Like a lot of other people, I read Derek Siver’s blog and Twitter feed (@sivers). I find him to be a highly interesting guy and the best living example of following one’s passions. As you can tell from the notes below, this is the LessConf presentation that I got the most from. Here are some notes of his talk.
The Jewelry Shop Owner and the Performer
Derek kicked off his presentation on profit models with a couple stories. Derek has a friend who owns a jewelry shop in a tourist area. The shop had good traffic, but not great sales. Awareness and marketing were evidently not issues, because of the relatively healthy traffic flow into the store. Yet, the store was faltering. The owner decided to take some time away to think about next steps for the shop. When the day before her vacation came, she was packing up and wrapping up loose ends, one of which was to leave directions for her staff to price a box of items at half-price. She quickly scribbled on the box: “everything here price 1/2″. Upon returning from her trip she was surprised to find that sales had doubled! Her employees thought she her strategy to “double the price” was brilliant. ”What do you mean, doubled the price?”, she wondered, having left instruction to do just the opposite and halve the price. ”Right here, you wrote ‘everything here price X 2′”. Upon a misreading of the hastily scribbled direction, her employee had doubled the price of the items to be tagged and shelved.
Why did doubling the price double the number of items sold? This is contradictory to traditional demand-curve models. It turns out that tourists used price as an indicator of quality. Picking up a $12 piece of jewelry to bring home to a friend or family member they might think, “this is nice, but can’t be that good if it’s only $12″. Yet, when holding a $24 piece of jewelry, customers typically thought of it as higher quality and were thus more likely to purchase.
Similarly, Derek told of a performing friend who doubled his performance price from $1,500 to $3,000. The result: he lost some recurring customers but more than made up for it with some new customers at the higher rate. Though he was performing fewer gigs, he was making the same income. He loved it! Before the price increase, he soft of performed for the the sake of keeping income coming in. After the increase, when getting paid $3,000 per performance, he found himself more excited and more into his work! Eventually his calendar became full at his $3,000/performance rate and he was still excited about his performances. [Ed: Of all the anecdotes of the day, this had the most impact to me as a Ruby on Rails consultant who often gets paid by the hour. It got me thinking of ways to double my rate in 2010. Also, the Multiplier Profit Model (notes below) got me thinking of ways to package up my knowledge and experience in different ways. All-and-all this was a thought-provoking and potentially profitable presentation.]
Business Models
Derek shared his frustration with people that go after the number of users as a metric of success, or love to brag about how their solutions are FREE! There is no business model there, only a feel-good metric that will not make money. Only a step up on the business-model ladder are those businesses that blindly follow the profit model of their competitors or peers. Derek’s talk was meant to get us to think of a larger variety of profit models.
Why?
It’s important to consider and implement a variety of profit models for competitive advantage and for diversification. If you have all of your profit tied to one model, then when the industry inevitably changes, your entire revenue stream could be destroyed. By diversifying among two or more profit models, you are better protected from industry changes.
Profit Models
Derek next went into an overview of a wide variety of profit models. Here are notes on three of them. [Ed: These notes lose a lot of impact without Derek's drawings. Maybe he will post them.]
Customer Solution Profit
This is where you spend a lot of time, effort, and money up front to customize a solution for your customer in order to have long-term, sustainable, stable revenue in the future. Initially, you lose money as you spend unpaid time getting to know the customer and building and implementing a custom solution for them. In the long-run though, that up-front effort helps you win customers, keep customers happy all while keeping your support costs low for those customers because your solution is so well implemented.
Derek used the example of Hostbaby. As soon as someone signed up, they would call them and hand-hold their new customer through getting started. It was a lot of up-front work, but once the Hostbaby customer was set up and happy, they had little ongoing support work. Using customer solution profit model helped Hostbaby net ~$2 million / year with no inventory requirement, no warehouse, little physical space requirement, and a small staff.
Takeaway: Consider how can you get to know each of your customers well up front and create a customized experience for them?
Pyramid Profit
This is where you have several levels of products, starting at one that is barely profitable but prevents competitor entry all the way up to a price level that is very high-margin, but low volume. Examples: Apple’s $59 iPod. American Express’ Green, Blue, Gold, and Platinum cards. Hotel chains.
