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
The Best Sales Promotion, Before, During and After
The objective of the best sales promotion is to increase sales for a particular product through stimulating additional demand for the product. The end goal is to generate revenue over and above the standard. And the intent is almost always a short-term gain, unlike some marketing strategies that are designed to create customer loyalty, brand awareness and long-term return on investment. Successful promotions are the ones that have struck a chord with the intended audience and have met the desired results of increased business. Companies replace the non-performing promotional activities with performing ones to maximize the benefit.
What is it that makes some campaigns successful and others not? Here we dissect the variables involved pre-promotion, during and after the promotion. Usually, a particular successful promotional campaign may not have had all the factors described here, but a majority of them have. A careful analysis of such ingredients can help companies replicate the successful promotions and roll them out in another market or on a wider scale in the same market. On the other hand, the strategies that worked in the past may not necessarily work out in the future. So, it is recommended to exercise caution.
The primary variables involved in all promotional activities are the product, the market, the channel, the competition, and the budget. We examine the dynamics of each of these before the promotion, during and after the promotion.
- Product: A promotional activity narrowly targets a small subset of the larger target market. The campaign should take into consideration what benefit of the product would appeal to the audience. The promotion should highlight that feature that closely corresponds to that interest.
- Market: Understand the dynamics of the target audience and the stage in the product lifecycle. For example, how often does this market use the product? Conduct a preliminary research on the demographics and behavioral patterns of the market. Learn the cultural nuances of the area.
- Channel: Depending on the target market decide on the mode of delivery that would most appeal to the target market. Then consider a variety of channels that would help meet the promotional goals. For example, retail outlets, malls, media, community centers, event venues, etc.
- Competition: Find out if a direct or an indirect competitor has done a similar sales promotion. If so, what was the outcome? If the promotional activity has produced disappointing results, then there is no point in replicating it in the same market. It would end up in a waste of resources.
- Budget: Work out every element of the promotion that would incur a direct and variable cost. It would be ideal if some partners can bear some costs or if other stakeholders involved could share them in return for a benefit. Agree upon the cost-sharing model in advance with all concerned.
During the Promotion
- Product: Start a conversation with the customer through different media outlets before the promotional deal and communicate with them about the product’s features and benefits. Asking for personal references can work for high ticket items. Social media campaigns are very effective ways to hold a prominent position in people’s minds.
- Market: Rather than a mass approach, acknowledge and re-engage with old customers as well as encourage new customers to try the product by offering free samples and demonstrations. Direct marketing in certain markets and products is a highly efficient way to reach out to high net worth individuals.
- Channel: Help the customers make purchase decisions by making the product available as and when they require it using various channels. Motivate them to buy it by bringing the product to their doorstep. Try personal selling if appropriate when the customer appreciates a direct interaction on a one to one basis.
- Competition: Differentiate the product from the rest. Provide technical information to the prospects on why the product is different. Emphasize on those qualities and advantages that allow the customers to ask relevant questions rather than giving a sales pitch. If possible, distribute special coupons with expiration dates.
- Budget: For budget-constrained clients who show a serious interest in the product offer friendly payment terms in liaison with the local financial institutions. Create and foster brand loyalty by giving them various options on how they can conveniently get hold of the product. Offering them special deals is also a good way to seal deals faster.
- Product: Conduct a post-promotion analysis on what worked and did not work within the targeted audience. Consider what other benefits of the product were appealing. Fine-tune and replicate the ones that worked and discard the ones that did not.
- Market: Make a note of the receptiveness and rejection of the customers to the product features. Create a qualified database of the old customers as well as the new ones in the market. Tweak the product if necessary and possible to adapt to the cultural sensitivity.
- Channel: During the next promotion consider using only those modes of delivery and the channels that were beneficial and that brought the greatest return on investment. Do a survey directly with the first-time purchasers and regular purchases on the preferred usage of a channel.
- Competition: Do a competitive analysis on other companies who are selling similar or augmented products. Rather than competing headlong, work out strategic partnerships to leverage the sales. Some tactical alliances with local partners can even bring the production cost down for both parties.
