The 3 Ways to Source Anything

All business processes have multiple components. These components involve products and services which can either be produced by the business itself (i.e. in-house production), sourced from a few specialized entities (i.e. outsourcing) or can be sourced from a large number of outsiders (i.e. crowd-sourcing). The advantages and disadvantages of each are given below:

In-house Production

-          It generally tends to be cheaper as the margin on those products/services are kept inhouse. Also the business has better control over the process and quality and hence is less dependent on outside entities.

-          The downside is that this option has higher fixed costs and the required skills may be missing in the production. Also this option is operationally challenging.

Outsourcing

-          The biggest advantage of this option is lower fixed costs. This ensures that the business is in a better position to handle business cycles. Also outsourcing to specialized entities tends to ensures better quality of products and services.

-          The downside is that the business becomes dependent on outsiders. As a result, gaps in information flow and  communication can emerge.

Crowd-Sourcing

-          This option is highly scalable and provides the business with large and cheap operational capacity.

-          The biggest drawback in this option is that quality control is a big challenge.

All 3 options can be used by any business. The business must assess its priorities and make a decision accordingly.

The ‘Bid-Ask’ Model for a Customer Purchase

A good way of looking at any customer purchase is by analysing it using a Bid-Ask Model, where the customer’s Ask has to be matched with the business’s Bid to result in a transaction (just like a stock market transaction). The customer Ask is the value a customer requires to make a purchase and the business Bid is the value which is offered by the product/service the business is selling. This concept is particularly interesting and useful for early stage companies and startups as these businesses are not or less sure about how potential customers will accept the product/service offered by them.

So the concept seems simple. However, calculating the same is the tricky part. So let me try to define the terms in more detail.

The Customer Ask – This is the value the customer is looking for before buying the product or service. Any value under this value might not be enough for the customer to switch from the current solution he/she is using. To calculate this, we need to start off by identifying the best current product/solution which customers are using. The best way to identify this is by looking at the market shares of various products in your space or by simply asking the customers themselves. In addition, we would also need to calculate an additional factor, i.e. the Spread.

The Spread – The spread is the additional value a customer requires to move to a new solution. This value depends on a lot of factors like

- the type of customers – demographics, buying behaviour

- the particular Industry – essential or non-essential, nascent or mature

- the utility and importance of the product/service in the customer’s life – measuring customer stickiness

So to put it in a formula,

Customer Ask = The Best Current Solution + The Spread

The Business Bid – This is the value the business’s solution offers to its customers.

FOR A SALE, THE BUSINESS BID = THE CUSTOMER ASK

Now that the concept and the terms make more sense, how do we go about calculating the bid-ask for any business? What are the various features which add value to a product and how much value does each hold? Since the customer has to buy the product, she is the right one to ask.

For a startup, asking some potential customers (through family, friends, communities, online groups, social media etc.) to fill a Survey or participate in a Focus Group Discussion would be a good idea. It makes sense to ask potential customers and not existing customers as the latter are already buying your product.

The aim of the above is to get the following:

- attributes important for a customer in a product

- weights for each attribute

- the current best solution which the customer is using

- ratings for the various attributes for this solution

- how important the product is for customers and how open are they to try a new solution

These inputs will then need to be used to calculate the Ask of the customer and also the Bid of your business. 

Growth Hack – Speak to the Customer

In a lot of startups, we tend to forget the oldest and most important hack which is the way we communicate with a customer. Language plays a very important role in building a relationship and trust with a customer. A user should feel like he/she is talking to a person and not to a business. The flow of communication should be both ways and very interactive. This especially holds for tech businesses, where the user interface, and not a person, interacts with customers.

For example, if you are looking at targeting college students, the language of the interface should be more casual. A business targeting professionals should be more formal in their communication.

The Tesco South Korean Story – The Customer Can Lead to Marketing Hacks

Tesco Homeplus had emerged as a strong player in the grocery retail market in South Korea. However it was at the 2^nd position and was looking at a way to reach the top position without increasing the number of stores and overheads associated with them.

They started thinking of what problems and changes customers were facing in their daily lives. The 2 most significant ones were that smartphone usage was growing rapidly and also that free time was becoming scarce.

The company decided to use both of these observations and came up with a strategy to take the store to the customer rather than vice versa. They created ‘Virtual Marketplaces’ in locations where people generally waited everyday. Using their smartphones, customers could simply scan the products they were interested in and could complete the purchase online itself. The goods were then delivered directly to the customers’ homes.

The company was able to use 2 factors which were not related to each other and helped convert the customer’s waiting time into shopping time. The sales of the company increased instantaneously and it became the largest online retailer and a close 2^nd in the offline space.

Tesco Homeplus Success Story

Marketing Hack – Build Email Lists

An email list is probably the strongest marketing tool a business can have in its marketing repertoire. From the first day itself, a startup must focus on building an email list. Email lists can be created using Gamification. Users can be offered freebies and incentives to induce users to share their email ids.

Email lists are a good marketing tool owing to the following reasons.

One to One – The communication between the business and the customer is personal and one to one.

