Apr 14 2009

Where do Value and Cost Meet in your Business Model?

Jeffry

This post comes out of a conversation that John and I had a while back.  We thought it would make a good post here; so this is my attempt at ‘summarizing’ the discussion.

We were discussing potential topics and sponsors for our podcast, The Flex Show and that led to a comment on pricing of various conference tickets.  Obviously that is a topic important to John.

Jeffry Said:

I don’t have the magic wand to tell us where the value / cost line should meet.  I do tend to agree that some conferences have crossed a line, where their cost no longer matches its value.

I think I read a blog post that made me think 360|Conferences was struggling with the same cost vs. value issue.

I was reading something about the down turn of the newspaper industry.  A lot of people complaining about the downturn seem to say that the newspaper “business model” was to sell news to people.  But, I read something that said the real business model was selling the access to people (community) to advertisers.  It makes a lot of sense to me.

The [current] business model of The Flex Show is to sell our community to advertisers.

The [current] business model of Flextras is to sell software to the community.  I worry it is not a long term sustainable approach, though.  I believe the real profit benefit to customers is going to be selling access (support) to myself [and other Flextras employees.  Plenty of companies (Redhat, MySQL) have had success with the “premium support” style models.  A lot of my support option ideas don’t apply to a company w/ no proven record and/or only one component, though.  This comes back to my theories on the difference between digital / infinite goods and scarce goods.  Many of these theories were fueled by reading techdirt commentaries.

I think the business model for a conference (such as 360|Flex) is to two fold.  You sell access to the community to advertisers. And to attendees you sell access to the experts.

John responded:

We’re actually in the opposite problem as some other conferences  (IMO). We offer way more, but charge too little. We’re realizing that we’re so bent on two very counter ideas. We’re obsessive about being less than everyone else, and equally obsessive about offering the most value. If we were wal-mart and conferences were made in China, that might not suck, but for Tom and I, it sucks.

We’re not thinking of raising prices, but realize our current pricing model’s biggest flaw is our price/attendee mix. we can’t do enough shows at that level to really be profitable. beyond paying our phone bills, writing a check here and there, but nothing FT Salary level.

Yeah I agree. it’s more about connecting sponsors to community, while providing community a reason to be there. That’s what I’m hoping to help us figure out with The Flex Show. we’ve got a very targeted community, there has to be some one who wants to talk to them.

I dunno, but these topics rock!!

Jeff Responds

I’d always recommend focusing on adding value and less so on cost through the door.  Companies who compete only on price die.  Because there is always someone who can come in and do it cheaper.  When I was doing focus groups for Flextras, no one blinked on pricing [as long as the components would help them get their job done].

I struggle with the difference between providing a discount (generally bad) and adding value (generally good).  I’m pretty sure that providing the pre-conference day free to attendees is adding value.  Most other conferences charge for such things.  Charging extra for that day might cause backlash.  But, I wonder if you offer a lower-priced 3 day pass for those that don’t want to / can’t make the pre-conference day?  I’m not sure.  I’m entering a realm where I don’t have experience to back me up; and I always have a sense of discomfort telling other people how to run their business.

Maybe we should turn this into an OurStartupStory post somehow.

John Responded:

Yup, exactly, wish we had realized it sooner, but yeah. We’ve woken up and realized low price is fine, but better value is better, and we have that in spades.

Shoot, Tom and I ran head first into a realm we had no experience with :) I actually prefer that, since experience leads to more of the same in my opinion, LOL

Jeff Responded

It is often hard to get out of the “more of the same” thinking, that is for sure.  Reminds me a bit of Courtney Love’s now famous article about the music industry.  Around that time she was quoted as saying she would hire non-entertainment lawyers who could offer a fresh view of the “indentured servitude” of musicians and songwriters.  Hard to believe she wrote that 9 years ago.

And for our readers, here is the post.


Dec 20 2008

How do you Provide Value?

Jeffry

I was flipping through my news aggregator and came across this post on SlashDot. Some guy is wondering if part time IT jobs exist.  While the post doesn’t relate to the purpose of this blog, one of the first comments in there struck a nerve in me.  The quote worthy of note is:

It takes more than one person to provide something of value.

This is the absolute most ridiculous thing I ever heard.  During the course of my life, I have met plenty of people who have provided value as an indvidual.  I remember working as a “Sales Associate” at Waldenbooks.  As you might expect, such a retail job had tons of turn over in employees. During my 8 year “tenure” there, I worked under many different managers.  Most of them were easily forgotten.  Except one!  Kristen was the last manager I worked under.  She lasted the longest.  She was also the most organized person I’ve ever known.  She got the store “in shape” for the company, while using less than her company allotted man hours.  That alone is worth something to a company.  However, she went above and beyond just that.  Her organization guided us associates employees to work more efficiently and make better use of our time.  Instead of the haphazard meanderings of the “next step”, we knew where we were at and what had to be done.  There was a lot less frustration about the job and the store.  Although I don’t know numbers, I bet that led to better customer service, which led to more sales.

The vast majority of businesses start as single person ventures.  I find it hard to believe that such ventures would grow if that venture provided no value.  So, when you sit down to think about your business, be sure to consider what the value proposition is.  Be sure to communicate the value succinctly.  Be as direct as possible.  Research your competitors.  What do they offer?  What is their value proposition?   How will you be different?  Don’t assume that your prospects will know; tell them all about it.

