Opening up the online business model for new and emerging opportunity 4: blue ocean strategies and business models 2

This is my fourth installment to a series on new and emerging online business models and on developing best practices for finding and creating new and novel online business opportunity (see Startups and Early Stage Businesses, postings 142 and loosely following for Parts 1-3.)

I finished Part 3 of this series by beginning a discussion of a potential paradox, noting that:

• The businesses most able to support innovation financially, can be the least able to do so strategically and organizationally, and those most able to do so strategically and organizationally can be least able to do so from a firmly supportive financial base.

And I stated that the strategic and operational goal of any business that seeks to innovate should be to pursue, develop and implement approaches for combining sources of necessary strength so “able” and “willing” can come together in support of innovative excellence. I said that I would at least begin functionally unraveling this challenge here in this posting.

To round out the background context for this posting, when I wrote Part 2 of this series, I raised an open question that I simply noted there, stating that I would come back to it later:

• And what should be an innovative business’ perhaps more conservative Plan B, and when should a striving for breakout success and the blue ocean strategy and development that would lead to it be the Plan B?

My goal for this posting is in fact to address both of these sets of points:

• The first of those can be seen as a matter of finding a productive, risk management-aware balance between maintaining business stability and capability on the one hand while opening up that business to the possibility of breakaway, innovative success with its increased risks on the other.
• The second is one of knowing which of these two basic approaches: stable and fiscally centered, or innovatively risk taking should predominate and lead in defining and setting the business’ overall strategy and priorities, and which should follow.

I approach those decision points from a variety of approaches when making an assessment, and will at least briefly note some of those possibilities here. I will start, however, by noting that no such assessment no matter how grounded can safely be considered as if set in stone and good and valid for all time – and no matter how cogently valid when initially arrived at. So I am writing about an ongoing process. And in that, both the results reached and the approaches taken in making an analysis of this type can be context and business development stage-dependent.

With that in mind, I will begin considering a startup or early stage business that is still developing itself and still finding its way into a prospective marketplace.

• A point that I have made several times in this blog, but that bears repeating here is that it does not make sense to build a startup if your goal is to be 37th best: the 37th most competitively effective and profitable in a field of 40. The numbers vary as I state that point, but the basic idea remains the same. If you are going to go to the expense, effort and risk of building a new business, you should be looking for and developing toward a realistic capability of being among the best in your market, and certainly for your prospective customer base.
• That might mean staking out a narrow and specialized market niche that you can excel in or it might mean building a more general product and service offering business. But in either case, if you are to build to be the best, that is probably going to mean building to be different, and to offer something unique and uniquely valuable to the customer.
• This point is particularly true if you seek to build your new business venture into an already crowded field. It is obviously less important if you face less direct competition. But for a startup or early stage business, capacity to offer new and different, and innovatively valuable to a marketplace and its customers can be the defining distinction between being successful and simply surviving – or not succeeding at all.
• Now consider building a new business in an at least somewhat competitive field and environment – which I posit as a basic, predictably standard new business context. You are going to be building in the face of competition with more established businesses that already have positive cash flow and at least some profitability, and that in many cases will have at least some reserves to cushion any risks they take in business evolution and development.
• So you need to build securely and soundly (e.g. see for example, my series: Understanding and Navigating Burn Rate at Startups and Early Stage Businesses, postings 67-78.) That represents the sound and stable business strategy and development track. But at the same time, much of what you do has to be driven by an ongoing effort to define, create, develop, monetize and profitably offer a unique value proposition and that represents the more risk accepting innovative track.
• The more competitive the field you would build your venture into, the more risk accepting you are likely going to have to be, and the more towards the front this innovation driven business development track is going to have to be.

Now let’s flip that around and consider the same set of operational and strategic dynamics from the perspective of the established business. I am going to continue this discussion, picking up on it there in my next series installment, where I will also explicitly compare and contrast these strategic and operational contexts and how they would be addressed. Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 9: the value added acquisitions and divestitures business model

This is my ninth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-8.)

Early in this series I conceptually and operationally divided businesses built around acquisitions and divestitures trading, as fitting either of two fundamental business model patterns: the chop shop model and the value added model (see Part 8: the chop shop acquisitions and divestitures business model where I define both terms, and where I at least begin a discussion of the chop shop model and how it is most certainly seen as the public face for acquisitions and divestitures now, at least as of this writing.

I stated at the end of Part 8 that I would continue that discussion here, this time delving into at least the primary features of value added model businesses. And I do so here, by picking up on a scenario that I briefly touched upon in Part 8 where the acquisitions and divestitures per se consist of salvageable resources from a failing business that could not successfully recover through change management approaches and remediation.