- Budget: Calculate the cost incurred to carry out the promotion. Compare that to the incremental sales revenue obtained purely by carrying out the campaign. Work out the benefits and risks of the cost-sharing model. Post-promotion phase is a good time to evaluate the mode of payment most preferred by the target market.
The following matrix can help while doing a post-promotion analysis. The information filled out can be useful in designing an improvised promotion the next time.
Photo Credit: Roman Kraft
Your Job is to Hurdle the Top 3 Sales Objections
Sales objections are the bane of existence for many salespeople. Here are a few tips to leap the hurdles and tackle the top 3 sales objections.
Sales Objection #1: Your price is too high
- Which means?
- Compared to what?
- How much did you think it would cost?
- It is high compared to what some companies charge. However, we sell over 800 units a month. Why do you think that is? Do you think that these 800 businesspeople would buy from us if they didn’t see the superior quality and the value they receive?
- It costs only about 48 cents per hour of operation. That’s less than a can of Coke out of a vending machine. You can afford that, can’t you?
- What neighborhood do you live in? That’s a nice neighborhood. You are obviously a person who appreciates the finer things in life. Why are you denying yourself top quality now? Does that make sense?
- Why do you think our competitors are cheaper? Where do you think that they cut the corners? Did they use cheaper materials? Poorly trained craftsmen? Did they cut back on quality control? Why worry about where they cut corners? Why not buy the best and sleep well at night!
Sales Objection #2: I’m too busy; talk to our Purchasing Manager first.
- (Prospect’s name), suppose you receive a letter marked “Personal and Confidential.” Would you allow your Purchasing Manager to open it? (Wait for a reply.) The proposal I have was intended for your eyes only. What I have to say is too important to be shared with anyone outside the executive suite. Can we talk now?
- I appreciate how busy you are. However, the opportunity I have to share with you will have a significant impact upon the future of your company. All I ask for is a brief moment to explain the dollar consequences of this important proposal. Isn’t this worth a few minutes of your time?
- Does he have the authority to approve a $_______ purchase? (If the prospect says yes:) Thank you, I’ll be sure to remind him/her and I’ll see him/her right now. (If the prospect says no:) Well, then, why should I talk with him/her?
- Our proposal is really very significant. It requires detailed information from top management. Is ____ privy to all details and operating plans known to top management? If not, we should set aside five minutes to cover the key parts of this opportunity together. After that, if you want me, I will be happy to talk with ____
- Are you too busy to save money?
- If this opportunity save your company, $____, who do you want to be the hero, you or the Purchasing Manager?
- We almost never deal with Purchasing Managers. This is an executive-level decision. I need to talk with you.
- I am sure your Purchasing Manager is very competent. However, I can assure you, this information is beyond his/her realm of expertise. This information is for the person who is in charge of the total bottom-line profitability of the company.
- I cannot talk with Purchasing Managers. It is company policy. I will either talk with you, or no one in your company will learn of this opportunity. Can we talk?
- You want me to talk with your Purchasing Manager? I know what you are really saying is that you don’t think this opportunity is worthy of your attention. May I have two minutes to explain to you why it is?
- You want me to talk with someone else? Why do you think I called you? It wasn’t by chance! The information I have is for you only! After you have heard it, if you want me to talk with ____, I will be happy to. But, I am confident it won’t be necessary.
- How do you feel when you call someone and they ask you to speak with someone else? Well, that’s the way I fell now! What would you do if you were in my position?
- Thank you for your suggestion. The news I have is very important. Why don’t you give him/her my name and number, and have him/her call me? I don’t normally talk with Purchasing Managers. I’d really prefer to talk with you. May I have a few minutes of your time?
- I have already talked with your Purchasing Manager. He said it was very important that you and I talk directly.
- By handing me over to your Purchasing Manager, what you are really telling me is that you don’t know how critical this matter really is. Would you like to learn why?
Sales Objection #3: I want to work with a more established company
- You impress me as a very smart businessperson. I know you haven’t invited me here to chat about the weather. You don’t want to put all your eggs in one basket, do you?
