Nikki

The Business Model Wheel as a Brainstorming Tool


We have had many requests from readers for more information on how to use the Business Model Wheel as an innovation tool. The video below shows how to brainstorm using the wheel as a starting point. If you are not familiar with the wheel concept. You can get an overview in the Powerpoint found at
http://businessmodelinstitute.com/business-models-for-dummies-overview/

Share



The Boston Effect: Groupon Business Model set to fail?


If the immediate follow-up analysis to Groupon’s S-1 results released on June 2nd can be summed up in a phrase, it is this: Not Good. The negative press over the last few weeks has been considerable, despite the good numbers. Since then, however, points of view have tempered, with those rooting for the daily deal giant having a positive story to fall back on. And those who think Groupon’s set to fail have Yipit’s Boston study to cite to justify their stance.

Considering that the much-anticipated results were announced on the 2nd and Yipit had its Boston analysis ready on the 3rd of June, shows that the study has been underway for a while. They timed the release accordingly. It’s not like Groupon hasn’t faced doomsday predictions before. There have been stories that local businesses despise parting with half their profits, that users suffer from ‘deal fatigue’, that its business model is inherently set to fail. Importantly, that many local businesses may use ‘discounting’ to get new customers and then opt-out. Much before the bad PR, post the S-1 results, the New York Times covered the Jones Graduate School of Business study which concluded that less than 45% of businesses would repeat a Groupon deal. Groupon insists that close to 90% of businesses return. Whom should you believe? The Jones School study covered “150 businesses in 19 American cities and 13 product categories that ran Groupon promotions between June 2009 and August 2010,” according to NYT. The business quoted in NYT, an upscale dining place, Jeffreys, in Austin profited hugely from its one-time deal with Groupon, but as the article says, “Mr. Weiss (owner of Jeffreys) said that, with the introduction to new customers and with an economy that may be rebounding, he hopes he won’t need to try discounting again.”

If businesses take the business and run, what happens to Groupon? Thankfully, at least for now, it seems like many local companies find that their business model can benefit from repeated Groupon deals.

Back to the Yipit Boston Study which led to all the bad publicity. But Yipit did make up for all the bad news. More details on that later, but first, well, the bad news. Yipit’s study of Boston shows that while the city’s topline growth looks good, the deal company’s business model is deteriorating in its oldest market.

In Boston, Groupon has increased the favorite word that’s clubbed with ‘social’ these days – ‘personal’. Its deals are increasingly personalized and targeted in Boston, and this did add to its quarterly revenue in 2010. Ever since, however, the charts look different. As Yipit’s Boston chart shows, there has been a sharp decline since the 2nd Quarter in 2010, in its quarterly revenue per subscriber.

Blogging about it in Business Insider, David Sinsky of Yipit, says, “Far more worrisome for Groupon is the fact that its existing customers (those 20% of subscribers who have ever bought a Groupon) are also becoming less engaged.”

Yipit’s study also shows that the customer acquisition cost of Groupon is set to rise, as the market matures. And let’s not forget the sheer number of Groupon clones that have emerged.

Groupon’s Business Model is also practically hassle-free to replicate. There’s no barrier for entry and it seems like every yuppie with a stomach for a Web business is trying to pry Groupon’s customers away from it.

Oddly enough, the negative press triggered by Yipit, was to a certain extent contained by it. As just 2 days after the post highlight the boston effect, the Yipit blog had a post headlined, “The Reports of Groupon’s Death Are Greatly Exaggerated”

It seems like the Boston-post, which highlight growing costs of retaining customers and loss of customer interest triggered other Groupon-death analysis that attacked the company, with claims that seem unsubstantiated. Those are the areas that Yipit went about trying to address.

Among them was a fact mentioned in this post as well, that businesses don’t like Groupon deals. This is what Yipit has to say, “44% of daily deals run in May were run by businesses who had already run a daily deal. If they really had a bad experience, why would so many merchants be doing it again?”

The “fix-it” post also addresses the easy business model replication, that there is hardly an entry barrier. “While there’s no barrier to entry in the space, there’s now a barrier to scale and Groupon has scale. Over time that scale will allow them to develop a better experience on the user side and merchant side,” writes Vinicius Vacanti , the co-founder and CEO of Yipit.