• Admittedly oversimplifying here, a chop shop model business that acquires a failing company for saleable parts is not likely to attempt to turn it around to see if it can in fact be salvaged as an overall business concern.
• Premium would be placed on packaging, marketing and selling off anything of marketplace value and as quickly as possible, and at as little direct expense or risk (indirect expense) as possible to the acquisitions and divestitures business that sets up and manages – and profits from those transactions.
• A value added model business would calculate risk and benefits determination from a wider perspective and along a longer timeframe. If they could save the business and turn it around to be profitable again, the value receivable there might not be as high on a short-term basis as what could be realized from selling off the parts as scrap, but longer term value would in many cases be higher, and over time even considerably higher.
• Here, a salvaged business acquired by such a management and development oriented company, sees at least a potential worth considering of developing long term, new revenue streams. And a recovered business could always be spun off and sold and for a return on investment there too, if it did not fit into that acquisitions and divestitures portfolio of held resources or fit into its long term strategic plans or priorities.
• The basic approach is fundamentally different, with the value added business selling quickly if necessary, but also pursuing longer term investment strategies in what it acquires. And in this, the words “value added” become centrally important. The more an investment acquisition can be increased in marketable value and the more competitive a market can be developed for businesses and entrepreneurs who might want to acquire it, the higher the price point it can be marketed to and the more it can be successfully sold for.
• Here, the calculus of risk and benefits in play balances costs for preparing an acquisition to be profitably marketable and to some likely specific selling price range, against returns actually receivable after making that investment. And the goal is to develop a divestiture offering so as to realize the greatest possible profitable return on investment from it, and under circumstances where that greatest return on investment or at least a return close to it is most likely to be achieved.
• This can best be done by developing an acquisition to show significant value and even defining and distinguishing value for any business that acquires if from the value added model business. That is where competitive interest can be developed when divesting this repackaged and perhaps reorganized business asset, and that is where the greatest return on investment can be achieved.
• The chop shop business is quick to take out up-front service and related fees from any liquid assets available in an acquisition they take on. They in effect gut the business of its immediately available liquidity and then walk after extracting any other removable value. The value added model business seeks to increase value in what they acquire then sell off, creating new value for everyone involved – as that makes their transaction processes sustainable and supports long term gains.

It is easier to find acquisitions and divestitures businesses that run closer to the chop shop model as most businesses in general think and act short-term. Whatever their basic business models, more should think, plan and act with more of a long-term awareness.

I am going to finish this series here with this posting. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Opening up the online business model for new and emerging opportunity 3: blue ocean strategies and business models 1

This is my third installment to a series on new and emerging online business models and on developing best practices for finding and creating new and novel online business opportunity (see Part 1: outlining some of the basic issues and challenges and Part 2: online target demographics oriented marketing.)

I wrote Part 1 of this series with two goals in mind: to set up a basic foundation for a more detailed discussion to follow, and to raise some basic and still open questions that have to be addressed, and that do not have simple, standard, algorithmically applicable answers. I began addressing them with Part 2, where I wrote about group marketing demographics in a globally reaching online context. And I continue that here in this posting where I address some explicitly identified open questions, beginning here with this:

• When is pursuit of a true blue ocean strategy and business model realistic and how might a new business’ chances be improved for succeeding there in an online context?

There is a reason why I started this overall discussion of open issues in Part 2 with a discussion on defining and understanding group demographics and using that insight in marketing more effectively in a geographically and culturally open online context. Any valid answer to the above question on blue ocean strategies has to be at least partly grounded in how you address that set of issues. So I begin addressing this question of blue ocean strategy and opportunity in terms of marketing demographics and from the fundamentals about both: blue ocean strategies and businesses and the development and offering of the disruptively novel, and the demographic groups that you would have to reach to make that work.

• When you think and plan and develop a business with a blue ocean strategy and performance goal, you do so with an objective of offering something to the overall marketplace that is disruptively new and that breaks away from what is already out there and also from consumer expectations as to what is out there for them to choose from. That is what blue ocean means – if you pursue this goal of moving past and away from any current competition, that calls for coming up with and successfully offering something that no one else provides or can provide, at least now and through the near-term future and that no one has provided before. (As a basic reference on blue ocean strategies and businesses see:
Kim, WC and Mauborgne, R. (2005) Blue Ocean Strategy: how to create uncontested market space and make the competition irrelevant. Harvard Business School Press.)
• And this means you are going to be building into uncertainty. That includes uncertainty as to what precise marketing demographic to market to and uncertainty as to how best to present and represent your new product or service even where you do have a clear idea as to who to market to. And I add the people you would want to reach also start out unaware of the existence of what you would offer them or the possible value to themselves from what you would offer them.

I have written a number of times in this blog about the issues of that last bullet point and about adaptor curves and finding and bringing in involvement and interest among pioneer and early adaptors. I have also written about the role of social networking and viral marketing there, so my goal in this posting is not to simply recapitulate what I have already written on these issues. The question that I would address here is actually a core risk management issue.

If you offer a completely novel and disruptively new product or service to the marketplace, you might or might not succeed in bringing it to market and generating revenue flow and profit from it.

• A novel product for example, might or might not cost-effectively scale up for production and with sufficient quality control for you to want to ship your new products out the door.
• Assume you can build your new offering at a commercially viable scale and cost-effectively and with good, solid, consistent quality control. You might or might not actually know what your best target market is, and who would, by demographic characteristics, be your best marketing audience and most reliable customers. Experience shows that truly novel offerings tend to attract unexpected primary buyers and markets.
• Assume you do have a clear idea as to who you should market this offering to. You would have to be able to effectively reach these prospective buyers with a marketing message and a sales opportunity, but simply offering a new idea or product on the internet in general, and even with carefully selected and targeted pay per click and similar marketing might or might not cost-effectively work.
• The issue that I write of here can all be reduced to burn rate challenges, where you need to develop a business out of a new offering and with all of the expenses that involves before you run out of the funds you have available to commit to this – before you run out of liquidity for this venture (see my series: Understanding and Navigating Burn Rate at Startups and Early Stage Businesses, postings 67-78.)
• So the question that I noted towards the top of this posting is about what else you can and should do that might not offer as much prospect as a successful blue ocean venture, but that is fairly certain to bring in a steady stream of revenue that can among other things help bankroll that blue ocean attempt.

And this brings me to what can perhaps be seen as a fundamental paradox:

• Established businesses can approach blue ocean novelty opportunities from a position of having significant cash reserves, and having successful if more standard business lines that can serve as sources of new venture support. But an established business might not be as nimble in what it could consider doing, in taking a blue ocean strategy risk. And their business-as-usual systems might thwart the innovative exploration of new possibilities that would make their trying to develop a blue ocean venture possible. Established businesses can become set in their ways and anything but agile in having an ability to conceive or pursue new.
• Startups might start out with less organization and strategic rigidity and with more openness to the possibility of developing and offering something dramatically new, but they generally lack the cash reserves and the supporting, stable business lines that an established business could tap into in support of innovative advancement.