- I understand how safe you feel about a relationship that goes back 15 years. And yet, I saw your eyes light up when you looked at our products. I can see that you’re giving serious consideration to diversity. Just out of curiosity, could we compare the pros and cons of the two choices? Let’s take a piece of paper and list the reasons for and buying from us. The first reason against us is that we haven’t worked with you for the past 15 years. What would be the reasons for giving us a chance to prove ourselves?
- Is there anything about me that prevents you from doing business with our company?
- I can say good things about my competitor and if I were you, I would go with them – unless, of course, you want a better product at a better price.
- I do respect your loyalty to your present vendor. Loyalty is a virtue. While we’re on the subject, how about your loyalty to your company’s long-term profits? Isn’t that kind of loyalty just as important as loyalty to an outside vendor? If I could show you a way of improving your company’s profits, would you take a serious look at our products?
(Adapted from the book “Sales Scripts That Close Every Deal” by Gerhard Gschwandtner, Founder and Publisher of Selling Power)
Photo: Alberto Guimaraes
Warning Signs in Sales
The cavemen used signs as communication tools when there were no other means to pass on messages. As time went by, signs have lost its significance and now we use languages instead. With the evolution of language, people have lost the ability to read signals even when signs convey rich meaning. Tribal people who have stubbornly refused to integrate into the civilized world still use signs to communicate to others.
To a caveman, signals may be a powerful means of communication. But in today’s sales parlance it is a cue that conveys information that is unobservable from a sender to recipient. Sales management is all about signaling that ultimately leads to increased revenue. Managers design campaigns through the filter of signaling, a process of sending messages with the objective of influencing purchasing behaviors. Done correctly, this can lead to the desired amount of transactional sales. On the downside, market perception may turn out to be unfavorable.
A signal can mean different things to different users (Spence, 1974). When sales executives use signaling, test the waters by experimenting it with a smaller subset of the market. This will enable them to contain rapidly any undesirable consequences and thus manage it appropriately.
When not to use signaling
However, at times, there are costs involved in marketing signaling. It may result in product line cannibalization whereby customers wait for the signaled action and delay purchasing the existing product. Or circumstances beyond the sender’s control may affect the timely delivery of preannounced product or features of it as promised. Similarly, a price cut could be the result of excess inventory or product elimination. So, it would be in the best interest of all to not engage in price war that would dilute profit.
Sign language used by companies
Price signaling raised turbine generator profit/sales ratios in the 1950s. In 1992 Ford announced a 6% price increase to signal not to start a costly war for market share.
Firms that sell intangible products may indicate their high value through prestigious addresses, fancy club memberships, office décor, etc. Some companies hint to the customers their willingness to work around customer needs. They do it through differential pricing, increasing staff count for peak times and by providing complimentary services.
Airlines are notorious for undercutting fares on those routes that are lucrative to their competitors in a bid to undermine the best efforts of their rivals. In such cases, if the undercutting of fares is done to put a spanner in the works then the rates are brought up to the normal level as soon as the objective has been achieved even before some of the travel agents have found out.
Firms pay dividends to its shareholders as a sign of strength signaling to the market that there is no need to hoard cash. Some investors look for a company’s Corporate Social Responsibility initiatives to gauge the health of the enterprise. Such companies use CSR to signal the appropriate messages.
Restaurants open up in an up-market locale with high rents to signal to the patrons of its five-star status as well as to advertise its good food. Warranties and guarantees are other examples marketers use to show the credibility of the quality of the product. They offer insurance against faulty products to potential buyers. Longer the warranty, higher the quality.
Marketing signaling is also messages sent to other companies within the industry either to convey to or to gain information from competitors. Companies selectively leak information to manipulate the opponent’s choice of actions. Employees find press announcements to be more credible than internal communications.
Types of signaling
Kirmani and Rao (2000) distinguishes between two types of signaling based on the financial consequences. They are:
- Default-independent signals, where companies incur financial loss, such as heavy advertising costs or fixed upfront costs, whether the signals default on their claims or not.
- Default-contingent signals where companies suffer monetary loss only when the signals default on their claims, for instance, when a high price signal matches with equally high quality.