So will all this bad press bring Groupon’s valuation down? What’s going to happen to its IPO?

Share



GROUPON – Inevitable Failure – Inefficient Business Plan


I think the best way to evaluate GROUPON is the old fashioned SWOT analysis developed by Albert Humphrey. By way of reference SWOT stands for Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business plan.

Below we will look at GROUPON’s business plan in the form of the company’s Strengths, Weakness, Opportunities and Threats.

Strengths

Source: GrouponWorks

Weakness

Opportunities

Threats

Summary

In summary, while evaluating GROUPON’s business plan we find that there are no real assets, a business that has never been profitable, and that hurts its customers both financially and operationally. Therefore, we do not think GROUPON’s business plan is viable for the future.

The classic 19th century book “Extraordinary Popular Delusions & the Madness of Crowds” by Charles Mackay details the mentality of how bubbles are formed:

“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

This post was written by Jimmy Moncrief

Share



Do Copycats Hurt Groupon’s Business Model?


If imitation is the highest form of flattery, then daily deal site, Groupon, has been highly complimented by the countless copycat companies that have emerged recently. Could these copycats be eroding Groupon’s business model? Perhaps. But, by continuing to differentiate itself and adapt to the competition, Groupon could continue to lead in what has become a rapidly growing industry.

Launched in 2008, Groupon is every bargain hunter’s dream. By emailing its subscribers information about heavily discounted coupons for local restaurants, theaters, events and more, Groupon has grown into a daily deal industry giant. The company takes a cut of the profits and in exchange, the local business offering the deal receives exposure and one hopes, business. The company has been wildly successful with more than 7,000 employees and a presence in hundreds of cities across the country and around the world. In fact, Groupon recently filed to go public with an expected value of $20 billion.

The problem is the nearly 300 knock off companies that are looking to cash in on the daily deal frenzy. With slightly different tweaks, these companies seem to be crowding in on Groupon’s domination of the industry. For instance, one complaint from Groupon’s merchants has been the lack of customer loyalty. In Boston, a company called Level Up aims to capitalize on this discontent by offering subscribers a series of three deals, each one better than the one before. Also distracting Groupon from its success is the dozen or so federal court lawsuits that are springing up across the country questioning the company’s legality in the way it conducts its business.

These troubles, however, don’t seem to be deterring investors. Nor is Groupon waiting to be taken down by copycat competitors. In fact, Groupon has been doing much to adapt to the ever changing and growing industry. Recently, the Chicago-based company teamed up with online travel agency Expedia to provide discounted getaway vacations in prime locations around the world. And Groupon also recently unveiled Groupon Now, a feature that offers consumers deals on demand.

To stay on top,Groupon would do well to take further measures to protect its brand. The company would also benefit from continuing to keep in mind the swelling merchant discontent about the lack of repeat business among the purchasers of the coupons. Additionally, Groupon should continue to find innovative ways to meet the needs of its customers and overcome further challenges by continuing to track what works does and does not work in the daily deal industry as a whole. It should continue to differentiate itself among the competition. But most of all, find ways to offer the best deals. Period.

Will Groupon succeed? For the foreseeable future, Groupon copycats do not look to be significant threats. The more important question should be is the daily deal industry as a whole here to stay? Or is it a flash in the pan kind of fad that will fade in a year or so? Could this in fact be the beginning of a 21st century dotcom disaster?

This post was written by Ginny Justice

Share



Is Groupon’s Business Model Sustainable?


Groupon grew faster than Amazon, Google and eBay did their first year. Last year Google recognized the profitable business model and offered to buy Groupon for $6 billion. Groupon declined and is about to go public with a current valuation close to $30 billion.

So obviously Groupon is making money. No question there. But is their business model sustainable? And what is the ROI for companies who advertise with Groupon?

How Groupon’s business model works

Groupon’s business model works like this:

They approach merchants and say, “We can help you sell some of your inventory if you give us a large discount (typically around 50%). On top of the discounted price we will also take a cut.” Here’s how it would work if your product retailed for $500.

You would offer a 50% discount and Groupon would also take their cut ($125). This means you would lose $375 out of the gate. That’s why 26% of companies (see study below) who use daily deal sites lose money.

But the hope is customers will come to the store and make additional purchases or become repeat clients. But what really happens?

