for long-term business sustainability
- Invest in cutting-edge technology such as software, systems, and subsystems
- Take fewer risks i.e. less capital-intensive investment, equipment, and real assets
- Explore cost-effective measures such as sharing resources with other entrepreneurs
The growth path of traditional old businesses was linear which implies that it took a considerable amount of time to expand the business sometimes even took the founding entrepreneur’s lifetime to achieve the desired scalability and financial success. An asset-light business start-up, on the other hand, can grow exponentially bypassing many of the life cycles of a traditional business by adopting an asset-light model enabled by modern technology. Today advanced e-commerce software has made it possible for companies to find success with a mere fraction of the cost and time.
Photo Credit: Suhyeon Choi
What is the best way to communicate new campaigns to the salesforce? Traditionally there has been a constant tension between sales and marketing. The tension escalates when the marketing department designs a campaign to increase the sales of a particular product or a season without the input of the sales staff. Often the person in charge of marketing campaigns senses a disconnect between the marketing team and Sales team. Successful marketing cannot happen in a silo. It has to happen with the buy-in from the Sales team. Happy salespeople build lasting customer connections. Today, there is an urgent need to converge both the sales and marketing teams together to accomplish the desired results. The Marketing leader can adopt some proven methods to get the group to own the campaign.
Engage Sales early
If the Sales team is accountable for the success of a particular project or campaign, gain their buy-in early. Not after the campaign launch. The sales team are constantly in touch with the customers on a regular basis. Hence they can be a valuable source of strategic as well as tactical input. They can also drive creative thinking. Bring the sales force early on. It can be the most efficient strategy to find out how the target market will respond to the marketing campaign. Perfect the campaign at the initial stage itself with advice from the sales department. Then during the campaign, not much tweaking would be required.
Demystify the clutter
As a marketer, it is important to explain to the sales representatives the mechanics involved in the campaigns. Avoid using jargon as far as possible as it would only add to the confusion. Make it easy for them to implement the campaign. Telling a compelling story, pointing the team to an important thought leader in the field, and illustrating it with a diagram are all tactics that can help the team better understand the objectives that the campaign is meant to achieve. A better-informed sales rep does a better job in supporting the marketing team in their campaigns.
Address the pain points promptly
Before launching a new campaign, the sales team goes through a learning curve. The duration of the learning time differs from one person to another depending on their learning propensity. Marketers should work hand in hand with the sales team to identify the pain points involved and address them in real time. Sometimes the team has a good understanding of the process. However, they waste an enormous amount of time during each step of the process that would ideally take a far lesser amount of time. This wastage of time should also be addressed using automated workflows, educational slide decks, and if needed by installing an internal CRM software.
Show them what’s in it for them
Each team member in the sales department is different. So are the personal aims. Meet with each to find out what they are and relate the corporate goals to each person’s goals. Show them how the management can help them achieve these aims by accomplishing the company goals. After that, let them know that the communication lines are open to deal with any concerns, complaints, and ideas they may have as they go along. Give them the necessary training and tools required to roll out the campaign successfully. The sales team will then start feeling encouraged and motivated to be on the side of marketing.
Make sure the campaign tasks assigned to each member of the team play to their strengths. There is nothing more inefficient than putting people in mismatching tasks. People love to do those tasks that they are good at doing. It motivates them and keeps them productive. Then set measurable goals consensually and hold them accountable as agreed. Allow them to have a say in the improvisation process going forward. Paint the bigger picture and remind them why it matters to the company as a whole and how their personal goals and career advancement fit into the grand scheme of things.
Keep the team informed with regular updates
Keep the sales members regularly informed about the progress of the campaign through daily briefings, staff meetings, newsletters, etc. the staff will then start to see results as and when they happen and will feel valued by the management for their contribution. If there are any areas of the campaign that needs catching up, this will help the team come up with ways to bring the campaign back on the trail and forward. The methods thus suggested can also make their jobs much easier while enabling them to spend their valuable time on closing deals with qualified leads.
In larger corporations, it is a common practice to find task force teams set up around projects. Each of them would consist of 5 to7 members whose mandate it is to recommend ideas around an issue. The entire team agrees that they would strictly adhere to the recommendations thus made. In most cases, this arrangement has produced phenomenal results.
Companies launch marketing campaigns and promotions in response to varying market trends and consumer tastes. It is often the key responsibility area of a high-level Marketing Director or Business Development Manager who have a say in designing the campaign. Doing so without the input or feedback of the salespeople is doomed to failure. It is imperative to get the buy-in of the people who sell the products to the end-users. The success of the campaign, thus, to a large extent depends on including the salespeople in the decision-making process.
Photo Credit: Olu Eletu
Three Fs for Writing a Business Plan
Writing a real business plan comes innately only to a few. And that too after much skill. Those few may have chosen it as a career. Sometimes people in the academe write them for firms to earn a living. While the task is a chore to many for beginners it is a complete riddle. Start-ups find themselves compelled to write one for various reasons. The most common reason among them is to raise funds. People also write such plans for private investors. The aim then to get them to invest money in the firm. Another motive is to raise the stake in the firm. Also, entrepreneurs write them while seeking for new business. Even to sell the firm. Not knowing how to write one can be a nightmare. Here we give you a practical approach. We hope it can serve as a basic guideline.
