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The power of tech companies comes from the business model in the ...
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Hidden in plain sight
The two founders of Google couldn’t find a solid revenue stream for their business and almost sold it for a song. Luckily, a prospective buyer turned them down. Then an investor learned that it was possible to sell advertising on the Internet. It wasn’t just brilliant technology that was the key to the business. A new business model was needed as well.
This distinction may seem obvious, but it’s subtle enough that most of the hype about innovation misses this crucial point. Engineering wizardry may have the potential to change the world, but it won’t create a strong business unless you can figure out how to make a profit.
There’s a paradox, too. While it’s never been easier to create new technology, this is also the age of a small number of companies dominating almost every sector. If you have a brilliant idea, they may be able to copy it or otherwise threaten your existence.
All this was clear to John Robertson, founder of Home Except, a Halifax start-up that builds sensors and AI to monitor the quality of life of seniors living at home or in care facilities.
The typical subscriber to the service is a family member or friend who receives data via an app that indicates if the senior is sticking to a healthy routine. Changes to heat, humidity and movement patterns could all be causes for closer monitoring by a human caregiver.
As a former senior sales exec at Brother, the Japanese equipment manufacturer, Robertson knew all about the strengths of a large corporation. He also knew the little guy could have advantages like speed and agility. The challenge: how to blend the two in a unique business model?
“I started by using the lean canvas model where the goal is to find an ‘unfair advantage,’ one that is hard for a competitor to mimic,” says Robertson. “It’s like the iceberg where 80% is hidden underwater. The big guys have deeper pockets and can try to reproduce your secret sauce. For HomeExcept, I asked what would be our unfair advantage that will prevent Google and Apple from doing it.”
He honed in on the idea of “non-intrusive monitoring,” using ambient sensors placed around the living area. “Next, could we make our service 100% anonymous?” he asked. “In contrast, companies like Facebook and Google offer the free-service business model where you pay with your privacy.”
Next question: what would be the bare minimum information needed to commercialize the product? The answer, in this case, was the mobile phone number of the person who subscribed to HomeExcept. “This could be the daughter, but we would not know that it was her mother who was being monitored or her location. Facebook Portal can’t say that. Do you trust Facebook to have a camera in your living room?”
Next question: how to take the business to the marketplace?
“The problem with many startups led by young founders is that they have no experience in the corporate world,” says Robertson. “They tend to go for a business-to-consumer or direct-to-consumer business model. They have a software product and make a land grab for subscribers by spending a lot of money on marketing.”
However, this business model is easy for big companies to replicate. With their big marketing budgets, there’s not a lot of room for startups.
From his corporate experience, Robertson knew that manufacturers can rely on “channel partners” to help with sales. They don’t need their own stores or online sales. (The big channel partners for many vendors are Staples, Costco and Amazon.)
He wanted his company to create not only software but hardware – to build the sensors from components. This would help create a “moat” around the business. They could outsource sales, shipping and delivery to their partners. So who would be the channel partner?
The answer turned out to be Microsoft, which specializes in B-to-B customers. Today, HomeExcept builds the product and Microsoft helps sell it through their co-sales program.
HomeExcept relies on technical innovation, a smart business model, and their people. “When I give talks to young entrepreneurs I say what matters is not your ideas, but your ability to execute,” he says. “A patent doesn’t matter if you can’t execute your business model.”
Quick study: John Robertson in his own words
Q: Where do you get your ideas?
A: I rely a lot on collisions where you open yourself up to new ideas and new people and start to see connections. It is all about collisions and connections.
Q: Who are your mentors?
A: People I trust give me insights when I need them. My co-workers, a couple of close friends, and my partner Jill. And I love to be out selling. Your customers will mentor you.
Q: What’s your biggest weakness?
A: My style is to move fast, break things and ask for forgiveness later. I’m great on execution and may ship too fast. On the other hand, many people take forever.
Adapt – don’t transform
Q&A with Giles Crouch, design anthropologist, managing partner of Ekspansiv, a global digital business advisory firm.
Q: What is the importance of the business model, especially in this digital age?
A: Many founders are not clear about that. Digital transformation is mostly a marketing term. If your business model works, keep it growing by digital adaptation, not transformation. If you need digital transformation, you are probably in trouble, losing sales. With adaptation you take what works and make it better.
Q: What are key lessons for companies in Atlantic Canada?
A: Use Atlantic Canada as a test market for your business model before taking it global. Most Atlantic companies think research is too expensive and shy away from it. Or you can become too reliant on data. You need to find balance. The data are only as good as the questions you ask. All software and hardware does is move information around. It does not make decisions.
Q: What’s another common weakness?
A: Digital maturity in Atlantic Canada is pretty low – at only 15% of our companies, according to a study by BDC. Cloud-based software like Google G-Suite is very affordable, but often employees have better technology at home than at the office. They are more productive in their off-hours. Smaller companies in Atlantic Canada don’t need to invest in software development. Most of what you need is available off the shelf.
Q: What sectors do you recommend for Atlantic companies?
A: Natural resources is one. There is a huge demand for natural products, including wood. We need more human products, less plastic. Some of the least glamorous stuff can be the most profitable. Few companies can play at the top of the sexy sectors.