Latest research examines performance of daily deals

Utpal Dholakia conducted a study that examined the performance of daily deals run through five major sites (Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe) in 23 US markets. He examined 324 businesses that conducted a daily deal promotion between August 2009 and March 2011. The study revealed:

When asked, “Would you run another daily deal promotion?”

4 red flags regarding the daily deal industry
Dholakia’s findings also uncovered four red flags regarding the industry as a whole:

Does their business model leave customers disenchanted?

As a business owner I look at those numbers and don’t like the story they tell. It’s great to get the word out to the masses but Groupon’s audience are not the ideal shoppers most businesses target. They are the tire kickers and coupon clippers.

Wharton marketing professor David Reibstein says, “The industry’s current growth rates are unsustainable. Also, he faults the site’s business model, arguing that it will leave customers, suppliers and investors disenchanted.”

Many speculate that Groupon’s bubble is about to burst. Will they regret passing up Google’s $6 billion offer? Only time will tell.

What do you think of Groupon’s business model? Do you think they will continue to dominate their market?

Share



Can the 4 Hour Workweek Work?


Recently, a client of mine decided to leave his software development business behind and take a one-year RV trip with his wife and two young children. Went from project based web development firm to creating a product called “FunnelBug.”

Many of us might have read about the 4 hour workweek and might have wondered whether it would really be possible. The thought ponders over us more when we are used to the 9 to 5 job existence but we would definitely try the 4 hour work week if it gives us equal or more returns than the usual 9 to 5 job. I am sure that if it is possible to earn enough income in a 4 hour work week then majority of the people would like to leave the usual 9 to 5 job.

4 hour workweek meets FunnelBug

You might be wondering how you can begin the plan the 4 hour workweek schedule. Logic suggests that you have a few choices in a 4 hour a week. You can either start freelancing offline or online or you can begin your own business. It might be difficult to break from the usual 9 to 5 routine but if you apply a proper business model theory to your new business.

Many people feel whether it is worth taking a risk of a 4 hour a week at the cost of losing a steady income from a job. Hence the best tip would be to maybe continue with your job and start working on your new venture in your free time. When you have established a steady income in your new venture and you are absolutely sure of a steady or an increasing income in the future then you can say goodbye to your regular job.

So what does a beginning a 4 hour work week need? Resources, efforts, time or a great idea? First of all you will need a strong idea or a foundation which will get you steady income. Your business model should be foolproof and get you excellent returns in the long run. It could be a game of calculated risks and sheer hard work in the beginning but once your business model is established, income could begin to flow automatically.

Hence we see that there are two major challenges in front of you? The first is the ability to run a successful 4 hours a week. The second challenge is to run a successful business model that will provide you regular income, which is to earn an annual income of say around $60,000 per year. This could be a tough task in the beginning. If it had been easy and risk free then there would be thousands of people jumping in the bandwagon.

However with the advent of technology such as the internet you can fully automate your business and even market it in all corners of the world. Today majority of the businesses that you do in an office of concrete can also be done online. Now that is the power of the internet. For example, there are Titanium sellers on Ebay who are making millions from their garage by selling goods to buyers. In most cases they send the goods from the manufacturer’s site to the buyer so that there are less handling charges and there is no storage
required.

However the web is changing fast and there are many ways of greatly reducing workload. This challenge was a great opportunity to think about how they could be pulled together to create the perfect automated business.

There are a few basic rules that you should follow if you ever want to be successful in a 4 hour a week job.

The first step is to make everything as much automated as possible. Here many people make use of a managed service after paying a monthly fee. This will reduce your efforts considerably as common tasks such as marketing and even processing the payment can be automated. In Ebay, the titanium sellers make use of automated bidding process that lets them auction over a 1,000 items in a single day. The system automates most of the tasks and that you have to do is check the goods for their quality and then pass them so that the system can automatically notify the courier service to pick up the stuff from the warehouse and then deliver it to the buyer.

The second step would be to do outsourcing of the common tasks so that you can concentrate on your core business. For example, you can employ staff for tasks such as maintaining orders, payments, etc and you can concentrate on marketing your business. In case of developing your website you can hire the services of a web development firm to add content to your website and make it SEO friendly.

The third step would be to make your business systematic. Every procedure should follow a straight line so that there is no duplication of work and there is no wastage of resources. Reports should be generated so that you can come to know where you can improve.

