earn savings

The one thing every business must do is create value. That value once offered to a customer should create added value on top, resulting in higher earnings. Inversely, the value you offer could potentially help the customer lose less money, resulting in savings.

Added value has two dimensions. Both are fine. However, they do require a different pitch and a way to prove upfront how additional money is going to be made or how less money will be lost.

middle trust

A prominent strategy for startups these last couple of years has been; cutting out the middleman. Traditionally, businesses got to their customers through intermediary parties such as agents, brokers, wholesalers, and distributors. Those businesses can now bypass said parties and sell directly to consumers. Transforming many business models drastically in the process.

The issue, however, is that the middlemen haven’t precisely been cut out. They’ve been replaced.

Arguably, AirBnB is one massive middleman, replacing thousands of in-between parties. Uber could be considered as one gigantic taxi dispatching central, replacing a multitude of others.

The way to succeed in a “cutting out the middlemen” strategy is twofold.

On the one hand, transactions have to be facilitated. That’s a given. Those transactions have to be fast, seamless, and convenient.

On the other hand, the perhaps less obvious aspect is becoming the most trustworthy party by far and large.

The middleman with the most trust is the one who will prevail.

commercial value

Something of value isn’t necessarily commercially viable, and vice versa.

If you follow a strict and specific diet that you find helpful, but nobody else does, commercial viability will be tough. To build a business around that diet, your assets could potentially include books, restaurants, food boxes, and so on. However, without the commercial viability, getting to the point where the assets become exploitable is zero to none.

Inversely, if you come up with a diet that everybody loves but is detrimental to the body, you may have nailed commercial viability, but the value you created is doubtful and arguably unethical.

Successful businesses make the creation of added, genuine value commercially viable.

availability cascade

The simpler an idea can be represented, the faster it will spread. Especially true for initially very complex ideas.

Collective beliefs gain popularity precisely because someone straightforwardly translated a particular complex process at some point in time.

Once the idea starts spreading, there is no stopping it. Network effects kick in. In the proverbial blink of an eye, the idea is now everywhere and became a collective belief, almost overnight. This phenomenon is often described as an “availability cascade.”

Fantastic if the idea is factually correct. Dangerous if it isn’t.

Water running down in cascading waterfalls can’t be physically made to flow the other way around. The concept of availability cascade, though, can, in theory, be reverse-engineered.

The easier you make a real-world problem, the bigger the likeliness you can leverage the availability cascade. Whether that problem is a concept that’s tough to grasp, a process that’s hard to guide, or a task that’s tough to perform.

Looking back at heroes who are walking or have walked this earth. Concepts like gravity and relativity are incredibly complex by nature yet have been made easy to understand for a broad audience.

Make things as easy as you possibly can for your customer.

bye bye bear

Make more profit then. That’s what the virologist said. Advice provided freely in response to businesses complaining they’re suffering. While the advice in itself isn’t wrong per se, it definitely lacks a whole lot of nuance.
If you are prevented, or even worse, prohibited from operating (part of) your business, increasing profit is impossible.

When a bear hibernates, it prepares for eight months, give or take. It can’t magically prepare for two years. If the circumstances somehow don’t allow for the bear to wake up after eight months, it’s bye bye bear, unfortunately.

What’s true of nature is also true of businesses. Running a company is like driving a race. You’ll have to know precisely how much fuel is left in the tank. Take on too much fuel, and the excess weight will slow you down. Take on too little fuel, and you might end up running on fumes, causing you to have to forfeit.

Prepare the best way you can. No more, no less.

begin peak-end

This morning, I underwent a gastroscopy. I was really looking forward to it. Am I a masochist? I don’t think so. The gastroscopy peaked my interest because it’s often referred to in psychological studies. The doctor was visibly confused with my enthusiasm while scheduling the procedure.

Generally, a gastroscopy is not a pleasant experience. The peak-end rule states that people judge an experience by its peak(s) and how it ends. Meaning, people don’t remember things based on the average of an experience. What sticks is the highs, the lows, especially towards the end.

Interestingly, the peak-end rule can be used to improve both good and (inherently) bad experiences.

Granted, you only get one first impression. Those still matter tremendously. However, whether your product is used once or a service that’s used often, knowing that people overemphasize the end of events, make sure to end on a high note.

season surf

Some businesses benefit (or suffer) more from seasonality than others. However, most companies, in one way or another, are impacted by seasonality. An icecream vendor, for one, will likely have a more challenging time selling ice cream during the wintertime due to reduced demand.

There are a couple of options to deal with this situation.

Option one. Either make all revenue during one or two seasons, so you can rest on your laurels for the remaining time. Not easy. It requires a strong brand and substantial financial buffer.

Option two. Apply aggressive marketing, among other initiatives, in an attempt to sell ice cream during the off-season.

Option three. Introduce new products (or services) that are better suited for the seasons where you typically see a decline in sales. Wafels could make an excellent addition. One that would likely sell more when the ice cream starts to sell less.

Don’t fight seasonality. Embrace it by making your business anti-cyclical.

misers pay twice

Some of the world’s most wealthy individuals are allegedly among the most frugal people. A quality that undoubtedly helped them building their fortunes in the first place. Surely not all of them. Many millionaires and billionaires splurge in a major way, and perhaps always have. The latter case says something about how they acquired their fortune in the first place, but that’s a different story.

There is a time and a place for everything. Sometimes penny-pinching is the way to go. Other times, it should be avoided at all costs.

When an item needs repairing, multiple options present themselves. Whether it’d be a washing machine or a vehicle. Overly simplified, the owner can choose between fake – or bonafide spare parts. On top of that, there is an option to choose between an authorized service center or not.

Choosing the absolute cheapest option could backfire when the counterfeit spare part malfunctions and wrecks havoc. Causing the item to break down altogether. What’s true of repairs is also true of new purchases. Notably, when taking resale value into account. Sometimes paying more upfront causes you to save in the end.

Knowing when to be parsimonious, but more importantly, when not to be, is a precious asset. Get it wrong, and the cost might double.