Takeway:Consider what can you offer to people that think you are too expensive? On the other end of the spectrum, what upscale, huge profit margin offering can you put out there?
After Sales Profit
We’ve all probably had this experience. You do heavy research on selection and pricing of a big ticket item like a laptop, appliance, or car. Yet on the way out the door after purchase, we’ll buy add-ons without any research or price-comparison at all. For example, we’ll buy a laptop and then choose from a limited selection of laptop bags at non-competitive prices. At the time of checkout of the big-ticket item, we are at a low price-sensitive moment for small-ticket items. What’s a $200 floor-mat add-on to a $30,000 truck? What’s a $70 computer bag when you’re already spending two grand on the computer? Price sensitivity is lowest when your purchase price is high and selection is low.
Takeaway: What tiny but profitable thing can you ad onto someone else’s big ticket purchase?
Multiplier Profit
This is when you have one skill set or product re-packaged in multiple ways. The up-front development cost of the skill or product is fixed, yet you profit from that skill or product by offering it in different forms. This gives you a broader reach, more diversified customer base, and increased profit.
Takeaway: In what ways can you re-package and re-sell you primary work product?
[Ed: As I eluded to earlier, in my field of software development consulting, this is one of the most intriguing profit models to consider. For consultants, this is probably one of the most under-utilized yet promising profit models. When we learn something new in our work, or become an expert at a technical skill, we should package that knowledge up in ways to share beyond hourly consulting.]
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Tips:
- Consider doubling your price. At the least, experiment with your pricing.
- Don’t blindly follow the profit model of your competitors. Differentiate and diversify instead!
- Consider each of the profit models Derek presented, asking yourself the takeaway questions.
- For more profit models, check out The Art of Profitability by Adrian Slywotzky and Derek’s detailed notes on that book.
Thank you, Derek, for attending LessConf and for your talk.
David founded Grasshopper.com, described as a quality product with “really ball-sy advertising”. Grasshopper is beyond the startup stage, about 50 people. First, David showed this great video.
How? The “core values” most companies have are BS. Of course you want people with honesty, respect, hard work, blah, blah, blah. Core values need go go beyond that.
Why? Why work here? Why buy our products? Why from us and not others?
Culture? Grasshopper empowers employees and every employee knows the company’s core values. 4 weeks vacation when first hired, “Summer Fridays” – 1/2 days each Friday, healthy snacks, all lead to happy and enthusiastic employees. Visualize your culture and core values – makes them easy to communicate and remember.
Publish and publicize your goals everywhere. The goals and core values come through in everything they do and in all decisions they make. ”How will this decision affect the goals and values?”
Generating Buzz. You have to be actively communicating people in conversation, not pushing the conversation on others. For example: in the chocolate-covered grasshoppers campaign Grasshopper.com did not include a letter or other information about their product. The packages had only the grasshoppers, nicely packaged, with a link to their url. The conversation was not forced onto the recipient. People receiving them created the buzz, they talked with friends, they took pictures. User-generated content was key to the buzz.
Who? They made the list limited to 5,000 and exclusive. People then were calling David to get on the list to get the chocolate covered grasshoppers.
Cost & Results: Total cost for the 5,000: $47,292 = $9.46/bag. For less than $10/bag (including mailing) they had a hit campaign. Goal was not to make a sale, but to have “grasshopper” associated with “entrepreneur”. Based on blog, tweets, user generated content, and other mentions, the campaign was a success.
Create a Movement. Don’t make it about yourself. Create a movement that is bigger than yourselves. Don’t talk about yourselves. Talk about things that relate to you to find people that can relate to you.
See the details in this case study: http://grasshopper.com/5000casestudy/
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Tips:
- PR is a sales function. Get on the phone and call people.
- Don’t spend you money on mugs and stickers, do something crazy different instead.
- Bad economies create lots of great companies.
- Create a movement that is bigger than yourselves. The entrepreneur video is a great example of that.