Writing a real business plan comes innately only to a few. And that too after much skill. Those few may have chosen it as a career. Sometimes people in the academe write them for firms to earn a living. Even to sell the firm. Here we give you a practical approach.
Many people fail in their attempts to sit down and write a business plan. Because they face starting problems. An outline can help in overcoming the problem. Outlining involves jotting down what to write. Bear in mind the purpose of drafting the plan. Write as if you are talking to the target reader. In addition, think about who would be reading it. And draft an outline of what kind of info or data to include in it. Start writing the business plan section by section. This way provides a unified and logical flow to the rest of the content. It then becomes easier to arrange facts. Then start compiling them in a clear manner. Such a framework would appeal to the right audience.
Many people fail in their attempts to sit down and write a business plan. Because they face starting problems. An outline can help in overcoming the problem.
This stage is known as mapping scheme because it involves forming the exact order of sections. Delve deeper and write each area concisely for greater clarity. Planning stage is the muscles and flesh. It makes the content rich. Well, the target reader should find solid evidence of the business plan here. It would also enforce the standing of the plan. A few writing skills are needed here to make the concepts and ideas compelling.
This stage is known as mapping scheme because it involves forming the exact order of sections. Also called planning stage. Planning stage is the muscles and flesh. It makes the content rich. Well, the target reader should find solid evidence of the business plan here.
The draft is still rough at this stage as it needs some final touches. The next step is to edit it from top to bottom. Editing gives coherence and a smooth flow to the arguments expressed in the business plan. People write business plans to make a case. Hence it needs winning power. Repeat the main points throughout the document. For more emphasis furnish it with facts and figures. Make sure to use logic. Reasoning backed by information that was stated earlier in the plan can make arguments clearer. Edit the business plan further by paying attention to the smallest details. Fine-tuning the business plan in a detail oriented manner increases the readability of the document. If possible, let a third person review it for further refinement.
People write business plans to make a case. Hence it needs winning power.
A universally accepted and a regular business plan template is as follows:
- Executive Summary: Executive summary is the most important part of a business plan. Ideally it highlights the strengths of the company. This part briefs the reader the competitive advantage of the business. Briefly summarize why you have the best business idea. It is a snapshot statement of the program of activities as a whole. It touches on the company profile and typically runs from 3 to 4 pages in length.
- Company Overview: It should start by providing a brief history of the group ownership. It then goes on to describe the organization of the enterprise. A timeline as to when the business was founded is equally important. Information such as locations and facilities should also be included. Add the names of the key members of the management team. Profiling their backgrounds is an indicator of a well-thought-out business plan too.
- Industry Analysis: This section requires substantial research. It gives an understanding of the external factors of the playing field and how the company responds to them. Explain what the cyclical changes are, profit opportunities, and how the company fits into the industry.
- Market Analysis: The objective of market analysis is to provide a quantitative and qualitative assessment of the market. Such facts as demographics, segmentation, and market need are highly sought out by savvy investors. Market value, size, and regulation shows the investors that the business is lucrative enough.
- Competitive Analysis: Identify the competitors’ strengths and weaknesses. A distinct advantage of the firm over the competition is a prerequisite for a business plan. The unique competitive strategies will set the company apart from others. Discuss here, if any, any barriers to entry and exit into the market.
- Customer Analysis: This is a critical section that defines the characteristics of the target customer. Usually the characteristics are explained through their buying criteria and how the product typically satisfies their needs. Include also an in-depth analysis of the growth of the customer base, their average revenues, and service delivery model.
- Marketing Agenda: Emphasize the unique selling proposition of the business in this section. Along with that the pricing and positioning strategy and distribution plan should also be included. A marketing plan that outlines the steps taken to retain existing customers or gain new customers will add credibility.
- Strategy and Implementation: Insert in this segment a detailed plan of the marketing strategy and its implementation. It typically articulates how the company’s management intends to reach the products to the market. It includes the sales strategy, personnel hire, promotions and advertisement, distribution outlets, pricing, service delivery, guarantee policies and the like. Emphasis would be on past sales and a sales forecast.
- Organization and Management: Highlight who does what and their added value to the company. It is a simple but effective way to portray an organizational chart with a narrative. This section would reassure the investor that the people onboard are more than names on the organizational diagram.
- Financial Plan: Most investors are visuals. So, set up a spreadsheet with the past sales, sales forecast, and expense budget. It is also a good idea to incorporate a cash flow statement, assets, and liabilities. Some investors may require a breakeven analysis and the cost of doing business. A business planning software can be an invaluable help here.
- Appendix: In general, this section holds the entire supporting documents. All that information that was too large to be included in the main body should go in here. Any figures, statistics, charts, graphs and illustrations that augment the main points in the body must be in this section.
3F plan provides a systematic and practical approach to preparing a business plan. It has been proven to bring success to budding entrepreneurs. Bear in mind to also study the target readers. And finally tweak the plan. Stress those areas that would appeal to them. Good luck!
Title Photo Credit: Helloquence