I am going to continue this discussion in a next series installment where I will address this paradox where:

• The businesses most able to support innovation financially, can be the least able to do so strategically and organizationally, and those most able to do so strategically and organizationally can be least able to do so from a firmly supportive financial base.

And the goal of any such discussion is to explore and present approaches for combining sources of necessary strength so “able” and “willing” can come together in support of innovative excellence.

Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 8: the chop shop acquisitions and divestitures business model

This is my eighth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-7.) And in a fundamental sense I address with this posting, what many have come to see as the public face of acquisitions and divestitures per se – when they are not lumping the different business arena of mergers in with them.

I stated at the end of Part 7: divestitures in a troubled selling-business and change management context that I would turn in this posting to consider:

• Businesses that acquire other businesses and functional areas of them,
• To sell off those assets as marketable products, and with that acquisitions and divestitures process and any intermediate steps added in constituting their basic business models.

And in that regard, I noted that such businesses can be at least roughly divided into two camps and as pursuing two very different basic types of business model approach.

• One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts – see chop shop as this term is used in its more standard automotive context for perspective.)
• The other basic model focuses on creating overall systematic value, and generally that means creating unique new sources of value for the acquiring companies they sell to as a means of creating value for themselves. This, I call the value added model.

The former and more negative and even pernicious of these two approaches is, unfortunately, all too often the only approach that comes to public mind for acquisitions and divestitures businesses and I will at least begin this part of the discussion by addressing that and by citing a still current news example, as of this writing, as a case study.

When Willard Mitt Romney ran for President of the United States as the Republican Party candidate in 2012 he did so claiming to be a successful businessman and a job creator from that. One area of his work experience that quickly became a very active topic of debate and I add point of contention was his leadership of a private equity spin-off of Bain & Company (where he worked for an earlier part of his private sector career) called Bain Capital. The point of controversy that developed out of Romney’s role at Bain Capital and that I add followed him through his years there included how Bain acquired controlling interest in, managed and sold off other businesses. And in some very significant cases that meant acquiring solidly performing businesses with good cash reserves seemingly just to gut them with massive fees while selling off their key assets until there was little of real value left – except the red ink value of debt. Charges and accusations were made that like the chop shop of the business model name, Romney and this company that he led acquired to break and take – and that for too many of its business acquisitions the goal was simply to bring large returns on investment into Bain Capital’s coffers, even as those acquisitions themselves died off as viable businesses and their employees lost their jobs as a result.

My goal here is not to take a position on whether or not Bain Capital in general or Mitt Romney in particular made their fortunes out of breaking up businesses for scrap, or if this was true, how much Bain Capital built its business around that approach during Romney’s watch. I cite this story and briefly note this political conflict and debate here to raise the specter of a very real phenomenon and how it sits in the public mind.

To put this business model in a fuller perspective, consider a business that is failing and that cannot be recovered through change management – and a discouragingly high percentage of businesses that enter change management processes still do fail anyway. The chop shop model as I call it could under those circumstances also be viewed as a liquidation model where whatever value that can be recovered in a business failure is.

• The problem that arises here is when this same approach is applied to sound businesses, and more specifically to businesses that are undervalued but that are basically sound and that could become better positioned in their markets again and more highly valued there too.

And this brings me to the driver that makes the chop shop model work, when it is actually pursued as such:

• Businesses that are targets of opportunity for chop shop model acquisitions and divestitures firms are essentially always undervalued. Their intrinsic overall value as determined by reasonable and prudent measures of resources held, debts held and on what terms, and ongoing business performance exceed and even greatly exceed presumed values assigned to them through their publically traded stock prices and related measures – the price they could be acquired for, at least as a matter of capturing controlling interest.
• Think leveraged buyouts and hostile takeovers here as mechanisms deployed to make that work.

Concerns that Mitt Romney was this type of businessman and that he pursued that type of business model did as much as anything to unravel his presidential bid – and whether or not this view of him is valid. And the political dialog revolving around Bain Capital and his role there over his 17 year tenure solidified the image of acquisitions and divestitures as a business model as being tantamount to “corporate raider.” But that should only be seen as one part to a larger and more complex story.

With that as complicating background, I come to consider the second basic approach to the acquisitions and divestitures business model: the value added model – which is all too often lost as a possibility under the press coverage and public opinion that chop shop model businesses and their threat create. I am going to more fully discuss the value creating model in my next installment in this series. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Opening up the online business model for new and emerging opportunity 2: online target demographics oriented marketing

This is my second installment to a series on new and emerging online business models and on developing best practices for finding and creating new and novel online business opportunity. I began this series from a largely Web 2.0 oriented perspective (see Part 1: outlining some of the basic issues and challenges) but admit here that my goal for this series is more ambitious than simply that of suggesting some here and now-obvious best practices for developing a business in a current-generation Web 2.0 context, with or without explicit development of matching current Web 3.0 and semantic web capabilities.

I explicitly raised several open issues in Part 1 of this series, and my goal for this installment is to at least start addressing them – beginning with a complex of issues that I raised towards the top of that installment, and only briefly touched upon in what followed: marketing to a targeted demographic as a business’ local community. And I want to begin that by noting a basic fact that should be obvious, but that still can hold significant marketing and sales surprises when considered in practical detail:

• A targeted marketing demographic can be and usually is defined in terms of a set of shared member traits that can be correlated with varying degrees of certainty to likelihood of buying specific types of products and services, at specific price points and when marketed and offered in certain ways.
• That, at least represents the goal, connecting an understanding of who would be marketed to, to their behavior when marketed to, and in ways that can lead to insight as to how best to develop and complete sales.