Higher Engagement & Conversion – Emails can be sent on a regular basis to inform users about latest updates and happenings. This leads to increased engagement with the customer, which eventually results in a higher conversion rate as well.

Growth Hack – Trend Watching

A good business hack to maintain high growth rates is to keep watching latest trends in the Industry. These trends can include latest developments in product design, marketing strategies, customer expectations and so on. A good startup will keep abreast of the latest trends, identify the ones which are getting good customer adoption and will be flexible in adapting them into the business.

Zara is a leading fashion brand which has scaled tremendously in the past few years. The Spanish retailer is famous for it’s agility in identifying new fashion trends and flexibility in integrating them into it’s own business.

Startup Hack – Test before you Leap

Building a MVP or getting a basic message to your potential target market and getting some feedback can save a startup a lot of money, time and effort. Committing to an idea based on one’s own mindset and understanding is not a smart thing to do.

A lot of big startups we see today have done this in their early days.

Groupon – Andrew Mason initially sold T-shirts of a single size on a wordpress blog to test the concept.

Dropbox – Drew Houston put together a small demo and showcased it to potential customers to get feedback.

Zappos – Nick Swinmurn tool photographs of shoes and put them online to see if people were actually ready and willing to buy them from there.

Marketing Hack – Try before you Buy

Sampling or trying a new product before purchasing gives a customer a whole lot of confidence and value for money spent. This is a great way for businesses to get additional visibility and to increase their customer conversion rates as well. Most FMCG companies either offer small satchets of products for free or at a nominal price. This is primarily to make customers try out the product.

An interesting application of this hack was seen by me in a startup based in Gurgaon, India. Fitnessathome is a fitness equipment rental cum sales startup. Customers can take an equipment, say a treadmill, for rent and if they like it, they can purchase it and the rental amounts they have paid will be deducted from the sale price. The startup’s main margin comes through fitness equipment sales and they have seen good results with this ‘try before you buy’ tactic used by them.

Business Hack – Go Deep, Not Wide

This is a tendency of a lot of entrepreneurs when formulating a business idea. We need to focus on doing some things well rather than doing a lot of things, especially during the early days of a startup. We have limited resources in the form of skills and money. Focusing on a niche and becoming string in it with these available resources will give us a better chance of succeeding.

In Beveragewala, we wanted to create a platform selling all beverages including tea, coffee, juices, squashes, energy drinks and maybe even alcohol. We realized that our budget was a big constraint for us and if we start with the complete gamut of products, our collection would be limited across categories. Hence, we decided to start with just tea and coffee. We were able to offer our customers the widest variety of teas and coffees and were able to get good user traction and reviews.

Disruption Hack – More Power to the Customer

This is probably the most important hack to disrupt any Industry. A startup which can give more power to the user than the existing businesses is one which will get higher user acceptance.

Time and again, this has been seen. Some examples include the following.

Travel Industry – Online travel companies have become dominant and have been able to disrupt the space which was once ruled by agents.

Recruitment Industry – Recruitment tools have done the same.

Real Estate – Housing portals have been able to give more power to the end users and have evolved as successful and scalable business models.

Consumer Products – A multitude of products which have given customers more choice and an option to customize have emerged successful. The Ipod is one such example which has replaced Music CDs.

Sales Hack – Something Extra

Giving something extra to a customer goes a long way in delighting the customer. To a customer, that little extra something shows that the startup cares and wants to ensure a great experience for him/her.

In Beveragewala, we started sending tea samples with each order. The samples used to be chosen in such a way that they would be complementary to the tea ordered by the customer, so that the customer would have a greater chance of appreciating the sample and the gesture. In our first customer survey, more than 18% of the respondents mentioned about the samples they received.

This shows that a little freebie, which may not cost you much, may leave a big impact on your customers.

Sales Hack – Identify the Decision Maker

This is a hack which is more applicable when selling to businesses. The first and foremost step in B2B marketing is to first find the person who will make the decision. Rather than wasting time and effort on any person from the client’s side, it makes more sense to channelize this effort in finding and contacting the person who will take the final call. Thereafter, you can start putting in time and sales effort to convince that person and get a sale.

This hack also does apply to some B2C businesses also. For instance, in my stint as a Business Developer in Meenakshi Public School, a K-12 School in Gurgaon, I realized that a lot of schools were putting in effort to please the children and were organizing events and doing other activities for them. Though children do have a small say in the decision of which school to choose, the main decision maker in this case are the parents, especially the mother. On realizing this, we started putting in more efforts to bring potential parents to the school and saw positive results, with our student acquisition cost coming down.

Productivity Hack - Automate Processes

Automation is the key to scaling in any business. The more systems and processes you can automate, the more your business becomes ready to grow and scale.

Automation has several advantages.

Fewer Errors – Automated systems can do the same things with no/less error as against a manual system.

Scalable – Automation results in a process becoming scaling-ready, as manual intervention comes attached with a load of challenges.

Look at things where manual intervention is not really required and try to form systems around such things. The more you automate processes, the more efficient these processes become (both in terms of cost and implementation).