Keys to signaling success
Maintaining a consistency throughout the organization as to the meaning of the signals is crucial to the success of signaling marketing. Once a signaling strategy has been decided by the company executives the information must be passed on to every employee from top to bottom. Failure to do so may not only cause inconsistency in the quality level but also mar the reputation and integrity of the brand. Equally important is how the rival companies interpret the meaning of signaling.
Also, as responsible marketers, it is rather important to examine your conscience before indulging in signal marketing as using it to promote transactional sales at the detriment of brand integrity is unethical and immoral. In light of this, signaling management has become a tricky task of business leaders. The correct interpretation of sales signals enable the executives to brace themselves to avoid any potential threat or to position them to take advantage of the opportunity.
Having said that, with signaling marketing it is still hard to predict the response of the target audience. Neither is it easy to gauge the perception in the minds of the recipients. Moreover, the way one party perceives the meaning of signals may not be the way another party views them. And that is why it is advisable and a prudent strategy to test the signal response on a smaller scale in an area that closely resembles the target market.
Photo Credit: Bart Anestin
There is an old saying in the sales community that if you can’t sell yourself, you won’t be able to sell anything else. I see this happen in every salesperson’s life when they use their relationship selling skills in personal day to day life. Any long term project in sales needs the same amount of patience as required in selecting a life partner. This theory is easily understood if the sales process is applied to selecting a life partner as seen in the following process of selling to a new mining project.
In both cases (whether it be applied to relationship selling or selecting a life partner) you have a clear objective in mind. The objective in sales for a new mining project is to sell your products and solutions to new green field mining job and in the second case is to select a suitable life partner.
This is a critical first step in either mining sales or selecting a life partner. Identifying a mining project starts with networking and seeking geologists that inform you which project sites are under evaluation. Another form of seeking a new mining project is through different media channels, such as TV and newspaper. On the other hand, when you start searching for a life partner, your friends play the role of the “geologists” by introducing you to possible partners. Also, media channels such as social media and dating websites are used to search for the perfect partner.
Once you identify a new mining job, you start prospecting by finding who is the owner, EPC (Engineering, Procurement, and Construction) and financiers for that job. Similarly, in the case of a life partner, you start gathering data about his/her personality, parents, friends, family friends and professional life. In both cases, you normally stop chasing either the project or the person at this point if it is not the right fit for you.
This is the point where you use all your sales skills. You start working with all stakeholders in the mining project who you identified at the time of prospecting. You discuss their needs, present your products and solutions, show them your references and finally discuss financials. Similarly, in the other scenario, you mutually understand each other, present yourself to each other’s family, introduce your family and friends and discuss your financial standings.
Knowing your competitors
This is the most important step in both scenarios. In mining sales, you always want to be aware of your competitors. Any kind of relationship (any applicable past contract) the company is having with any competitors which can affect this project. Similarly, in other case, you also want to know from your future life partner about their present commitment level and make sure that they are not interested in someone else.
After you’ve finished handling all objections in the mining job, you finalize the deal and get an order through a negotiation. Also, in the case of looking for a life partner, you mutually decide about the marriage date, expenses, size and perhaps the value of the ring, etc. The time taken in winning a mining project can take a number of years or sometimes the project becomes dead at any step. Similarly, in the other scenario, it also takes times and in some cases a relationship doesn’t achieve soul mate status.
A good relationship selling sales person never gets depressed in the initial stages, as he is always working on multiple opportunities; but, in the other scenario, it all depends on each individual whether he is working with others before completing the prospecting stage.
Relationship selling is fun and you use sales in almost all aspects of your life. The only difference in the scenarios is that you stop prospecting in real life after you select a life partner unless the deal goes bad after a few months or years, but in mining sales, you are always working on new sales.
Photo: Yoann Boyer
Sanjeev Neb, CME, CSE, Sales Account Manager- Siemens Canada, Director-Sales and Marketing Executives International Inc. (SMEI)
Hashtags are a really useful tool for sales and marketing professionals. You can use them to extend your social media reach and to engage prospects and like minded networkers. Used right they will help you build your following, your posts will reach a far wider audience, you will get more leads, and boost productivity. In this post your will learn how to use hashtags for sales and marketing.