But essentially any real group of people share traits in common that are not considered or included in the marketing data collected, and even in a big data context – here if data is collected but not effectively integrated into these models, it effectively does not exist from their perspective. And at least as importantly and particularly in an online context, any such group is also going to differ, and to be partitionable according to factors and traits that are not under consideration too, and for which data is not being collected or where it is but once again where these differences are not being allowed for in the marketing model.

As a quick and perhaps more technical digression, consider the impact of determining correlations between measures of predictable marketing impact and group identifying traits, when the overall group under consideration is more diverse that is realized. And a possible correlated trait might show as having an insufficiently low correlation coefficient value as a predictive factor to be meaningful across the entire group, and be discounted from the marketing model as a result – where it is in fact very significant for select and numerically important subsets within that larger group. (I cite and offer a link to a more general and open-ended reference for correlation coefficients there as the basic principle I cite here applies across essentially all statistical modeling approaches that might be in use where these values would be determined and used.)

And with all of that in mind, I explicitly turn to consider the similarities and the equally significant differences and diversities that can be found and even within what should be well-defined marketing demographics when they are globally distributed and cut across diverse traditional cultural and linguistic boundaries.

To take this at least somewhat out of the abstract, consider the following admittedly simplified scenario. You own an online business that produces, markets, and direct-to-consumer sells a line of environmentally friendly products – Green technology products in the West. And you come from a country and a culture where this is explicitly referred to as being green so you build your branding and image around that, and by that name and with that color. This may or may not matter as we people as a species seem fairly comfortable with inconsistencies and nuances, and even with cognitive dissonance, where we simultaneously hold two or even more seemingly contradictory views or opinions at once. But as a matter of possibilities, different peoples can see the color green as carrying very different culturally based connotations and implications. Green is a very nationalistic color in Ireland and it is a color associated with religious virtues in Islam and in predominantly Islamic nations, where it is often incorporated into national flags and other symbols. But depending on where you are, green is also associated with envy and jealousy, and in some countries (e.g. Belize) even with death, so the range of associations that would go through peoples’ minds with regard to this seemingly simple trait can be very diverse. (The Wikipedia entry for green sheds more light on this diversity so I cite it here as a background reference.)

My point in this example is that you might be targeting a demographic with a goal of doing significant levels of business with its members, who should as an overall group be positively predisposed towards your green technology products – but how you market this to them and how you use that color per se in reaching out can have varying impact and meaning depending on the cultural context and expectations of the people you reach, from within that globally dispersed marketing demographic. My guess is that by now, you are likely to be thinking that I am pushing “green” to far here. I can only reply to that objection with two points:

• It is the little details that we do not see as significant that can trip us up here, and particularly where they bring up distinctions and differences of bias and preconceived opinion that others might see as more important than we do.
• And we all make our purchasing decisions on the basis of unconscious decision making processes as well as from our conscious and more analytical thinking – and we at times only seem to use our more analytical and conscious reasoning to justify decisions already made less consciously.

And for green as a working example, I also note that this color has been used as a distinguishing identifier in sectarian and other conflict so even a color choice can have real impact.

• Market globally, but with a local face and awareness – and in this context, local means more accurately and adroitly defining all of those similar but still different and distinctively unique demographics, and really knowing where they can and should be combined as a single audience and where they have to be respected for their differences and diversity.

When I wrote my series: Big Data (see Ubiquitous Computing and Communications – everywhere all the time, postings 177 and loosely following) I wrote of the Holy Grail goal of effectively marketing to the demographic of one. Here I write of the equally compelling goal of marketing to the more finely envisioned and more effectively targeted group demographic too – and in a global setting with its bewildering ranges of potential similarities and difference and in both analytical opinion and unconscious assumption and correlation, that becomes more complex than it ever could in a more physically and geographically local market setting.

I am going to continue this discussion in my next series installment, there turning to consider those open questions that I raised towards the end of Part 1:

• When is pursuit of a true blue ocean strategy and business model realistic and how might a new business’ chances be improved for succeeding there in an online context?
• And what should be its perhaps more conservative Plan B, and when should breakout success and blue ocean strategy development that would lead to it be the Plan B?

Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 7: divestitures in a troubled selling-business and change management context

This is my seventh installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358 and following for Parts 1-6.)

I focused in Part 6: exit strategies and the sale and acquisition of complete businesses 3 on the serial entrepreneur and on building startups with a goal of marketing and selling them as complete business entities for the unique value propositions that they offer. Think of this posting as representing the exact opposite of that situation, with a matching discussion of right-sizing and streamlining a business in trouble with a goal of regaining business viability and strength.

In a startup as commodity scenario, with the business built to be sold as a profitably marketable offering:

• The business itself is built lean and agile around a clearly conceived source of business value,
• Extraneous organizational structure and business facilities are kept to a minimum in developing this, and
• Essentially everything and everyone in place are there for a reason.
• And the exit strategy goal is to build primarily if not exclusively to sell that defining source of marketable value.

In the change management scenario outlined here,

• The business itself is in most cases disorganized and sclerotic, and replete with waste, duplication and inefficiency, and it is likely to be organizationally disconnected and lacking any real strategic or operational center – and certainly for its day to day decisions and actions.
• The overall goal is not to sell the business, but rather to save it and even if that means saving it in effect from itself.
• The areas to be divested would be sold off both to bring in cash and to reduce non-productive and disconnected expenditures that have been bleeding the company out.
• So divestiture resources are more likely to be out of date or even obsolete than cutting edge, and organizational and operational systems that connect them together as a working part of a business are likely to be lacking.
• This means the selling business is not approaching divestiture as a company offering resources of compelling competitive value for an acquisitions marketplace, as much as it is a business selling from a condition of distress where it cannot afford to hold off for best bids. They are more likely to be seen as having blood in the water than as holding a marketing commanding position as they sell.

