Business Brainstorm, New Economy
Has “monetization” made you nervous about pushing your business ideas to the next level?
The word “monetization” has a shadowy past in the world of business online. Bloggers have tried to monetize their audiences. Developers have tried to monetize free products. Old school media has tried to monetize their content.
Some people have made money through monetization. Some haven’t.
My problem with the idea of monetization isn’t that it doesn’t work but that it’s a destructive, extractive way to view your business. It lacks the innovation, disruption, and creativity that a value(s)-driven business model has.
Isn’t this all semantics?
Perhaps. But I put a lot of credence in the language people use. And when people use the word “monetization,” it blocks their creative juices and dampens their abundance receptors. Click to tweet it!
Here’s why:
Monetization is rent-seeking.
In economics, “rent-seeking” is basically trying to get a bigger piece of the pie. It assumes that there is a finite set of dollars or customers and that you need to through your weight around to get some of it.
The business owners I work with & that read this [site, blog, email] don’t think that way about their business growth. They want to serve. They want to contribute. They want to create things of great value. But they are often following strategies that were devised for monetization & rent-seeking.
And they see a false causality between monetization strategies & success.
For instance, blogs were never designed to be businesses. Blogging grew out of the human desire to record & reflect on life. They became communities out of the human desire to connect and cultivate intimacy.
At some point, people realized there was commercial opportunity in blogging. And I don’t blame them at all! Those early professional bloggers were creating something truly valuable, generating fresh wealth on a daily basis, creating connective threads through communities. As others wanted to get on the growing market, they wanted to learn how to duplicate the success those early bloggers had.
What started as genuine value creation became “monetization strategy.” Here, it was not only the business model that got copied but the content, communities, and outreach. Look around the blogosphere and you’ll see layer upon layer of sameness. Again, what was genuine value is now fluff designed to make money, generate traffic, and simulate credibility.
So when I see people tell you to create lots of free content, build an email list, reach some magic number, and then launch your first digital product, I want to throw up a little. It’s backwards because it’s a strategy that was reverse-engineered from a misunderstanding.
What will you do to generate new, stick-to-your-ribs value? Don’t worry if what you have in mind can’t be “free.” Who cares? Creating value creates buzz. Even when it’s for sale. Especially if it’s for sale. You can build a community or movement from a product that people pay for. Below are three examples of vibrant, profitable communities built on paid products.
Remember Tara Mohr from yesterday’s post? She was amazed at how her audience grew when she launched the very first session of Playing Big. Beyond reaching her sales goal, she added hundreds of new fans. People took notice because she was generating fresh value.
Danielle LaPorte didn’t grow a massive blog and then launch products & services to serve her readers. She sensed she had wealth to offer the world, packaged it as a Fire Starter Session and offered it to anyone who could use it. I believe that the massive value she delivered through those sessions was much more the catalyst of her growth than the awesomeness of her blog. To this day, she continues to create fresh value first instead of extract monetary reward from her audience.
MailChimp created a great email service that companies paid for before they started giving free accounts away to microbusinesses by the drove. They had a profitable business long before they started growing through the freemium model. When they went freemium (you can have a robust email marketing account with them for FREE), they actually noticed a sweet uptick in larger, paying customers as well. That’s not because MailChimp started offering free accounts, it’s because they were delivering a great product.
Why on earth could going freemium bring in these larger and larger paying customers?
Because we did everything totally bass-ackwards.
— MailChimp blog
MailChimp regularly adds 2,000 new accounts per day, most of which are free, but that initial community grew because of the greatness of the product not because it was free.
A small percentage of a very large number is indeed a large number, but can your startup stay solvent while you wait for the conversion to kick in? Freemium only offers the hope that non-paying users will fall in love with your product and start paying for it.
— Rags Srinivasan, Gigaom
You’re looking for impact and growth. You’re hungry to make a difference in as many people’s lives as possible. But free first isn’t the only way.
Your greatest asset to growth might be the product or service you’ve been waiting so long to create.
Click to tweet it!
Your fear of “monetization” is justified. It’s your fear of having something to sell that’s not. If only you had a framework for knowing whether you were truly creating a remarkable product with stick-to-your-ribs value or launching yet another rent-seeking monetization strategy, you could fix it, change it, launch the damn thing already.
If you find yourself questioning the products or services you’re considering launching, it’s probably because you see so much rent-seeking around you.
Here are some questions to ask yourself to determine whether your idea falls under true value creation or whether it’s just a monetization strategy:
- What is the impact of this product on my customer’s life right now?
- What is the impact of this product on my customer’s life over the next 1-5 years?
