Tagged: business ideas

Can your Ad Model Scale? Probably not.

Can your Ad Model Scale? Probably not.

While looking for a good definition of a scalable business I came across two great articles.

First, from Sacred Cow Dung, a wonderful explanation with killer graphs.

Then, from Briefing.com, a great explanation.  No graphs, but a brilliant quote:

“Many Internet business models didn’t pass basic tests of credibility. For example, sites with pure advertising models are usually unable to answer the most basic question about growth: how big can you get? The reason is that growth is entirely dependent upon increased page views, either by more users, or more pages, offset by declining ad rates.

Both have upper limits and most companies with advertising models have fixed costs exceeding current revenues. When you try to compute how many page views a pure advertising model needs to generate just to cover fixed costs, it is usually baffling.

That’s my emphasis added, but the article makes a great point.  The only way to scale an advertising based model is to increase the number of page views.  This naturally has an upper limit, and that upper limit is probably much more shocking than you realize.  I think we delude ourselves when we hear about someone making ‘millions’ off a blog, and think that’s really a business model.  It’s a hobby, possibly a lucrative one, but a business? Probably not.

From Ambition to Execution: Practical Steps for turning your business idea into a business

On June 15, 2009, I gave a presentation as part of the National Summit.  Here are my lecture notes, as well as the PowerPoint.  Both are a bit unpolished, but you get the general idea.

“I’d like to talk to you today about taking an idea and turning it into a business.

Ideas are like elbows, almost everyone has at least one.  There are a lot of personality traits and behaviors that can help a person with a business idea undergo a personal transformation or growth and become an entrepreneur – an actual executor of that idea.  I’m not here to talk about that today.  I’m assuming that if you made it this far into my spiel that you’re already the kind of person capable of starting an enterprise.  What I’d like to focus on in the next 15-30 minutes are the very specific and deliberate actions you can take to shepherd your idea and turn it into a business.

In a nutshell here’s the key: To turn an idea into a  business you need to refine the idea until it becomes a product or service that is so inherently attractive to users that they’ll change their behavior and use your product or service.  And you need to do this all in a way that brings in more money that it burns up.  Thanks for coming, enjoy the rest of the conference. But seriously, it is that simple, but in the simple lies the complex, so let’s break this down.

I very deliberately break this into two parts.  I do that because here’s the problem most people face.  They mix all this up together and try and eat the entire sub sandwich in one bite.  There are two components: what the business is, and how it makes money.  When you cross the streams, you lose focus.  And brilliance in one of these areas won’t cure utter stupidity in the other.  But when we let ourselves think of this as one undifferentiated mass, we can delude ourselves into thinking we’ve got a great business, when maybe all we have is a clever idea that’ll never make a profit, or a clever way of making a profit that’s attached to a product or service no reasonable person would ever want to use.

Refining the idea is what I want to talk about.  Figuring out revenue and costs is extremely important, and a vital area for innovation.  The business model end of things is a matter of marketing, sales, and being clever about costs.  I want to talk about Refining Ideas.

You need to research to refine your ideas and the first thing you should do is GET OFF THE COMPUTER.  Look, I’m no technophobe, but at some point the thinking became, if it’s not on Google, it doesn’t exist.  Computers are supposed to make us smarter, not us more stupider make.

The most important thing you can do is Talk to People, better yet, Listen to People. Get out of your office, get away from the desk and talk to people.  Have actual conversations with people.  Preferably face to face, so you can sense the whole conversation.

Talk about what? WOOD BEFORE SCREWS. You’ve got some sort of idea for something.  You saw some sort of problem, or opportunity.  Something you noticed or experienced triggered this idea of yours.  The person who invented the screw had wood that needed to be held together.  Put your idea aside and get back to the wood.  Talk to other people who might have this problem, and confirm that they’ve got the problem.  Go deep on the problem, before you even begin to talk about your solution.  People want SOLVING NOT SOLUTIONS.  Your initial idea can change wildly because what you may have discovered in that initial a-ha moment isn’t a solution, but a deep problem that needs solving.  And maybe your ‘a-ha’ solution isn’t a good solution.  Good solutions achieve the ends sought, they resolve the problem fully and directly Without identifying the problem on a deep level you can’t know if your solution fits, much less if its a good fit, or what you’re really hoping for, a fit that is so good it motivates changes in people’s behavior. So RESEARCH THE PROBLEM BEFORE THE SOLUTION

CONTEXT IS KING.  Talk to the people who have the problem about everything that surrounds the problem.  What’s their mental state before and after solving the problem.  What solutions do they employ now? You want to understand everything around the moment where the problem occurs and is resolved.

It’s inside that context that you’re solution needs to operate.  YOURE NOT TRAINING MONKEYS TO RIDE BICYCLES.  You take the customer as you find them.  Can try and change their purchasing behavior, but woe if you’re trying to change the context. CHANGE IS SCARY.  You’ve got to find out where the customer is at to move them to where you might want them to be.  TALK TO OTHER CONTEXT PROVIDERS.  See who else is solving the problem or providing context to the problem.  They will have insights you and the client both lack.

So, identify the PROBLEM, the CONTEXT and CHANGE their behavior.  How do you do that? REFINE THE IDEA SO THAT IT PROVOKES CHANGE.  How? Well the problem and context will help you understand the customer’s feelings and motivations, and you need to craft your idea to have the greatest appeal to their feelings and motivations.  You do that and you end up with a BETTER TARGETED CLIENT DRIVEN IDEA.  A better idea than the one that led you down this path.  Once you’ve got that PULL ‘EM, CLOSE ‘EM, KEEP COSTS DOWN and make a PROFIT.  Better yet, make VALUE.”