The Jewelry Shop Owner and the Performer

Derek kicked off his presentation on profit models with a couple stories.  Derek has a friend who owns a jewelry shop in a tourist area.  The shop had good traffic, but not great sales. Awareness and marketing were evidently not issues, because of the relatively healthy traffic flow into the store.  Yet, the store was faltering.  The owner decided to take some time away to think about next steps for the shop.  When the day before her vacation came, she was packing up and wrapping up loose ends, one of which was to leave directions for her staff to price a box of items at half-price.  She quickly scribbled on the box: “everything here price 1/2″.  Upon returning from her trip she was surprised to find that sales had doubled!  Her employees thought she her strategy to “double the price” was brilliant.  ”What do you mean, doubled the price?”, she wondered, having left instruction to do just the opposite and halve the price.  ”Right here, you wrote ‘everything here price X 2′”.  Upon a misreading of the hastily scribbled direction, her employee had doubled the price of the items to be tagged and shelved.

Why did doubling the price double the number of items sold?  This is contradictory to traditional demand-curve models.  It turns out that tourists used price as an indicator of quality.  Picking up a $12 piece of jewelry to bring home to a friend or family member they might think, “this is nice, but can’t be that good if it’s only $12″.  Yet, when holding a $24 piece of jewelry, customers typically thought of it as higher quality and were thus more likely to purchase.

Similarly, Derek told of a performing friend who doubled his performance price from $1,500 to $3,000.  The result: he lost some recurring customers but more than made up for it with some new customers at the higher rate.  Though he was performing fewer gigs, he was making the same income.  He loved it!  Before the price increase, he soft of performed for the the sake of keeping income coming in.  After the increase, when getting paid $3,000 per performance, he found himself more excited and more into his work!  Eventually his calendar became full at his $3,000/performance rate and he was still excited about his performances. [Ed: Of all the anecdotes of the day, this had the most impact to me as a Ruby on Rails consultant who often gets paid by the hour.  It got me thinking of ways to double my rate in 2010.  Also, the Multiplier Profit Model (notes below) got me thinking of ways to package up my knowledge and experience in different ways.  All-and-all this was a thought-provoking and potentially profitable presentation.]

Business Models

Derek shared his frustration with people that go after the number of users as a metric of success, or love to brag about how their solutions are FREE!  There is no business model there, only a feel-good metric that will not make money.  Only a step up on the business-model ladder are those businesses that blindly follow the profit model of their competitors or peers.  Derek’s talk was meant to get us to think of a larger variety of profit models.

Why?

It’s important to consider and implement a variety of profit models for competitive advantage and for diversification.  If you have all of your profit tied to one model, then when the industry inevitably changes, your entire revenue stream could be destroyed. By diversifying among two or more profit models, you are better protected from industry changes.

Profit Models

Derek next went into an overview of a wide variety of profit models.  Here are notes on three of them. [Ed: These notes lose a lot of impact without Derek's drawings.  Maybe he will post them.]

Customer Solution Profit

This is where you spend a lot of time, effort, and money up front to customize a solution for your customer in order to have long-term, sustainable, stable revenue in the future.  Initially, you lose money as you spend unpaid time getting to know the customer and building and implementing a custom solution for them.  In the long-run though, that up-front effort helps you win customers, keep customers happy all while keeping your support costs low for those customers because your solution is so well implemented.

Derek used the example of Hostbaby.  As soon as someone signed up, they would call them and hand-hold their new customer through getting started.  It was a lot of up-front work, but once the Hostbaby customer was set up and happy, they had little ongoing support work.  Using customer solution profit model helped Hostbaby net ~$2 million / year with no inventory requirement, no warehouse, little physical space requirement, and a small staff.

Takeaway: Consider how can you get to know each of your customers well up front and create a customized experience for them?

Pyramid Profit

This is where you have several levels of products, starting at one that is barely profitable but prevents competitor entry all the way up to a price level that is very high-margin, but low volume.  Examples: Apple’s $59 iPod. American Express’ Green, Blue, Gold, and Platinum cards. Hotel chains.

Takeway:Consider what can you offer to people that think you are too expensive?  On the other end of the spectrum, what upscale, huge profit margin offering can you put out there?

After Sales Profit

We’ve all probably had this experience.  You do heavy research on selection and pricing of a big ticket item like a laptop, appliance, or car.  Yet on the way out the door after purchase, we’ll buy add-ons without any research or price-comparison at all.  For example, we’ll buy a laptop and then choose from a limited selection of laptop bags at non-competitive prices. At the time of checkout of the big-ticket item, we are at a low price-sensitive moment for small-ticket items.  What’s a $200 floor-mat add-on to a $30,000 truck?  What’s a $70 computer bag when you’re already spending two grand on the computer?  Price sensitivity is lowest when your purchase price is high and selection is low.