- “Small firms are 13 times more innovative than large firms.”, ”64% of all new jobs created by small business over the past 15 years., ”Small business employs over 50% of the private sector workforce.”
Second up at LessConf, Colin Devroe of Viddler on “How to measure success”. Colin kicked off his talk with a demonstration of Eating Lighting (you’ll have to ask him).
Common Pitfalls and Solutions
Pitfall #1: Don’t make unfair comparisons. Comparing yourself to others leads only to following. You end up becoming just another choice. You become “a choice for pizza”.
Solution: Do fair competitive analysis. Listen to your customers and focus on differentiators. Use product feature matrixes to see what’s missing in the marketplace, not as guide to keep up with competitors.
Pitfall #2: Ignore unfair comparisons. Your product will be compared apples-to-oranges to others.
Solution: Just because something is the hot-topic of the moment doesn’t mean you need to react. If the hot-topic feature doesn’t fit your core business model, ignore it. Focus on wanting the right customers! If you choose not to ignore it, become part of the conversation even if you don’t make changes – take the chance to get in there and talk about what you are doing and why.
Pitfall #3: Popularity is rarely a good metric. Popularity is expensive and fleeting.
Solution: Take advantage of (fleeting) popularity. Measure everything (A/B testing). Retain popularity by differentiation, user investment, user engagement and personal relationships.
“One amazingly bad example”
Viddler’s self-service revenue-sharing project called “Viddler Revenue“. They spent way too long to build the self-service offering, only to find out that the industry was not ready for it. Made the mistake of unfair comparison – they looked at what others were doing and tried to copy.
Lessons learned: never stop learning (even if you fail), stick to your core business, build relationships with partners (and competitors!), and follow industry standards.
How to measure success
“Customer Satisfaction is the #1 success metric.” If you have happy customers but are not making money, then something is wrong with your business model. Customers will let you know if they are happy and will let you know how to make them happy — if you have open lines of communication and easy ways for them to contact you. And once you find happy customers, you want to duplicate them and clone them. Find out why they choose you and replicate those happy customers.
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Tips:
- Don’t force yourself into unfair comparisons.
- Be smart about how you handle unfair comparisons made by others. Either ignore them or smartly respond, but don’t have a knee-jerk reaction.
- Popularity is rarely a good metric, it is not a goal to reach for it’s own sake.
Up first at Lessconf, Eoghan McGabe and Des Traynor of Contrast.ie on “How to be awesome!”. Starting off with a few words of introduction about the Irish slang, culture, and myths as lead-in to conventions.
Conventions
Are agreement of ways of doing things. Formed from personal experience. Formed via survival of the fittest (evolution). Examples: red means danger. Funny to see tourist around Ireland because we use red all the time, and it stops tourists in their tracks. An example of when you don’t follow convention you can cause trouble or at least inconvenience.
Benefits of Conventions
Reduced friction. Example: doors should have handles and not buttons with signs and arrows explaining “how to lock the door”.
Reduced learning curve. Example: if you’re designing a box that has to be opened and it opens like any other box, you have no problem. If you have a box like Microsoft’s Office cd box, you end up with Microsoft help file on their website “Opening the Windows Vista Box“.
Increased ease in design. Example: Ruby on Rails gives you a set of defaults in stack decisions, mvc, etc. Instead of making those decisions, conventions let you focus on your design and things that make you special.
Problems with Conventions
Restricts innovation: If you’re going to follow what everyone else is doing, it’s hard to break new ground. Example: cell phones. iPhone would never have happened if Apple followed conventional cell phone design.
Lazy: Following conventions by rote is lazy. Don’t be a sheep blindly following a flock. Following convention blindly is not designing. You need to understand the reasons for conventions and the decisions behind them.
Decreased Marketability: if you do what everyone else does, you are un-remarkable.
Opportunities from Breaking Convention
Commercial wins. Example: Dyson. Rethought the entire design and requirements of a vacuum. Wii got out of the graphics chip arms race by changing the focus to how much fun can we make games? (Reminds me of Innovator’s Dilemma).
Challenging conventions lets you change the world. For example: change the daily lives of train commuters by challenging the rule that a transit map needs to be geographically accurate.