When I accidently started DotComIt, I never thought about any of this stuff.  Survival was just dumb luck.  It wasn’t until recently I started to look at this stuff seriously.  The Flex Show podcast is a DotComIt brand.  What is the value proposition?  We help developers learn Flex on their own time!  How do we do it?  By releasing mp3s of developer interviews and screencasts of code tutorials.  They can download–through iTunes or elsewhere–and listen or watch on their own time.

What is the value proposition of Flextras?  We save Flex developers time.  It will be a lot cheaper to buy our interface components than to try to build and test a similar component.  How do they know our component will work for their app?  They will be able to download our developer edition at no cost and test it out.  The Developer edition will help prove to them, to their boss, to their client that the app works in the context of their application.

Traditionally DotComIt has only done consulting development for small businesses.  What was the value proposition there?  We delivered on time and within budget.  Sadly, I never knew this was the value proposition until I recently took a long hard look a the business.  But, consistentcy and reliability is one thing that kept bringing people back.

When you are planning out your idea; be sure to ask yourself.  What is the value I’m going to bring to my customers?  How is that value different from my competitors?


Dec 19 2008

Jeffry Houser – The Perpetual Entrepreneur

Jeffry

Hi, everyone.  I’m Jeffry Houser and I’m a technical entrepreneur.  In high school, I mowed lawns for a neighbor.  At the time, I had no idea that could be construed as an Entrepreneurship beginning.

In college, I started selling live import CDs (AKA Bootlegs) on the Internet.  This was before the web was the e-commerce haven it is today.  At the time, selling stuff on the Internet meant posting to Usenet and having people snail mail us a check.   I didn’t think this was a business either; I was just looking for a way to make some extra cash.  Myself and a friend pooled our money together and placed a bulk order with a supplier in Germany then we sold stuff over the Internet.  My friend was the financier and I was the labor.  We split profits 50/50.  It was nice to have some extra spending cash for a poor college student and I still have some of the unsold merchandise in my collection today.

Then I graduated from college with a computer science degree and got a “real” job for a few years.  I worked as the “IT Guy” in a business to business consulting firm.  My boss would sell clients on these incredibly insane things and it was my job to figure out how to implement them.  I was in heaven.  I wasn’t even old enough to drink, yet I had already accomplished more than I ever dreamed I could.  This is more depressing than it sounds.  Then the hours started to grate on me and I drifted towards burn out. After a particularly good pizza one afternoon, I gave my two weeks notice.

This led to the founding of DotComIt, the IT consulting firm which has been my bread and butter for more than 9 years.  If I have one piece of advice, it is do not ever start a business this way.  I had no plan, nominal savings, and no idea what I wanted to do with my life.  I just got lucky.  The company I left hired me a week later.  I went to a local User Group meeting and got a client.  A different user group got me a different client.  Then I got another client, and another.

All of a sudden, I was writing books paper weights for Osborne McGraw-Hill.  Then I was speaking at User Groups and Conferences all over the US.  Without doing anything business-like on my part; word of mouth kept me busy.  It wasn’t all fun and games though.  I had one client go out of business owing me a big chunk of change.  I had many issues collecting payments; and a lot of clients would renegotiate invoices when it came time to pay.  It seemed with every project, I would modify my contract terms and/or internal procedures.  These days I am known for being especially meticulous on doing “due diligence’ as a business owner.

Along the way I was in 2 serious bands; a band is a business too.  I also started a company named “Web Pages for Bands” (guess what that company did?).  I had this crazy idea to create a way for independent musicians to easily sell mp3s on their web site.  The idea was fantastic (see iTunes, Amazon MP3, CDBaby, and plenty of others), but the business crashed and burned.  I was making too much money consulting and didn’t devote enough time to getting it off the ground.  If I was smarter about building that business, I’d be writing this from my own private island right now.  Clearly I had the right idea at the right time.  But it doesn’t matter how good your fudge is if you keep making cookies.

A couple of years ago I stopped being in bands and decided to devote my full attention to DotComIt.  At some point I decided I absolutely hate consulting.  It wasn’t always so, but I have been doing it for a real long time.  I needed to decide what I really wanted to do with my life.  I loved writing and helping other developers.  Can someone create a business based solely on that?  I think so!

I started The Flex Show, a podcast for Flex Developers.  When you do have a moniker like “Producer of The Flex Show” next to your name, no one questions your ability to work with the technology, so it was a bit easier to bring on consulting jobs.  But, I didn’t want to bring on consulting jobs; I wanted to convince people to pay me to produce these episodes that I’m already producing for free.  Where else can you go to get a message in front of 2700 (and counting) Flex Developers?  Adobe Max, probably, but  I am pretty sure a sponsorship of the podcast would be cheaper and give you more direct exposure.

I was always intrigued by the challenges of product development and it seems like a nice change from consulting.   I’ve started working on Flextras, a line of Easy to Use Interface Design Components for Flex Developers.  This is in the uber start up stage and my launch is currently about four months late.  I’m juggling graphic designers, lawyers, a web developer, and a business coach consultant trying to pull everything together.  Building a product was the easy part.

So, at the moment I have two ‘brands’ in start up mode; and a mature consulting business that I want to shoot and bury.  I know John and Tom love business transparency.  I want to bring The Flex Show revenues up to 150K a year.  Consistent sponsorships would do that easy if we could succesfully bring sponsors on.  We’re still figuring out what works best in our format.  With Flextras, I want to generate 600K a year and have a staff of five employees.  To do that, we need to sell 160 components a month.  To keep that pace up, we’ll have to keep a steady stream of new products coming out–ideally 1 a month.

I hear having a vision is the first step in actually achieving one.