Platt Perspective on Business and Technology

Online store, online market space – part 27: balancing one-off and recurring sales revenue streams 6

Posted in startups, strategy and planning by Timothy Platt on September 29, 2013

This is the twenty seventh installment in a series on building an online store as a new business (see Startups and Early Stage Businesses, postings 20 and loosely following for Parts 1-26.) This is also my sixth posting to this series where I have explicitly discussed repeat and recurring business revenue streams (see Part 22 where I explicitly defined these terms for purpose of this discussion and Parts 23-26. And I add that this posting is also in many respects a continuation of a second series that I have also recently been running: Balancing a Focus on Your Competition with One on Your Innovation (see Business Strategy and Operations – 3, postings 417 and following.)

I begin this posting by repeating a point that I noted more in passing in Part 26 of this series that I will more fully develop here:

• The goal here is to reorganize and balance their inventory and its selection of offerings, so as to increase likelihood that a customer would seek them (e.g. a product and/or service providing business) out again.

My innovation series as cited above, focuses on finding and maintaining a more competitively effective balance of three fundamentally distinct types of innovation: cosmetic innovation, more genuinely significant evolutionary innovation, and disruptive and market changing innovation. I wrote that series primarily focusing on established businesses and how they would develop a best offering mix for meeting their needs, balancing potential benefits and profits against potential risks and loss. I turn here to consider some of these same issues, but from a startup perspective, and I begin that by noting a point that I have raised many times over the years when working with startups and also in my writings:

• If you are going to start a business with all of the work and effort and commitment and all of the risk that this entails, it does not make sense to strive to be tenth best in a competitive field of twelve.

I change the numbers when and as I say that but the basic underlying message is simple and clear:

• If you make the commitment and effort to build a new business, build it to be the very best, or at the very least one of the key marketplace leaders for what you would offer.
• This means being effectively competitive in all of your business processes and systems and it means bringing in good people and putting them in the right positions, and without organizational gaps or bloat. For your business processes this means back-office and support processes and this most definitely means processes and process cycles that would go into developing and building, marketing and providing your products and services, and providing customer support as appropriate too. But ultimately, the heart of your business and the feature that defines it is in what you actually offer to your customers and your marketplace.
• And that is where developing and maintaining an effective mix of the three basic innovation types enters this narrative.

As a general rule, a startup that simply seeks to offer standard products and services already available but with cosmetic changes, is setting itself up to be that 10th best in a field of 12. At the very least, it would be difficult to successfully argue that they are actively seeking to be the best and a true market leader. There are a couple of possible situations where this line of reasoning might not apply and to validate the general principle I cite them here, as putative exceptions that prove the rule if nothing else:

• If you can offer an otherwise standard product at a price point that undercuts all of your competition while maintaining quality and product availability, then offering what is essentially a standard offering, with brand identifying cosmetic changes might be more than sufficient for a startup to catapult itself to the lead as the most strongly competitive business in its market and even in its entire industry.
• But chances are, if this startup or early stage business can achieve that, their finished products might just be cosmetically different from those of their competition,
• But they probably have developed a significantly distinctive evolutionary if not revolutionary next step forward in how they would produce, deliver or both, what they offer as their “standard” products. So they are not simply making cosmetic innovative changes.

One of the basic underlying principles of online business and of online interactions in general, is that in cyberspace, the only real and meaningful measure of distance is what could be seen as a mathematical inverse of bandwidth – at the narrowest bottleneck in the path that would connect two points. So the faster the connection between them, the closer together those two points effectively are to each other. This, with broadband connections becoming commoner and commoner, means there is no effective proximity-to-customer value online, at least for online communications and transactions per se.

• But if you provide a product or service that does not or cannot effectively travel long distance and you would face limited direct competition for what would be your local online market that would fulfill online transactions, then simple cosmetic changes in what you offer might be sufficient.
• But this simply changes the basic premise where you are not going to be 10th best out of 12 – but only because you do not actually face that many competitors.

For online businesses that compete in more genuinely more open markets, startups really need to define themselves by skewing what they would offer more toward the significantly evolutionarily different and improved, and the disruptively new. And it is the disruptively new that creates the best material for marketing a new business as a new leader in its industry and its marketplace. And this brings me back to the risk/benefits analysis considerations of my series on competition and innovation that I have been referring to here.

• Startups might begin with fewer resources and reserves and more limited available liquidity than a more successful established business competitor would have.
• But for long-term competitive and business effectiveness purposes they still might have to begin from day one accepting the greater risk levels that skewing their offerings more toward evolutionary and disruptive change would carry.
• And a breakaway startup really needs to be able to define itself to the public in terms of breakaway and disruptively distinctive new, and certainly if it is going to push past the marketing momentum and ongoing name recognition of any competition already in place.
• Here, to clarify that point, when I write of competition, I mean competition that offers similar and directly competing products and services. But more than that I also mean businesses that compete for the same dollars (or Euros, Yuan, etc.) that a prospective customer might spend in purchasing your offering.

And this brings me to the issue of repeat and recurring business and the basic line of discussion of this series as whole. Evolutionary, and even disruptively new revolutionary change and innovation in what is offered can be designed so as to bring the customer back. And building New with these customer connectivity opportunities in mind can even be a part of what makes a product or service new. Think consumer-preceived value added there. And one consequence of that, and certainly as this strategy succeeds, would be to reduce overall risk from any one sales opportunity falling through by increasing and stabilizing the overall flow of business transaction traffic.

As a final thought for this posting:

• The issues that I write of here should be addressed starting well before day one of a new business and from its initial planning on,
• And both for what would be offered, and for how innovative your perspective customers would see it,
• And for thinking through and understanding who they might even be,
• And for who and what you would be competing against – and as options that customers might spend from their limited funds on in general and not just as they would buy direct similar-offerings.

I am going to switch direction in this series in my next installment, where I will at least begin a discussion of small business collaborations that would be set up in order to collectively capture big business customer preferred prices and terms of purchase from suppliers. Meanwhile, you can find this series and related postings at Startups and Early Stage Businesses and also at Business Strategy and Operations and its continuation pages Business Strategy and Operations – 2 and Business Strategy and Operations – 3.

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