Web Conventions
Layout conventions have overtaken the web. All sites’ layouts look the same. Signup also has conventional layouts. Blinksale, Invoicemachine, SimplyBill, and other invoice sites have very similar sign up forms. (1.2 billion “about us” pages on the web, 98 millions “sign up now” pages). Home pages are another convention that has evolved. The idea of “pages” in general is an example of an evolved convention that is just “one step above” the Sears, Roebuck Catalogue from 100 years ago.
These conventions result in “unremarkable stuff” and will never get you to your “purple cow” moment. Plus, some are just wrong.
What to Break?
Don’t break conventions just for the sake of breaking them. Break convention upon opportunities from tech advances like browser technology. Examples: portfolio sites to help you break out from the crowd. Signup sites to help people sign up without jumping through hoops. Skip the sign up all together and let users try your product without signing up. Ex: mysoup.com ’s “Try” button lets you actually “try it”. The “Try” link goes to the product, not to a signup form.
Break copy. Convention for copy is dull “programmer speak”. Do something like flickr where the welcome message is in another language each time. Huffduffer.com and threadless.com are great examples of copy that breaks convention. Homepages are ripe for break of convention. Too many apps blindly follow convention of the first page upon login is the “home page” or “dashboard”.
Break branding. Specifically: once signed up for an application — stop the branding! It’s become convention to have the app’s or company’s logo in the app’s header. But users don’t like the continuous sell. They’ve already bought the product, let them use it without the continuous sell or branding.
Break your toolbox. If you’re working with the same tools as everyone else, you’ll likely create the same results as everyone else. Remarkable doesn’t come from the tools, but from your creativity. So don’t be restricted by your toolset.
What do we know?
Contrast.ie was basically forced into breaking convention. They needed to get noticed and did not have a large marketing budget. One way to get noticed is to break convention.
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Tips:
- Conventions have benefits such as reduced friction in transactions (personal and business), reduced learning curve, and ease of design.
- But, conventions also introduce problems. They make it easy to be lazy and make it hard to break out from the crowd.
- Don’t blindly follow convention, but don’t blindly break it either.
- Write copy and design for your user’s image of themselves and why they’re at the site.
- “Rethink the conventions, break the tools, be re-markable, and have fun!”
- Breaking convention in smart ways can get your app noticed. Breaking convention in design, if done well, can be a great marketing opportunity.
- “Building the app is just the start.” It’s simple to build the app, it’s the marketing and selling after the app is finished is the challenge. Consider that when building the app itself.
Great job by the contrast.ie guys, @eoghanmccabe and @destraynor! Thank you guys.
I’m excited to announce that AffilApp has been awarded the exhibition category “Ready to Earn” prize in the RailsRumble. This exhibition category prize is sponsored by and the winner is selected by Spreedly. It recognizes the entry that has
a clear business model,
an application that offers real value, and
a working Spreedly integration
Full details are on the Spreedly Blog. Thank you to the Spreedly team for this recognition.
The Rails Rumble finalists have been announced. These 22 applications have been selected by the Rails Rumble organizers and an expert panel from among 159 qualifying and will continue onto the public voting round. Unfortunately, AffiliApp was not one of the finalist. But that does not mean the end for it. This is just the beginning! Read on.
High Quality Apps
The overall performance and quality of Rails Rumble 2009 apps is a leap forward from those in 2008. 2008 say some good apps. 2009 saw a few great apps and I’d say over 100 very well done apps. Teams were prepared this year like never before. And that’s great to see.
Calling all Voters!
The Rails Rumble is now onto the Public Voting stage. This phase of Rails Rumble voting goes on only until 8/29, so please sign up today and take a look through some of this year’s best apps. Anyone can sign up and vote. The sign up form is here: http://r09.railsrumble.com/login and the list of apps to vote on is here: http://r09.railsrumble.com/entries.
What’s next for AffiliApp?
I have been working this week on continued development of AffiliApp. Initial response from the community has been more than I could have imagined. Already several folks have contacted me asking to use the product to set up referral programs for their apps. Discussions with these folks have provided valuable feedback to direct the next steps of development.