Last but not the least is dividing your time for all the tasks and sticking to the deadlines. The high priority and important work should ideally be allotted more time.

Let’s take a real life example of a successful 4 hours per week business. A client of mine was working for a software development firm called Tuitive. He decides one day to take a sabbatical and go with his wife and children on a one year RV trip. While on the trip, a brilliant idea came to his mind to develop a software called FunnelBug that everyone could download for free and then use it for a month. If people liked it then they could use it further for $15 per month.

FunnelBug is a financial software that people can use to manage their business sales leads and manage their cash flow. This business has now become fully automated and efforts by the owner are minimal. Ordering the software and payment processing is automated online and the owner puts in his time and effort to market his software online on websites such as FaceBook and Twitter.

Conclusion

From the above reading we can conclude that running a 4 hour a week business is not easy but it can be highly successful if you have the right type of idea and you are willing to work for it in a systematic way. At every stage of business you should ask yourself what work you can automate or outsource so that you can get a steady flow of income with minimal effort.

This post was written by Kunal Vahalia.

Share



Can Groupon Survive in a Crowded Marketplace?


Yipit’s analysis of Groupon’s declining hold on the daily deals space indicates lower customer engagement, fewer deals sold overall and falling average revenues per subscriber for the email deal industry leader. In light of the company’s looming IPO, do these changes signal the death knell of the daily deal business model or is there still space for innovation in this area?

Ultimately, it’s not surprising that Groupon is beginning to see diminishing returns. When you operate a business model based on offering the lowest prices, you eventually attract competition in the race to the bottom, where prices become unsustainable and revenue falls. There’s no disputing that Groupon is seeing these challenges from companies like LivingSocial, as well as from local programs offering similar merchant deals on a smaller scale.

So the question isn’t, “Why is Groupon seeing a decline in business?” but instead, “What can Groupon do to differentiate itself from its competitors to drive higher engagement amongst over-sold consumers?”

Clearly, Groupon’s business model prevents it from raising prices in exchange for additional value – an option that most declining businesses have for increasing revenue. So instead, Groupon must attract more subscribers and implement strategies that both better personalize the deals for these members and stand out in a saturated market.

To an extent, the company’s “Groupon Now” program will help drive some of this engagement by enabling the burgeoning market of smartphone users to grab deals on the go. Although this option is currently only available in test markets, it’s expected to roll out nationwide and play a major role in the valuation of Groupon’s IPO.

But in my opinion, the key to Groupon’s success won’t be in offering new ways to access their deals, but in providing better targeting services for its existing and future users.

Imagine a subscriber who has recently signed up for Groupon’s service. He’s amazed by the savings presented by this business model, as well as the breadth of Groupon’s offers – including everything from local restaurants and spa services to off-the-wall activities like hang-gliding and brewery tours. He’s so amazed, in fact, that he goes out and signs up for several other similar services, all of which begin bombarding his email account with daily offers.

Anyone who’s over-subscribed to email lists knows what happens next. After receiving dozens of emails each week – few of which may be relevant, interesting or geographically appropriate – our subscriber is feeling burned out. Even if he purchased a few deals at the beginning of his membership, the drag of receiving multiple uninteresting offers day after day leads to lower engagement and fewer sales.

In light of this burn out, the key to re-engaging Groupon’s declining subscriber base isn’t reaching more people in more ways. It’s finding better ways to match the right people with the right offers.

Instead of sending every offer to every subscriber in a geographic area, find a way to allow users to opt in to specific types of offers in more targeted neighborhoods or give Groupon the ability to make recommendations based on past purchases. For example, if a subscriber purchases three restaurant Groupons in a specific neighborhood, give the subscriber the option of bypassing spa or service Groupons on the other side of the city to increase his engagement and likelihood of buying.

From the beginning, Groupon has been a leader in the daily deals business model, but failing to evolve as increased competition enters the space could turn Yipit’s downward-trending data prophetic. In order to succeed going forward, Groupon must implement methods to drive a greater level of engagement among burned out consumers, and adding enhanced personalization options would be a great place to start.

Fortunately or unfortunately, I have several high-quality writers for this position. Thank you for taking the time to apply. It is very difficult to choose, so I have an unique idea- I would like the applicants to all write a similar article and see which one best fits with our site.

