March 29, 2011 in Spotting the opportunity
In a recent post, I wrote about marketing as the art of creating the connection between brands and consumers. But, hypothetically, what if you don’t really want to create connections for their own sake, but it’s really money you are after? How do you go from having a connection to having a business?
The art of doing business is using the connection to make money
Once you have a connection (for instance: consumers are aware of your products/have purchased/recommend your business to their friends), it’s easy to see how it translates into generating revenue. People buy what they know and love, and the more they know and love it, the bigger premium they are willing to pay. The connection is valuable, and there are established ways of turning it into profit:
a) creating a connection
Brand = connection monopoly. Brands are valuable, because they give relatively great control to the owner with regard to how the brand-related connections may be used to make money. Nike or Coca-Cola can decide who will be allowed to manufacture and sell products and services bearing their brand, and control how much of the profits trickle to the bottom line. It’s fantastic to be Nike or Coca-Cola, but extremely hard to get to the same position. Creating a strong brand (in terms of the number and quality of connections) is very hard, but there is a great reward for a successful effort.
b) using an existing connection
Most businesses don’t really rely on connections they created themselves. Think of retailers, distributors, souvenir shop owners, etc. People don’t come to the shop because of the shop itself – they come because of their connection to the brand/product/service/city that is sold there. The retailer/distributor simply takes advantage of an existing connection created by someone else. A runner will come to your store primarily because you carry the newest Asics, not because of your big smile (although over time, the store might succeed in creating their own strong connection, thanks to superior customer service). The point is, there’s no need to create the connection from scratch, provided that you can profitably use an existing one.
The business artist’s way
Creating the connection (building a brand) is difficult and risky, and most of the ways to use an existing connection are already being exploited by other businesses. There are many ways of solving this problem (especially given that the business environment is highly dynamic), but one is particularly effective and elegant. The idea is to identify a powerful connection and figure out a way to make money from it that no one else sees. Powerful connection means that people will be willing to pay. Lack of competition means that you can charge a premium. Sounds great, but do such opportunities exist?
Fred Wilson has shared an incredible story of a promising startup called Airbnb. As a way of raising some seed money (unrelated to what the startup is actually about), these guys bought a bulk supply of generic cheerios and made up cereal boxes featuring Obama and McCain (picture above). They sold all 500 boxes of Obama O’s at the Democratic Convention in Denver (in which Obama was nominated). Price? $40 a box. Although Cap’n McCains didn’t sell quite so well, they still walked away with enough money to fund their startup for a while. Airbnb have used the powerful connection people at the event had to Obama thanks to his election campaign, and were the only ones around selling Obama O’s.
Do you know other interesting ways of turning the connection into profit? Do you know Airbnb? Fred Wilson? Check them out and leave a comment, to test if this new fancy facebook comment system works