This all creates very interesting, and I add time-sensitive challenges for the divesting business, and even if it seeks out and secures organizational protection from creditors and through mechanisms such as Chapter 11 bankruptcy filing under the United States Bankruptcy Code.

• First of all its leaders and owners have to determine and articulate what this business actually stands for and does that can serve as an ongoing source of marketable value moving forward. It is likely that at least part of what it has seen as its source of defining value has fallen away from having such value for the markets it now faces, and that it can anticipate facing moving forward.
• Then its leaders and owners and any third party strategists brought in to help with this, have to determine and priorities what is there, and what of that would add value moving forward in support of the re-envisioned mission of the business.
• And they have to coordinately identify sources of ongoing expense and risk that are also being carried by the business that no longer support its mission or its newly forming strategic and operational vision. This is where resources might simply be written off as losses, or if packageable into marketable form be divested as saleable resources. What is more dead weight than anything else for one organization might be of real value to another.
• For the selling business that is undergoing reorganization and refocusing, identifying potentially monetizable, attractively marketable resources that do not fit into its new plans can be an important part of its recovery.
• And organizing and packaging what is to be sold off so as to meet the realistic needs of a potential buyer – and cost-effectively for the seller is an important part of making that work.

Taking this out of the abstract, consider a business that has been maintaining warehouse and production facilities that are out of date and disconnected from current or anticipated business needs for their size, location and technology in place. But they are located in a prime industrial location in a country with a growing market and with real competition for securing good production facility locations. The buildings and perhaps even more so the land they sit upon are going to be the real draw for any prospective buyer. The fact that electrical systems, water and waste disposal piping and other infrastructure are already in place offers real value too. You might very well have to sell off the old and out of date production equipment for scrap, and some resources in place will be discarded essentially entirely as a business loss (with that entered into tax filings as such.) The goal would be to sell quickly while bringing in as much working capital as possible that can go into helping finance the switch over and fulfillment of the change management updates that are being pursued by the selling business. And any tax write-offs and reductions in taxes due, as spread out over an agreed to period of years would offer supportive value for the selling business’ recovery too.

• Know what your business would divest and how and why.
• Know what types of buyers and prospective buyers would find value in what you would divest your business of and why, and what they might offer for it.
• Then sell competitively against alternative sources of the same types of resources that you would offer so as to get a good competitive price and on as good terms as possible.
• Here, terms of payment and timeframes for that can be as important or even more so, than the overall total that would be tendered in payment over the course of the sale and its aftermath.

I am going to turn back in my next series installment to Part 1: right-sizing and orienting for business strength and growth where I first cited businesses that acquire and divest other businesses and their business resources as their business model. And in anticipation of that and repeating from Part 1, I note that:

• There are two very different but important acquisitions and divestitures business models that merit explicit discussion here, where divestiture product development and commerce flow based upon it can become a major source of ongoing revenue and even the primary source of incoming revenue for a business.
• One of these models, starting with the negative side of this overall phenomenon, is what I call the chop shop model (after businesses that “acquire” cars to dismantle them and sell them for parts).
• The other basic model focuses on creating overall systematic value, and generally that means creating unique new sources of value for the acquiring companies they sell to as a means of creating value for themselves. This, I call the value added model.

Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Opening up the online business model for new and emerging opportunity 1: outlining some of the basic issues and challenges

Last November, 2012 I finished a series on best practices for using YouTube and related rich-media marketing approaches (see YouTube marketing 9 – developing viral marketing reach from a business model and strategic planning foundation) in which I noted that:

• A business that goes viral in its marketing reach is in a very similar position to a business that offers a highly innovative and novel product or service – a true blue ocean innovation to the marketplace.
• In both cases, the actual target demographics that would want to purchase may be quite different than initially anticipated.
• In both cases, market analysis and two-way sharing of information and insight are essential to making meaningful connections that will systematically lead to sales, to business stability and strength and to competitive advantage.

And I have also written about Web 2.0 oriented businesses (see for example Moving past early stage and the challenge of scalability 8: web 2.0 business models.)

Up to here, however, I have barely scratched the surface as to what a Web 2.0 oriented business model actually entails, as organizations that pursue that strategic and operational approach go online and seek to develop and expand an online reach. My goal here is to at least begin to more fully address the issues and factors that go into that. And I begin by repeating a fundamental reality of online marketing and business that I have already noted several times in this blog:

• The closest parallel to physical distance in cyberspace is a mathematical inverse of bandwidth, where slower speeds of connection online equate to being further away for bricks and mortar businesses.
• But with increasing proliferation of high speed and wide broadband connectivity and with the ever-increasing expansion of what wide broadband connectivity means as a minimal requirement, any business that goes online can realistically hope to reach geographically widely distributed audiences and with effective immediacy.

That has some immediately significant consequences. Among them, and to further build a foundation for this discussion, it should be noted that:

• When physical distance per se ceases to be a pertinent market-defining factor, the closest approximation to a local market becomes a needs and interests oriented target demographic. (I will hold off on elaborating on this point for now and simply note here that I am going to post an installment on online demographics oriented marketing in this series.)

One of the points that comes directly out of the above six points as developed up to here is that any business that goes online faces at least the potential of building a truly global audience and marketplace – and certainly if it really understands the dynamics and qualities of its prospective marketing and sales audience and what qualities its members hold in common, that by trait correlations define the group. And that is where this narrative begins to get more complicated and nuanced in the real world – and in real cyberspace.