Here’s my thoughts:

Here is my grading criteria:

This post was written by Jim Muehlhausen.

Share



Why Groupon May Fade, but the “Groupon” Will Never Die


A week before Groupon’s now infamous IPO was announced, the New York Times wrote a touching introspective on the company. Titled “Funny or Die,” the article suggested that Groupon’s success hinged on a simple and familiar commodity: words.

Anyone who has signed up for Groupon’s mailing list has been exposed to the cheeky, sometimes funny, always irreverent write-ups that accompany the company’s deals. With a touch of banter, wit, and ironic pop culture references, the company hocks its wares. The New York Times insisted that these write-ups were the secret to Groupon’s success and the source of its profound and sudden wealth. The wit and humor of these write-ups made the company stand out from its many competitors, Times report David Streitfeld insisted: the company’s attitude “reformulated spam into something benign, even ingratiating”. The result: a company valued at near $30 billion.

The rather sensitive and compassionate article painted a picture of an artist’s paradise. One fact-checker says that Groupon pays the bills, but his real passion is his work as an assistant director at an acting conservatory in Chicago. Another editor is also a comedy writer and performer. Groupon’s hope is that this creative energy will make it more valuable than its competitors. Eagerly, Streitfeld agreed.

Of course, Groupon has had its critics. One of the most vocal has been Techcrunch, who have attacked the site’s business model, its technical approach, its writing, and its basic product: the crowd-sourced coupon. More austere warnings have come from stalwarts at The Economist and Wall Street Journal, observing the razor-thin margins of the company are shrinking while revenue numbers are lackluster for any company, let alone one with a valuation exceeding several blue chips.

Both praise and criticism of Groupon tend to focus on the company itself with only offhand observations about competitors such as LivingSocial and BuyWithMe, who have adopted the model and offered better terms to merchants in the hopes of attracting more attention. The success of these companies, even if they lack Groupon’s unique “wit,” suggests that there is more to the success of the Coupon 2.0 industry than mere words. So what is it?

What is often ignored is the fact that the “groupon” as a concept is here to stay. Coupons have been at the heart of American consumer culture since Asa Candler first mailed coupons for free Coca-Cola in the 1890s. Until Groupon, they remained a largely paper ordeal and were distributed much like products–from producer to consumer. This model is inefficient because the coupon does not respond to consumer demand. It is offered, and consumers can take it or leave it. Producers can study the popularity of their coupons when making future deals, but such marketing research is tedious and time-consuming. The Groupon, however, brings the speed of auctioneering and the efficiency of crowd-sourcing to the world of discounting. The result is a more efficient coupon that targets those who want it and helps promotions respond to demand in real time.

This crowd-sourced coupon is often called a “daily deal”, but this is a misnomer. Groupon’s recent foray into instant local deals (called “Now! Deals”) is making the groupon more central to the consumer’s experience. Groupon’s newest venture–its iPhone app–is making the groupon even more ubiquitous. The app has two buttons: click one if you’re bored, click one if you’re hungry. Using groupons is becoming more convenient than not.

It isn’t a daily deal anymore, and it isn’t really a coupon either. I call it a “groupon.” So does almost everyone else. No matter what other sites call it, it will always be a groupon in the public consciousness, just like a cotton swab is a Q-tip and a paper tissue is a Kleenex. This is a strength for Groupon, but the success of LivingSocial and BuyWithMe prove that words are not enough. If the company cannot alter its business model to increase revenue and reign in its overzealous expansion, it is going to fizzle out. If the company succeeds in making its groupons more convenient for consumers, it will thrive. But words will not save it.

This post was written by Jim Muehlhausen

Fortunately or unfortunately, I have several high-quality writers for this position. Thank you for taking the time to apply. It is very difficult to choose, so I have an unique idea- I would like the applicants to all write a similar article and see which one best fits with our site.

Here’s my thoughts:

Here is my grading criteria:

Like an unchecked cancer, hate corrodes the personality and eats away its vital unity. Hate destroys a man’s sense of values and his objectivity. It causes him to describe the beautiful as ugly and the ugly as beautiful, and to confuse the true with the false and the false with the true. -Martin Luther King Jr.

Share



© 2009-2013 Business Model Institute .com - All rights reserved.