Closing the Loop on Your Business Model
Over the past 2 months, I spoke with two entrepreneurs who shared the same general story for their companies. They both built companies that were based upon publishers and consumers. They had both explored ways of finding publishers without incurring the expense of doing so…and they had both failed.
The entrepreneurshad something else in common. They were both optimistic about their ability to acquire customers if they had the proper publisher content. It is that optimism that drove them to push the boundaries of what is possible with respect to acquiring content. They were both exhausted from the effort.
Here is the advice I gave them…I hope you can benefit from it. The prize of a successful company goes to the company that can close the loop on their business model. What I mean is that it is not enough to simply be good at driving traffic. A successful company must fuel that effort with the right product and in this case, content to offer to their consumers.
A friend presented the problem to me as:
(Consumer Reach x Publisher Content) x Effective User Experience / (Capital Requirements x Time) = Success
Its not a literal formula (one designed to spit out a number), but more of a guideline for building an effective publisher related service.
It’s designed to help you have cover all your bases and achieve eventual success.
Consumer Reach refers to your ability to connect to potential consumers. It implies that if you have it, you are capable of persuading your potential customers to become actual users of your product. The factors that impact it include: the ability to market to them, a price point that is attractive and above all, a product that provides a compelling benefit.
Publisher Content is the fuel for your engine. Do you have access to the publisher content that your consumers want in a way that enables your business model? Note that this is where a lot of businesses fall down. The ability to gain access to content in an optimal way is crucial to supporting any business model. The is where both of the businesses I mentioned earlier had problems. Both were unable to secure content licenses at an affordable price point, which resulted in low profits. As a general rule, it is better to obtain publisher content at a fixed cost., When you know that you must pay $30,000 per year for content, then you know your business must clear that cost before revenue can be applied to other aspects of your business.
Effective user experience is another critical area for most publisher related businesses. If users cannot get to the content you want them to see, it is difficult to make money from them. In fact, this applies to most products (even outside of publishing). Case in point, some time ago, I launched a tool that allowed consumers to edit image recognition scripts. The tool was a text based editor that was prone to user error when editing scripts. Because of this, most of the users we tested with were not able to use the tool in spite of the fact that it was more accurate than most of the other tools on the market. We could see the flaw in the tool after testing which gave us an opportunity to fix it by wrapping the editor in a structured user experience that confined the user entry to pull down menus and data entry fields…resulting in greater usage.
Consumer Reach, Publisher Content and an Effective User Experience all have a multiplicative effect on adoption. Improvements to any one benefit the rest. Hence the portion of the formula says:
(Consumer Reach x Publisher Content) x Effective User Experience
...because it dramatically impacts the potential for success of the product.
The lower half of the equation is quite different.
(Capital Requirements x Time)
It represents the constraints on your business that can either enable or disable your efforts. Hence they are the divisor in the equation. Capital and time are the most significant constraints (other than the availability of a great team). If you run out of capital or must limit your product according to your available capital, it can impact the product’s outcome. Likewise, if you don’t have time to develop the product you need, that constraint can force you to release a product before it is truly ready.
Managing all of these variables can dramatically improve your chances for success. I think if most people look back on where they were able to succeed with a product, they can acknowledge that they were ultimately able to master each aspect of this formula. I say ultimately because most people (including myself) never get it completely right the first time around. Usually there is a great deal of pivoting and failure on the way to success. :)