• You have a product or service that you would want to sell, and when you do so online you potentially face and reach a truly global marketing and sales audience.
• So at least in principle, even a very narrow niche market-oriented offering that could not reach a sufficiently large interested target audience in any physically localized marketplace, might succeed online. After all, online you can at least in principle, tap into the buying potential of many, most or even all of the physically dispersed online members of a marketing demographic who would constitute an interested customer base.
• In cyberspace and for purposes of product design and development, online marketing and sales, the closest approximation of a local market is that target demographic. That understanding drives the Web 2.0 oriented business.

But let’s consider some of the potential complications to this story that can and do arise.

• Buyers always have finite and limited resources that they would have to tap into in making a purchasing decision, with limits to their time and energy that they can devote to a product or service search, and limits to what they can and will spend monetarily when they find what looks to be a good offering.
• When a potential buyer is making purchasing decisions that involve more standard and even mainstreamed products and services, businesses compete for their consumer dollars against businesses and providers who are largely coming from within their own industries and even their own niches within their industry. And consumers might start their search by going to a favored and familiar business to buy from, but they often make their purchasing decisions on the basis of search engine queries where they look for both products and sources simultaneously and by using basically standard search terms.
• But when a product or service offering is truly novel and disruptively new, chances are higher that businesses offering them are competing against businesses that offer different and even very different types of products and services when competing for those consumer dollars. And it is likely that there is no standardized set of search terms that would automatically lead to a selling business for a truly disruptively new offering.
• Disruptively new and novel offerings tend to be much more attractive, at least at first and when still new and disruptive, to pioneer and early stage adaptors who value novelty per se. And they only become attractive purchase options to middle stage and late adaptors later and as those consumers see others buying in. But even there and within the pioneer and early adaptor market cohorts, and even where members of those groups are looking to acquire new and cutting edge per se, they would be looking in many cases more widely than just to your specific types of products or services. So your offerings would be competing for these consumers’ limited resources against new and novel in general, plus standard and generic as these consumers meet their basic and ongoing needs.
• So knowing your true competition becomes more complex as you offer distinctively new and novel, than would be the case for more mainstreamed offerings that would cater more specifically to mainstream, established markets.
• But at the same time, and returning to the points raised and noted at the top of this posting, new and disruptively novel is also quite specifically where blue ocean strategies and larger emerging market opportunities would be found.
• So in the mind of a startup owner, and at the heart of any Web 2.0 and explicitly online-oriented business model that they might deploy, and certainly as that uses more cutting edge and early adaptor-oriented communications and connectivity channels and approaches – you will often find a desire if not an explicitly stated and planned intent to achieve blue ocean success. When is that realistic and how might a new business’ chances be improved for succeeding there? What should be its perhaps more conservative Plan B, and when should breakout success and blue ocean strategy development that would lead to it be the Plan B?

This is the first installment to a new series, and as noted above, I plan on discussing online demographics marketing as part of it. I also plan on discussing the open questions raised in my last bullet point immediately above, and more. Meanwhile, you can find this and other related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Acquisitions and divestitures 6: exit strategies and the sale and acquisition of complete businesses 3

This is my sixth installment in a series in which I look at acquisitions and divestitures and related processes, and examine businesses from a very modular prospective as to how value is created and sustained (see Business Strategy and Operations – 2, postings 358-362 for Parts 1-5.)

I began a discussion of exit strategy-based complete business divestitures in Part 4 where I introduced three test case scenarios that collectively illustrate some of the core issues involved here. To briefly recap and orient from there and for purpose of clarifying this posting, I repeat that:

• Scenario 1 represented sale of an established business by an owner who seeks to step away from it to retire.
• Scenario 2 represented sale by a serial entrepreneur who builds out new businesses to sell them and with that exit strategy built in as their default, essentially from the beginning.
• Scenario 3 arises when a business owner gets that offer that they cannot refuse and decides to sell because of it.

I briefly addressed the issues of evaluating and selling a business according to Scenarios 1 and 3 in Part 5 and specifically recommend reviewing Parts 4 and 5 of this series as foundation material for what is to follow here. My goal for this posting is to at least briefly analyze and discuss Scenario 2 with its types of divestitures and acquisitions. And I begin there from an operationally and strategically lean and agile business development perspective. (See my two series: Virtualizing and Outsourcing Infrastructure at Business Strategy and Operations, postings 127 and loosely following for its Parts 1-10, and Moving Towards Dynamic Performance Based Business Models as can be found at Startups and Early Stage Businesses as postings 123 and loosely following for its Parts 1-8 for background materials and discussion on lean and agile business planning and execution per se.)

• An entrepreneur who moves in on a prospective unique value proposition with a goal of building a marketable business venture around it, plans and builds with one goal – to reliably and at minimal risk and upfront-cost, set up and build a business resource that can be sold off on a short timeframe when ready, and at a substantial profit.
• Operationally, the goal in that is to build well enough so that the offering put on the market would be an attractive buy that could be cost-effectively brought to market.
• And that means building this commodity enterprise to be stable and sound enough to develop and realize its unique value proposition, but with a very pronounced focus on developing and presenting just that.
• That means limiting to a minimum anything extraneous when planning and building, and with third party outsourcing or virtualization or other approaches applied as appropriate. The goal there is to limit both extraneous fixed operating expenses and the development of non-essential in-house supported resource base.

From the buyer’s and acquisitions side of this:

• Their goal in this is to limit the level of extraneous resource duplication and other cost expanders that they would have to buy, that they do not specifically need,
• In order to acquire and bring in the specific unique value proposition capability that this offering would bring to their own business in meetings its ongoing and long-term strategic needs.