Takeaway: What tiny but profitable thing can you ad onto someone else’s big ticket purchase?

Multiplier Profit

This is when you have one skill set or product re-packaged in multiple ways.  The up-front development cost of the skill or product is fixed, yet you profit from that skill or product by offering it in different forms. This gives you a broader reach, more diversified customer base, and increased profit.

Takeaway: In what ways can you re-package and re-sell you primary work product?

[Ed: As I eluded to earlier, in my field of software development consulting, this is one of the most intriguing profit models to consider.  For consultants, this is probably one of the most under-utilized yet promising profit models.  When we learn something new in our work, or become an expert at a technical skill, we should package that knowledge up in ways to share beyond hourly consulting.]

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Tips:

- Consider doubling your price.  At the least, experiment with your pricing.

- Don’t blindly follow the profit model of your competitors.  Differentiate and diversify instead!

- Consider each of the profit models Derek presented, asking yourself the takeaway questions.

- For more profit models, check out The Art of Profitability by Adrian Slywotzky and Derek’s detailed notes on that book.

Thank you, Derek, for attending LessConf and for your talk.

Up first at Lessconf, Eoghan McGabe and Des Traynor of Contrast.ie on “How to be awesome!”.  Starting off with a few words of introduction about the Irish slang, culture, and myths as lead-in to conventions.

Conventions

Are agreement of ways of doing things.  Formed from personal experience.  Formed via survival of the fittest (evolution).  Examples: red means danger.  Funny to see tourist around Ireland because we use red all the time, and it stops tourists in their tracks.  An example of when you don’t follow convention you can cause trouble or at least inconvenience.

Benefits of Conventions

Reduced friction.  Example: doors should have handles and not buttons with signs and arrows explaining “how to lock the door”.

Reduced learning curve.  Example: if you’re designing a box that has to be opened and it opens like any other box, you have no problem.  If you have a box like Microsoft’s Office cd box, you end up with Microsoft help file on their website “Opening the Windows Vista Box“.

Increased ease in design.  Example: Ruby on Rails gives you a set of defaults in stack decisions, mvc, etc. Instead of making those decisions, conventions let you focus on your design and things that make you special.

Problems with Conventions

Restricts innovation: If you’re going to follow what everyone else is doing, it’s hard to break new ground.  Example: cell phones.  iPhone would never have happened if Apple followed conventional cell phone design.

Lazy: Following conventions by rote is lazy. Don’t be a sheep blindly following a flock.  Following convention blindly is not designing.  You need to understand the reasons for conventions and the decisions behind them.

Decreased Marketability: if you do what everyone else does, you are un-remarkable.

Opportunities from Breaking Convention

Commercial wins. Example: Dyson.  Rethought the entire design and requirements of a vacuum.   Wii got out of the graphics chip arms race by changing the focus to how much fun can we make games?  (Reminds me of Innovator’s Dilemma).

Challenging conventions lets you change the world. For example: change the daily lives of train commuters by challenging the rule that a transit map needs to be geographically accurate.

Web Conventions

Layout conventions have overtaken the web.  All sites’ layouts look the same.  Signup also has conventional layouts.  Blinksale, Invoicemachine, SimplyBill, and other invoice sites have very similar sign up forms.  (1.2 billion “about us” pages on the web, 98 millions “sign up now” pages).  Home pages are another convention that has evolved.  The idea of “pages” in general is an example of an evolved convention that is just “one step above” the Sears, Roebuck Catalogue from 100 years ago.

These conventions result in “unremarkable stuff” and will never get you to your “purple cow” moment.  Plus, some are just wrong.

What to Break?

Don’t break conventions just for the sake of breaking them.   Break convention upon opportunities from tech advances like browser technology.  Examples: portfolio sites to help you break out from the crowd.  Signup sites to help people sign up without jumping through hoops.  Skip the sign up all together and let users try your product without signing up.  Ex: mysoup.com ‘s “Try” button lets you actually “try it”. The “Try” link goes to the product, not to a signup form.

Break copy. Convention for copy is dull “programmer speak”.  Do something like flickr where the welcome message is in another language each time.  Huffduffer.com and threadless.com are great examples of copy that breaks convention.  Homepages are ripe for break of convention.  Too many apps blindly follow convention of the first page upon login is the “home page” or “dashboard”.

Break branding. Specifically: once signed up for an application — stop the branding!  It’s become convention to have the app’s or company’s logo in the app’s header.  But users don’t like the continuous sell.  They’ve already bought the product, let them use it without the continuous sell or branding.

Break your toolbox.  If you’re working with the same tools as everyone else, you’ll likely create the same results as everyone else. Remarkable doesn’t come from the tools, but from your creativity. So don’t be restricted by your toolset.

