Business Models


Products scale quite nicely than you.
Services? Not so much.

While I'm beating the bushes 24/7 at Sendside, I've got some systems in place around launching products that's working quite well, and it's all built on the premise that incremental value is scalable only around products, not services.

I think I know something about this. After all, I was a painter for about 20 years. Artists have perhaps the poorest business model there is. Painting is a huge time investment and you'll need some serious inventory with no assurance that what you're doing will sell. At least to start.

One of my epiphanies came when I entered the limited edition print market. Suddenly I was painting a single painting, but selling it thousands of times. (Incedentally this does drive up the price of the original which is also nice.)

But before I wax too philosophic, let me come back to my point. Products scale. So my crack team organized under my medical spa site at Medical Spa MD is busy creating value by leveraging our expertise to take specific products to market.

Last year we launched a new site that ships wholesale Botox worldwide. In the next month we're launching three new services: Teeth whitening, medical outsourcing, and do it yourself SEO. There are about eight other products, services, and partherships lined up behind those. And that's just for Medical Spa MD.

I've got designs on the artist, painter, headshot photography and actor markets in NY and LA since I've got some experience there as well. While I'm not quite at the four-hour work week with these sidelines, I'm probably close to eight... and I work on weekends.

Of course I couldn't do this myself. I have a team that reside in various locations around the world; California, New York, India... And they do the heavy lifting. I'm just around to provide direction, and to pay the bills. Fortunately, with scale comes profitability.

Asymetrical Sales Acceleration & Strategic Marketing

Sales Automation & Strategic Marketing. Take a look at this image contrasting convetional and irregular warfare strategies.

If you swap 'Users' for Population and 'Management' for Military, it's a pretty good analogy of the way companies sell.

Traditionally, companies have sold into management structures who have then pushed downstream into their users. Installed software companies are a great example of this. If you buy installed software you're making a big investment and taking some risk. The sales focus is on getting the management to buy or adopt. End users usually have no say in what they end up with.

Increasingly, and espectially with SaaS models, the emphasis has changed from selling to management, to selling (through adoption) to end users. The parallels to asymetirical or irregular warfare are striking.

Medical Spa Training Manuals & eBooks

Medical Spa MD is now publishing training manuals and books for laser clinics, plastic surgery centers and dermatology clinics.

These medspa eBooks are designed specifically for medical estheticians, cosmetic laser and IPL technicians and front desk staff, to provide a consistant environment for new hires and keep the staff informed the latest cosmetic treatments.

It's part of an evolving plan to be able to monitize the huge community of plastic surgeons, dermatologists, laser clinics and medical spas that are part of the community at Medical Spa MD. There are more than 4,000 members and around a million and a half targeted page views, most of which are from physicians (although non-physician numbers are growing).

Medical Spa MD is a community I started a few years ago and I think it demonstrates how effective you can be if you have information that is not generally available, and know how to build and motivate an online community. Medical Spa MD will never make me rich, but it's an asset that accrues increasing value over time and more than pays for itself with new opportunities.

Medical Spa RX is the sister site to Medical Spa MD and allows these same dermatologists, plastic surgeons and laser clinics to buy wholesale Botox, Juvederm, Restylane and Dysport from Canada and distribute it world wide.

The Ultimate Clinic Operations Blueprint

But perhaps the greatest value of Medical Spa MD is simply the trust and goodwill we've grown among physicians. Medical Spa MD's influence and reach is very long, as attested to the numerous leagal threats, phone calls from lawyers, and cease and desist letters we've received.

Leaderless: The asymmetrical bootstrapping starfish and the chronically arthritic spider.

As a companion philosophy to The Wisdom of Crowds we now have The Starfish And The Spider; the unstoppable power of leaderless organizations.

Of course guerrilla armies have been using asymmetrical warfare since Moses unleashed boils and other nasty ailments on Pharaoh.  All organizations have a problem when dealing with something that operates as effectively as a virus if you ever seen John Carpenters "The Thing". Of course if it really is 'unstoppable power' that leaderless organizations have, it's not going to be stopped.  (See Distributed Intelligence & Collective Intelligence)

1591841437.01._AA240_SCLZZZZZZZ_.jpgEvidently, the U.S. military is studying small companies to unearth ideas that will help the war on terror.