What I am outlining here is a very business sales and divestiture, and acquisitions-oriented lean and agile approach. And here is where this type of exit strategy takes on a very specific meaning for newly forming business ventures as divestiture and acquisition objects:

• A whole range of business infrastructure systems and functionalities can reliably be expected to become essential that would in most cases be held in-house as a business expands and scales up,
• And the overall value and cost of all of this supporting structure can come to outweigh all but the most compelling unique value propositions for a potential acquiring business, making development from scratch and other options more viable alternatives to acquisition for gaining that specific source of unique value.
• And when businesses develop directly matching or at least directly competing alternatives to a unique value proposition that a potential acquisition holds, it ceases to be a unique value proposition and loses potential marketable value from that.
• But in many and even most cases supporting functional requirements are simpler and more easily handled on the side rather than by dedicated specialists when the headcount is still very small and business processes have not begun to expand in detailed complexity.
• So startup and early stage are the business stages where it is easiest to develop and offer a marketable business venture that is closest to being pure unique value proposition than at any other stage or time – before all of those supporting structures and systems have elaborated. So for reduced extraneous expenses, a unique value proposition can hold greater acquisition value at that stage.
• This, collectively, can make the build to sell serial entrepreneur model very successful and profitable and certainly for entrepreneurs deeply experienced in building and managing, and marketing and selling startups.

I am going to turn in my next series installment to consider resource divestiture as a fundamental component of change management, and of course correction when a business is in or at least rapidly approaching crisis. And as a foretaste to this, I note here that a big part of making that work is to strategically prepare and carry through this type of divestiture so as not to be caught in an entirely buyer’s market – and with a goal of realizing fair value for what is sold off. Meanwhile, you can find this and related postings at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2. I have also included this series installment in Startups and Early Stage Businesses.

Moving past early stage and the challenge of scalability 31: business scalability from the global business perspective 2

This is my thirty first installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96 and scattered following for Parts 1-30.) This is also a direct continuation of Part 30, where I first began explicitly exploring the issues of expanding a business and its operations internationally and even globally, from the perspective of improving expandability and scalability per se.

I focused on two areas of potential difference that can become critically important when expanding a business and its operations into a new country: legal systems, and cultural norms and systems. And I noted in those contexts that differences might only become readily apparent when significantly problematical violation of expected norms have already developed, and certainly where cultural differences come into play. And to reiterate a briefly noted set of working examples as to how cultural factors and assumptions can shape business practice, and accepted and expected workplace behavior, I note that:

• For businesses and business settings, cultural differences can and often do express themselves as differences in communications practices and expectations, and on how good or bad news is or is not stated or even acknowledged.
• Cultural differences can and commonly do affect how mangers lead, and how people on those managers’ teams respond to suggestions, directions or advice and from whom and on what time schedules.
• Business expansion and scalability has to be carried out with an awareness of these and other issues and certainly when this means expanding in directions where differences and conflicts of understanding and acceptability can arise – which as stated above might only be apparent after a problem has developed.

And significant issues do not just arise when moving into a new country to do business, where cultural details in dress and other day to day matters are overtly novel and different from those of the home office setting. The most significant business practice and employee problems that can arise from cultural differences often in practice, manifest themselves from seemingly little differences: the differences that can sneak up on you because this new business setting seems more uniformly similar and familiar that it perhaps really is – at least for some issues of importance to employees, customers and others.

I stated at the end of Part 30 that I would turn in this posting to consider approaches for identifying potential problem areas proactively, and for more effectively course correcting where problems do arise. And for that, I follow through on both halves of that series installment: legal and cultural issues and challenges, at least as a starting point. And I begin that from the fundamentals:

• Never simply move into a new country to expand your business as if arriving like a conquering army. This means moving in with eyes and ears open to both similarities and differences, and it means bringing in managers and advisors, at least as short-term consultants for the latter, who really know this country and how things are done there.
• In practice this is probably going to mean finding the right people there, in a target country for business expansion, bringing them onboard as new employees, and training them to business practices and systems, and to be aware of the business’ ongoing corporate culture and ways – at the home office.
• And while they are there and before starting to build in the new country, learn from them as they are learning from you. Talk with them about similarities and differences of approach, process, understand and expectations, and about differences in communications and follow-through that they face. These are the people who can tell you in advance where problems might arise as they will see where they themselves find differences between what they see while working at the home office or headquarters, and how they would do things and see them done back home.
• If expansion into a new country is through foreign acquisition and involves bringing in preexisting business operations and systems as a whole, bring in at least select managers in place and certainly from those who would definitely be kept on – or where a decision would have to be made on that and they are in an organizationally critical position. Train these mangers for working as managers of the now parent company and bring them up to speed in the home office or headquarters, and probably in strategically and operationally grouped batches so as to maintain business effectiveness in the acquisition during this process. And once again, while they are learning about your now expanding business and its systems and ways, pick their brains for understanding and insight too.
• And this type of two directional sharing of knowledge and insight can and should really go both ways. As a foreign acquisition goes online, send one or more home office or headquarters trained managers, who might be junior level or mid-level to learn and work at this acquisition – not to run things but to serve as advisors and facilitators and to learn. Pick people who have language skills, or at least ability to pick up a new language and who would be comfortable finding their way in another culture – and who know that they have a lot to learn and who can do that. Pick people who really know the business and how things are done in its core home country offices so they can help their new colleagues avoid problems or complications stemming from misunderstandings.
• And together, these two sets of managers can serve as the bi-country experienced backbone of your increasingly multinational enterprise for making connections and bridging gaps.

The goal here is to find ways to maintain the overall identity and systems and values of the parent company while respecting and effectively working in the perhaps strange waters of a new culture and setting – and with people in those foreign offices feeling connected while still knowing they can be themselves and of their own cultures while doing so. And there will always be tradeoffs and complications in anything like this when this type of program is moved from principle to practice, and hope to realized business results. But this will go more smoothly than simply moving into a new country to do business ad hoc and without systematic planning or follow-through.