Based on requests and feedback from judges and potential customers, I am currently working on the API and a gem. We will use the API and gem in our own products (including http://playbookiq.com) first to shake them out. Once I have given them a good real-life work out ourselves, I will document the API and open source the gem. This development will make it as simple as possible for web app developers to set up an affiliate program to promote traffic to their product.
Spreedly
I simply have to put in another hearty recommendation for Spreedly as a billing platform for web app developers. Their API is at once powerful and simple. I used it extensively in the development of AffiliApp as a way to quickly demonstrate that payment transactions would be credited to the correct affiliate. I also use Spreedly as the billing platform for AffiliApp, the place for my subscribers to pay. For this, you can either present their white-labeled subscription forms to your subscribers or make Spreedly completely transparent via the API (with the API, of course, you’d be responsible for basic security measures like utilizing SSL and ensuring no sensitive data is logged, etc.).
To follow developments, please subscribe to this blog or follow @smeade and @affiliapp.
Showing revenue and commission tracking in AffiliApp.com. When you set up your Spreedly API token in AffiliApp, transactions are automatically identified and applied to the referring affiliate. This works even with automated recurring transactions. If you do not use Spreedly, you can still track referrals and subscribers and they too will be associated with the referring affiliate.
That 48 hours went fast! After producing BidBuildBill.com last year and finishing a respectful #22 on the leaderboard, I aimed this year’s entry at web application developers with AffiliApp, the easiest way to add an affiliate program to your web app.
The Idea
This idea came out my unsuccessful experience looking for a good affiliate program to use in promoting PlaybookIQ. After finding none that felt right, I decided to design and develop affiliate features myself. I could have simply added the affiliate management features to my existing app, but with Rails Rumble right around the corner and with the idea that it could be useful to lots of web app owners, I decided to develop affiliate management as a separate project which we now know as AffiliApp, my Rails Rumble 2009 entry.
My Reflections and Impressions of the Rumble
What Went Right Rails Rumble Organizers and Linode
The organization and planning this year was top notch. The entire Rails Rumble org did a great job. Linodes booted up straight away. The Rumble team was always present on irc and Tender app to answer any questions and clarify rules. They gave plenty of advanced warning on how they see the administrative parts of the Rumble playing out. Much appreciated.
Picked a Good Idea
I was glad to have some idea of what I was going to do ahead of the Rumble. As I discussed in previous blog posts (see links at bottom), the idea I had is something that I am going to use in Real Life. I think it has value for others as well and plan to continue to build it out.
Ensured a Good Development Environment
I was also glad to have done Rails deployments to Linode previously. Though deploying is very easy, I am not a sys-admin. So, I practiced ahead of time with a Linode slice an my GitHub account. This way I knew exactly how to boot and how to configure the linode and ensured my local environment was cap and deprec ready. Recommendation to all contestants: if you have not deployed a Rails app to a VPS before, do so as practice before the competition or have a team member that has. This will help get your local and VPS environment issues out of the way early.
What Could Have Gone Better Get More Rest
At some point of the weekend, I believe it was SuttoL who said “A tired programmer is a dumb programmer”. So true. Rest up for this, you’ll need it. And take some breaks during the competition as well.
Scope Down
As I mentioned in an earlier blog post, I had already cut my feature list in half, then in half again. I should have cut it in half and half even again. I am very happy with how the app turned out, so it’s not that. It’s just that with a much smaller feature list, I simply would have had less stress and felt less rushed, which would result in little higher touches of quality throughout the app.
Design First
I did not take much time before the Rumble to lay out the application design. Both UI and model designs were started just about when the opening bell rang Friday night. Note for next year: go into it with a clear definition of the app design. Again, I don’t think the app suffered for it. I do think it would have been a more fun experience had I walked into with design ideas in hand.
Will I Do it Again Next Year?
Definately, Yes! But, I think next year it would be fun to get a team together to Rumble. If anyone’s interested in joining a Denver area team for the next one, let me know. In the meantime, I’ve got 48 hours of email, tweets, and TechCrunch to catch up with. On second thought, no, I’m going to get away from the keyboard now and hang out with the family instead!