It may seem a stretch that within the chaos of capitalism are the secrets to fighting al-Qaeda. But the military and business have long borrowed leadership lessons and competitive tactics from each other...

...How large, traditional companies fare in this fight may prove invaluable in developing a strategy against al-Qaeda. That's why the military is going to school. A book making the rounds at the Pentagon is The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations. It was written for a business audience, but military strategists are saying, "This is the best thing I've read that applies to counterterrorism," says Lt. Col. Rudolph Atallah, a Defense Department director in international affairs.
Via Leaderless Startups, The Starfish and the Spider.

 Linda recommended The Starfish and the Spider, subtitled "The unstoppable power of leaderless organizations." This idea will be familiar to many of us who've been watching open source, wikipedia, and other decentralized online phenomena, but I found that the most interesting parts of this book were about the offline world, and how leaderless organizations have succeeded there.

From the Starfish and the Spider Wiki

The Starfish and the Spider explores what happens when starfish take on spiders (such as the music industry vs. Napster, Kazaa, and the P2P services that followed). It reveals how established companies and institutions, from IBM to Intuit to the US government, are also learning how to incorporate starfish principles to achieve success.


And it's not just a entrepreneurs and terrorists who are latching on to this distributed network stuff:

The Earth Intelligence Network

Earth Intelligence Network (EIN), a non-profit with 501c3 status pending exists to provide social intelligence capital by harnessing the distributed intelligence of the Whole Earth and creating a new integrated global mesh that enables life-long education, decision-support, focused research, and consensus-building.

The Earth Intelligence Network has three driving priorities:

1) To create, structure, and share public intelligence in the public interest with respect to the ten high-level threats, the twelve integrated policies to address all threats, and the eight major players whom we must help avoid the horrendous mistakes associated with immoral capitalism and unilateral militarism.

2) To support, at no cost to them, all developers of serious games and games for change that address any or all of the ten threats, twelve policies, and eight major players.

3) To support, at no cost to them, all developers of online budget simulations that can foster citizen understanding of the near and long-term benefits of reality-based budgeting, and the terrible consequences of special interest budgeting.HmmmHmmm

Hmmm. Distributed network of decision makers that operate on their own but towards a communal interest? Seems just like  Patrick Byrne of is talking about with strategic failure to deliver. The enemy of my enemy is my friend.

It's no real stretch of the imagination to see why distributed, unorganized networks of a like mind are so difficult to defeat. Napster was able to be targeted only because they controlled the linchpin of having the network traffic go through their servers. Everyone is wanting to do the 'user generated content' thing.

eBay vs. Amazon: The business models.


Way back in 1999, Business week published an article that pitted A&E against each other. It's an interesting read and surprisingly accurate of the situation as it still exists.

eBay vs. Amazon: Fixed prices or dynamic pricing? 

That's one thing Amazon and eBay agree on. There isn't much evidence that consumers want to ''one-stop shop for every single thing in their life at one company,'' says eBay CEO Margaret C. Whitman. And Bezos rejects the widely held notion that a handful of megastores will dominate. ''There's going to be tens of thousands of winners,'' he says...
...eBay has zoomed to prominence with an even more innovative E-commerce model--one that, in a rare feat, is actually profitable. Because eBay doesn't take possession of the goods--it acts as a broker for buyers and sellers and takes 6% off the top--it incurs none of Amazon's hefty distribution costs. It has only 198 employees to Amazon's 3,000. As a result, its gross profit margins are a Microsoft-like 85%--on gross merchandise that ballooned from $95 million in 1997 to $746 million in 1998. ''Dollar for dollar, eBay has a better revenue and bottom-line model,'' says analyst Mitchell Bartlett of Minneapolis investment bank Dain Rauscher Wessels.

And then there's this sentence that turned my head since this is exactly what we're aiming to do.

Moreover, eBay could even turn the nation's 18 million small businesses into a virtual selling force that could rival that of conventional retail. ''It could be the destination for all these businesses to sell online,'' says Steven R. Mitgang, a senior vice-president for Sitematic Corp., a San Diego software company that has helped several dozen small businesses list their inventory on eBay. Beyond auctions, says Mitgang, ''it has a huge opportunity to become the destination for consumers to buy stuff, period.''