I am essentially certain to continue writing about the types of issues I have been raising here, and I add throughout this series. But for now at least I am ending this specific series here at 31 installments. You can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

Moving past early stage and the challenge of scalability 30: business scalability from the global business perspective 1

This is my thirtieth installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96 and scattered following for Parts 1-29.)

My goal for this posting is to at least begin a discussion on navigating the complexities of building a business to succeed in a larger more globally diverse operational and strategic context, and in a wider cultural context. I have touched upon a number of the issues that would enter into this, and that would help to shape an expanding business’ success in the course of writing this series up to now, and in other series in this blog. As such, some of what I would write here is new to the blog and to this series in it, and some would be added here more to offer a single more organized narrative on a complex subject and even if that means bringing together details and perspectives already at least briefly touched upon.

When I noted at the end of Part 29: scaling up and expanding the virtual company, that I would discuss going global in this series installment, I somewhat arbitrarily picked out one area of difference and complexity that essentially always has to be faced when building offices, factories or assembly facilities, in-house storage or distribution facilities or other wholly-owned facilities in another country – with their own local staffing and other features: cultural differences. I picked with that, what seems at least from my experience to be the one area where the most unexpected challenges can arise. So I will address that topic but I want to do so in a larger context and I will begin that by noting an area of difference that at least should be overtly more obvious up-front: differences in law as you begin operating across national boundaries and in completely different legal jurisdictions and frameworks.

Any lawyer reading the above paragraph and its last sentence would probably wince. “Legal differences” can and do include everything from tax law and interpretation and understanding as to what is taxable where, to labor law and employee rights, to owner and manager liability as legally defined and parameterized, to laws pertaining to zoning, construction and maintenance of physical plant to …. The list is seemingly endless, and court cases arise and judges and juries rule in legal gray areas where binding legal interpretations coming out of a decision are not always certain going into those legal proceedings. But law, at least in most cases and circumstances, is on the books and publically visible even if sometimes ambiguously and even contradictorily written. And where there are reasons to expect differences in interpretation and understanding of meaning, that fact should be knowable. And skilled attorneys should at least, be able to draft arguments that would logically support the positions of the businesses they represent and in agreement with existing case law in place. And the visible experience of others from case law history should indicate where rulings tend to be arbitrary and capricious or systematically biased – meaning it should be visible and knowable where these additional sources of risk and due diligence concern would have to be taken into account and both when formulating international agreements for setting up and running foreign-sited and staffed facilities, and for when actually running them.

• The above paragraph presents a very partial listing of some of what should be considered areas for possible legal worst case scenarios. When expanding and scaling up a business, a part of the decision making process as to where to expand would take risk levels coming from them and similar into account when choosing appropriate sites to expand into, and policy and practice for that would be laid out in the scalability model in place.
• To consider a specific example here, China is generally considered a positive source of business expansion opportunity for its potential marketplace scale, with over one billion consumers, but when a foreign business seeks entry into those markets through business expansion into that space they have to meet some very specific legally mandated and supported requirements. One is business to business partnership with a Chinese business that might be state owned or controlled and that at the very least has to be state approved. Another involves technology transfer to that partner business and certainly when new or novel technology serves as the basis for entry. So the effect is that unless an entering foreign business negotiates with care they can in effect primarily be setting up their own most significant competition, as partner businesses gather and then use transferred technologies and other proprietary business intelligence.
• Operating in another country always carries a blend of opportunity and risk so this is not strictly speaking just about doing business in China. Legal requirements and restrictions and their longer term consequences as actually played out in practice have to be taken into account when working in any other country – always.

Think of this as an elaboration of the types of legal compliance issues that arise when simply selling to foreign markets where all of those restrictions and requirements have to be allowed for and understood, plus a lot more. But as I noted above, the legal frameworks for this all tend to be formally spelled out in writing in a country’s or local jurisdiction’s legal codes. And this, as a source of comparison points brings me to the issues and challenges of cultural awareness, accommodation and compliance.

• I have written several times in this blog about how corporate cultures can be viewed as sets of assumptions and perspectives and behavioral norms that are followed but rarely thought about. They are just what is done and only become apparent when in some way violated.
• This also holds for national and other community-based cultures and certainly for the little details of automatically assumed behavior – automatic that is, for those who live those cultures. As a simple case in point, consider cultures where people routinely eat with their hands when eating alone or when sharing meals with others. Now think about the implications of someone dipping their left hand into a container of food that is being eaten from by a larger group at a socially organized meal – in a culture where it is only socially acceptable to do so with the right hand as it is culturally the standard to use your left hand for other purposes considered to be unclean. No one really thinks about this until it is done embarrassingly wrongly and in public and where everyone else at that meal feels at least a bit uncomfortable at best, as a result.

Culture and cultural differences extend way beyond just defining dining practices and good table manners.

• For businesses and business settings this also means differences in communications practices and expectations, and on how good or bad news is or is not stated or even acknowledged.
• This affects how mangers lead, and how people on their teams respond to suggestions, directions or advice and from whom and on what time schedules.
• Business expansion and scalability has to be carried out with an awareness of these and other issues and certainly when this means expanding in directions where differences and conflicts of understanding and acceptability can arise – which as stated above might only be apparent after a problem has developed.
• And I add, if there is one area of experience where people can be expected to push back against the homogenizing forces of online global connectivity and community, it is in preservation of their cultural differences as a defining and local community-individualizing voice. So individual managers and business leaders, and business organizations as a whole expand outward and internationally without active awareness of these issues with at least as much peril as they would face if they did so without explicit awareness of legal systems differences.

I am going to continue this discussion in a next series installment where I will delve into approaches that can be taken to lessen problems that can arise from legal and particularly from cultural differences. Meanwhile, you can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.