What is a Hashtag?
In social media a hashtag is the hash or pound sign (#) followed by a word or key phrase that is used to categorize what your post is about. For example, if you are posting about social media, you might use the hashtag #socialmedia or #socmed. When you post to social networks using a hashtag, this then becomes searchable i.e. you can click on it to see all posts that use the same hashtag and it makes it more likely that people will find your post.
A Few Things to Know About Hashtags
- Never include a space in your hashtags, if there’s a space then it won’t be searchable.
- You can include numbers and capital letters in hashtags. Capitals often make the hashtag more readable and understandable.
- Use hashtags that are short and sweet. Trying to fit a whole sentence into a hashtag makes is incomprehensible and reduces its reach.
- You can (and should) have your own one that you use to brand your posts.
- Hashtags are a hugely important on Instagram and are key to building your following
Be extra careful when using hashtags on Facebook. Don’t use too many (2 is enough) and don’t use them too often.
- Don’t use made up hashtags that mean nothing unless you are trying to be funny (this can backfire and be a waste of your time).
hashtags data by hashtagify.me
To decide which hashtags to use, first think about what you are posting about and then consider which words you would use to describe your post. For example when we share this post we might use hashtags like #sales and #marketing.
Once you have determined the most appropriate word to use you can dig deeper using tools that help you to determine the most popular ones to use. Hashtagifyme which allows you to search for a hashtag and view related hashtags and their popularity. Choose the ones that are most popular to get the widest reach.
Using hashtags is a central component to building your following and engagement on Instagram. This app allows you to use up to 30 tags – if you try to use more you won’t be able to share your post.
The optimum number will depend on your audience and your posts but a general rule of thumb is to use between 5 and 10 (test and try this to see what works for you!). Upload your photo then enter your hashtags in the caption area.
More sophisticated users often enter a few tags in the caption area then more in the comments (there’s also a way to hide them to make your posts look cleaner but still make them searchable by adding line breaks). It’s a good idea to save a list of hashtags you frequently use so that you can simply copy and paste them from your phone. Instagram has a useful feature when entering hashtags that allows you to see how often these terms are used.
Twitter can be a really confusing network and most people really aren’t sure how to use it effectively. Hashtags can really help with that as they help to organise constant streams of updates and help you (and your audience) find the nuggets of information they are really interested in. Use a relevant hashtag before relevant keywords to help your Tweets show up better in search. You can use them anywhere in your Tweet and popular hashtags often become trending topics. A general rule of thumb is to use 2 – if you use more then engagement will decrease.
How to Use Hashtags for Sales and Marketing
Why are hashtags important for sales and marketing? First of there’s a lot of noise out there – using the right hashtags both to search social networks and to share your content will help you and your followers hone in on the important stuff.
- Hashtags help your brand reach a wider audience so use a hashtag for your brand – my company, Out-Smarts uses #outsmarts and SMEI uses #SMEI. – to differentiate your posts.
- Use a hashtag for your location if your audience is local i.e. #vancouver to help people in your area hone in on your posts.
- Don’t be afraid to use the hashtag #forsale or #sale as this also helps more people find you – although you will probably want to use another one that categorizes what you sell!
- Customizing hashtags can help you track campaign engagement so use them consistently. You can track and measure these too to determine how often your audience uses or mentions your campaign hashtag.
- People use social networks to search for things they want to buy. Get in the habit of searching social networks for posts that include hashtags describing your product or service. Listening and responding will help engage buyers and make that cold call slightly warmer!
- The best hashtags to use will depend on the product and service you are providing – it’s a good idea to check out the hashtags your competitors are using and to research which ones get the most engagement (retweets, comments etc.).
- Hashtags should be used at your sales and marketing as they allow allow attendees to connect and network virtually and you can easy find and follow attendees who use them.
Using hashtags efficiently and effectively can be a great way to increase your social media productivity. Remember to use them efficiently and effectively according to which platform you are on.