What do we know?

Contrast.ie was basically forced into breaking convention. They needed to get noticed and did not have a large marketing budget.  One way to get noticed is to break convention.

—

Tips:

- Conventions have benefits such as reduced friction in transactions (personal and business), reduced learning curve, and ease of design.

- But, conventions also introduce problems. They make it easy to be lazy and make it hard to break out from the crowd.

- Don’t blindly follow convention, but don’t blindly break it either.

- Write copy and design for your user’s image of themselves and why they’re at the site.

- “Rethink the conventions, break the tools, be re-markable, and have fun!”

- Breaking convention in smart ways can get your app noticed.  Breaking convention in design, if done well, can be a great marketing opportunity.

- “Building the app is just the start.”  It’s simple to build the app, it’s the marketing and selling after the app is finished is the challenge.  Consider that when building the app itself.

Great job by the contrast.ie guys, @eoghanmccabe and @destraynor!  Thank you guys.

It’s not only the simplicity we crave. It’s the feeling of having nothing to lose. By having nothing to lose, the biggest obstacle to action is removed. He can honestly say: “What’s the worst that can happen?” If we start a new business, or quit our jobs, or travel more, or work more, or work less – what’s the worst that can happen?

The thing is, we call can do that. We can capture the motivating excitement and hurdle-reducing state of having nothing to lose by imagining our worst fears of losing it all. (When done as an exercise, it turns out we do not need much help to do so. We often overestimate risk.)

In The 4-Hour Work Week author Tim Ferriss quotes:

Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with course and rough dress, saying to yourself the while: “Is this the condition that I feared?” — Seneca.

When inventoried, we’ll often see that some of our worst fears are 1) unlikely to happen and 2) recoverable. Often, upon this closer inspection we’ll realize the permanent affects of the risks weigh far less than initially imagined.

……

With our young nephew’s big life change this weekend, I’m glad for the reminder of what it’s like to be just starting out. And for the reminder that no matter where we are in life, we can all start new goals, make big life changes if we want, and have the open-ended excitement of a clean slate. And – if the worst comes to be and we lose all that at one time we thought was important – we will probably realize it wasn’t important and can rebuild and start anew. I look forward to seeing what the future holds for our nephew, wish him well, and am sure he will do great things — with nothing to lose.

I am defaulting to “yes” and rarely saying “no”. Whether to personal or professional opportunities, I’ve come to realize that reasons I give myself for saying “no” are just excuses to stick with the status quo.

Here’s what seem like some reasonable reasons to say “no”.
* Focus. “I need to stay focussed on one thing. That other thing you want me to do will make me lose focus.”
* Time management. “I don’t have time to spare.”
* Commitment. “I won’t be able to give it (that new thing) the time it deserves.”

Saying “yes” has less impact to focus, time management, and commitment than is first imagined. Here’s why.

* Focus. There is such a thing as too much focus. A myopic effort on one task is likely to improve your chances of doing well on that task – but at the expense of a wider experience. Deep knowledge may help you climb the career ladder, yet when given the chance to expand my knowledge or experiences deeper or wider, I’d choose widening every time. (Not to be confused with ‘deep’ vs. ‘surface’ learning. I still want meaningful experience and knowledge.)

* Time management. Saying “yes” to something new does not have to mean dropping everything else. It does not have to mean multi-tasking, dividing attention, or any other of those dreaded productivity killers. New activities and events are usually in the future – they can be scheduled along with other plans and commitments.

* Commitment. This has been my biggest hang up. If you are like me, when you take something on you want to do it perfectly. 99.9% of the time though, people are not expecting, requesting, or investing in the level of perfection that you first expect of yourself. And they are right not to do so. Many of us go well beyond the point of diminishing returns. For example, I completed my masters degree with a perfect 4.0 – when a 3.0 would have been a lot less work, taken a lot less time, and made no difference in the long run. The commitment of your time and resources need not be as large as you initially estimate.

Saying “yes” has less impact to focus, time management, and commitment than is first imagined. If fact, saying “yes” provides opportunities to practice your focus, time management and commitment skills. Saying “yes” broadens your experience, builds on your contributions, and broadens and strengthens relationships. And, says one major longitudinal study on happiness: “the only thing that really matters in life are your relationships to other people.”

All that rationalizing aside: “Yes” is simply a better word than “no”. Yes is full of promise and excitement and something new. Yes is an affirmative willingness to be, to help, to play along. “No” is so final and abrupt. For kids especially, too many “no”s turn into a dream-killer. “Yes, yes, yes” is what they – what we – all long to hear. Let’s hear it more often.

Can you say “yes” more often? Would it benefit you and those around you to do so? To my kids, wife, customers, clients, potential clients, friends, or strangers – I can, and will, more often say “yes”.

Yes.