- How does this product address a genuine frustration or desire that my customer has?
- Would my customer seek out alternatives if my product didn’t exist?
- Who do I want my customer to become as a result of using my product?
- Will my customer want to tell his/her friends about my product?
Create something that people are willing to pay for first.
And let them pay for it! Let them tell their friends.
Don’t rest your success on your ability to convert the masses. Use your early adopters to recruit & court your next wave of customers.
Don’t rely on monetization strategies that seek to collect rent from a community you’re sharing with others in your niche. Generate fresh value that solves a problem or fulfills a need for the customers you want to serve.
There’s plenty of room in the kitchen to build a bigger pie. There are plenty of ways you can serve, needs you can fill.
You’ll create a more robust movement of customers who are engaged, motivated, and results-driven. You’ll get feedback you can actually use. You’ll see opportunities as they present themselves.
It might take longer to grow. But your growth will be more sustainable, longer-lasting, and less dependent on you.
And you can take that to the bank.
Business Brainstorm, Profit
Last week, Abby Kerr tweeted that, while she’s seen all manner of business blowhards (myself included) wax poetic about motivation, marketing, and productivity, she’s seen very little about actual business development: generating a business model and the like.
So I took that as a personal challenge.
Thanks, Abby.
It’s true. You won’t find much out in the open on business model generation. And what you do find might not mean much to you because it’s either meant for someone in an entirely different industry or it’s so thick in MBA parlance that you could serve it up on a plate.
So let me start at the beginning. And I promise, I’ll reveal some secret sauce at the end of this post that will have you saying, “Huh. So that’s how it works!”
Why should you even care?
Sure, developing a business model can be the drivel that MBAs talk about when they’re trying to sound important. But there is more to it than that.
Do you wonder how to get everything done during the day? Do you wonder if you’ll ever make enough money to justify the business you’ve started? Do you think the answers to your business problems always come down to more traffic, more clicks, more subscribers?
You, my friend, need to understand your business model.
What is a business model?
A business model is the system in which ideas, people, and products come together to generate revenue. In more technical terms, it’s the system in which your value proposition, customer segments, products, cost structure, and channels produce profit.
Your business model isn’t your product, your price, your people, or your value propositions. It’s all of it, working together.
Laying it all out can help you find opportunities for growth, discover what’s not working as it should, and strengthen your own understanding of just how your business works.
This isn’t a “when I have time” kind of exercise. This is now or never.
What kind of business model should you have?
Business owners often make the mistake of thinking that there are several set business models that they can choose from. And true, you could probably put some different business models under the warming lights and dish yourself out the one that looks least frightening at the time.
Unfortunately, that type of business would be about as satisfying as dinner from Old Country Buffet.
There is no perfect business model for life coaches, or knitters, or business consultants, or therapists. I wish there was. Sure there are similarities, best practices, and things that just make sense. But that doesn’t mean it’s set in stone.
In truth, your business model is completely up to you, your strengths, your skills, your customers, and your “I absolutely won’t” list. You do have one of those, right?
Where do you start?
First, you lay out all the puzzle pieces. Business models have a lot of working parts as I mentioned above.
Below, I’m laying out the core pieces. These pieces will help you determine if your idea of how to run your business is viable. As you seek to optimize your business, you’ll need to incorporate the other pieces.
When you’re ready to do that, check out Business Model Generation by Alexander Osterwalder.
You’ll want to grab some pen & paper – or open a mind mapping tool before we get started.
Products & Services
Let’s just start here, not because it’s the most important part but because it’s the most straightforward. What do you sell? What’s on the shelf? What could someone buy right now?
For example, in my business, someone could buy The Art of Earning, Email Marketing Kick Start, group coaching, or one-on-one coaching. Those are the offers on the table. They are all generating revenue, at different rates, regularly.
What do you have on the shelf? Physical products? Digital products? Services? Events? Gigs?
Write down each and put the price next to them.
People
Just who are you selling this stuff too? Who are your potential customers and where are they located? Within your “people” you might have several segments (i.e. beginner, intermediate, and advanced) who have slightly different, but distinct, needs.
For example, at Scoutie Girl, we have DIYers who are looking for inspiration & ideas, we have creative business owners who are looking for information & insight, and we have aspirational creatives who read to experience what they don’t have personal access to on a daily basis.
Write down each customer segment you have. If you know approximately how many exist within that segment, write that down too.
Channels
How are you communicating with your people? Since business in the 21st century is largely based on relationship & connection, it’s insanely important to understand just how many channels you have at your disposal when considering your business plan.
In this case, I have a bunch of channels. The blog, Twitter, Facebook, Google+, speaking, and email marketing are a few. Each of my channels hit different types of people, in different ways.
Write down all the customer communication channels you have available to you.
Activities
This is what you have to do to keep your business running, communicate with customers, and deliver value. Here I would think in terms of thriving and not just administrative tasks all businesses have in common.
For example, for Megan‘s jewelry line, her activities might include designing & developing new pieces, selling at trade shows, pursuing press mentions, researching art & design at museums, and following up with boutique & gallery owners who place orders.
Write down all the activities you need to be doing to make your business thrive.
Costs
This is how much money it takes to run your business, create what you make or offer, and find new customers or clients. It can be vastly different for different types of businesses so it’s important to know what your costs are.
In my case, my costs include email marketing services, web hosting, conference call lines, travel, and PayPal fees, among other things.
Write down everything you spend money on now (or check your tax return!).
It’s all written down. What’s next?
First, seek to better understand the business model you already have.
- What connections could you draw from section to section? Which channels line up with which customer segments? Which activities coordinate with which products? If you’re a visual person, draw out how your business looks to you based on the information you’ve just written down. If you’re more verbal, write down key statements that tie important pieces of information together.
- What appears unnecessary? As your business grows & changes, it’s inevitable that you’ll have parts of your business that just aren’t serving you. Write down what you could remove from your model to simplify your business strategy.
- What’s missing? Inevitably, there are holes in your business model. Is there an underserved customer segment? Are you underutilizing a particularly effective channel? Is there an opportunity to make a connection between a product & an activity? Write down all the opportunities you see in your model.
Next, figure out if what you have is viable.
The first thing you recorded was all the products & services you have available and how much they cost.
- Ideally, how many of each could you produce in a week? Keep in mind most freelancers, coaches, and makers can only produce “work” about 20 hours per week. The rest of the 40 hour work week is spent in support of your business (marketing, admin, learning, etc…).
- Ideally, what would your product spread be? In other words, how many of each would you like to sell in a week out of what you can produce (i.e. 10 hours of coaching, 10 hours on an ecourse OR 20 necklaces, 50 earrings, and 30 bracelets).
- Multiple the cost of each item in your product spread by the number of sales you’d like to achieve. This is the number that is your ideal income based on what you can create and how you’d like to sell it.
Now, when you take into consideration the costs to run your business, is this a number you can live with? Does it feel abundant? Does it feel scary? Does it sound ridiculously low?
Some conclusions you might draw…
You could draw many conclusions from this number.
If the number is very high… and you’re feeling like you’ve just won the lotto… How can you make those numbers reality? Can you reach more customers? Can you attract more appropriate clients? Can you better use the channels you have available to you? Can you move your product spread closer to what you’d like and further from what it is now?
If the number is very low… and you’re feeling like you’re ready to quit… How could you adjust your product spread to create better revenue? Can you raise your prices? Can you create more products by outsourcing? Could you develop a more profit-friendly product or service to boost your bottom line?
If the number just isn’t very exciting… and you’re feeling a bit bored… Can you incorporate one of those missed opportunities into your model? Can you create clearer value propositions & offers? Can you seek strategic partnerships to sweeten the deal?
The Secret Sauce
The truth is that you really don’t know how the businesses you see online (or even in your local community) operate. It’s tempting to try to replicate what you see on the surface. But you miss what’s really going on behind-the-scenes.
Behind-the-scenes is where the magic happens.
Our websites, our storefronts, our social media streams are only facades. Not in a negative way, but in an enticing, get-ya-in-the-door way. The newsletters, the inexpensive products, the retail shops – it’s all to capture the initial lead.
Often, there’s nice revenue being generated there. But it’s not enough to create a thriving business.
What makes the business thrive is how channels, activities, and customer segments are massaged over time to ready customers for a bigger, more profitable offer. You sell earrings to get the full collection purchased later on. You sell at craft shows to prime an audience & catch the attention of wholesale buyers. You deliver an ebook to prep customers to work with you one-on-one. You work in groups to ready a select few for a mastermind program.
I know, I know. You think that’s manipulative? It can be. But it’s not in most cases. In most cases, this is the model that’s required to actually build the most value into the business for both the business owners and the customer.
Everyone comes out on top when a business model is built to deliver higher & higher levels of value over time in more profitable ways.
Odds are, you’ve been focused on the front end because that’s what you’re aware of. You’ve been writing books, creating one-off art pieces, even working one-on-one with clients. But have you identified what could make your business truly profitable on the back end? Could you deliver more & better to your customers over time?
I think you can. I know you can.
Please, let me know the results of your analysis in the comments below. I’m dying to know what you do with this information.
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