Of course I think that Amazon, eBay, Google, and Yahoo are built bass ackwards for accomplishing this as top down search and retail. But what do I know... Shmula has all the charts.

Verticle Marketplaces

Genuine VC posted here on Vertical Marketplaces. Of course Nimble is one of these marketplaces so you can read my posting this here as a form of self reinforcement, but what do you expect. I'm on the bandwagon.


The real opportunity here is in the business model itself – not just providing paid advertising listings (or even contextual relevant advertising adjacent to the listings themselves), but rather actually participating in the transaction as a percentage fee. The more intimate the relationship these marketplaces play in the transaction, the greater the value they can capture from it. As Rentacoder has demonstrated, this level of is engagement is possible by assuming the risk of the transaction, which gives both transacting parties the comfort in "paying" for the introductory services in a substantial manner.

Funding Universe: 7000 company histories

fundinguniverse.gifTrent Miskin sent me this link to Funding Universe's 7000 company histories.

While it doesn't have everyone of interest (I couldn't find Ebay, or Overstock), it did have PayPal and Amazon in the 7k.

Here's a snippet from the PayPal history:

"In just eight months time, between January and August 2000, PayPal surged from 12,000 accounts to 2.7 million. The company's transaction process helped tremendously to fuel the growth. Money could be transferred to anyone who had an email address, even those who did not have to have a PayPal account. However, recipients did have to open a PayPal account in order to claim their money. The system's convenience and cost won over eBay shoppers. They no longer needed a credit card to buy online, and the service cost them nothing. It was cheaper even than a postal money order and stamp. Sellers were required to pay 1.9 percent of the sales price."

Pay per Post vs. TechCrunch

I got the sweetest little iPod Shuffle yesterday to replace the mini that was 'smash-and-grabbed' from my Landrover 6 months ago. (The new Shuffle is the cutest little thing. You just want to play with it.) Anyway, I downloaded the newest iTunes and podded (is that a word?) up my Shuffle with a backlog of podcasts to listen to while driving. The three I listened to last night included Venture Voice interviews with Guy Kawasaki and Reid Hoffman of LinkedIn as well as this one on Pay per Post.

ppp.jpgPayPerPost Raises $3 million

Michael Arrington and Rob Hof (Silicon Valley Bureau Chief at Business Week) took a few minutes today to talk to Ted Murphy (founder and CEO of PayPerPost) and Josh Stein (a Director at Draper Fisher Jurvetson) about the funding and the controversial nature of PayPerPost’s business.

The Podcast Driveby

Michael Arrington has a definate load of redass out for the boys at PayPerPost and performed something akin to at podcast Driveby. He must have said 'unethical' thirty times. At one point he says, "I wouldn't want to draw any comparisons...", and then brings up statutory rape as an example of something that the free market would allow but that's not good for society. (Statutory rape?)

It seems that  TechCrunchThinking feels that it's PayPerPost's duty to require that bloggers post that they are being paid to write about a topic and that failure to do so undermines the very fabric of credibility that the bloggosphere has been built upon. He, Michael Arrington, would never allow so crass and slimy a business to become affiliated with his brand and actually pulled a $40 add buy on TechCrunch so that his hands would remain clean. Poor Rob Hof of Business Week was so upset that he could only occasionally interject a 'unethical' comment of his own. (Arrington interjects that Hof is unable to find any humor at all in the situation.)

While the podcast is entertaining since Arrington is doing his best to get his guests to admit that they're willing to slime the bloggosphere and trade in their Dudley Dooright hats for Snidly Wiplash moustaches if the price is right, Michael Arrington is not a great interviewer. The PayPerPost duo actually came across as sympathetic since it was obvious that  Arrington had a pot of boiling oil ready and was just waiting for an opportunity to use it. At various points he interrupts with comments like, ' you say what you're going to and then I'll tell you the real answer." That's an interview in the style of Morton Downey Jr., not a blogger who has 'a social contract with his readers'.

Arrington just can't get past this idea of paid placement. He thinks he has a real A-Ha moment when PayPerPost says that this is a way for small companies to get a 'boost' in name recognition. Arrington trumps that with, 'if the company was worth anything they wouldn't have to pay to get written about'.

Business? What's a business?

This more than anything shows just how insular and elitist the A-list bloggosphere is. Arrington thinks that all the CEO's of all the companies in America should get to know the A-list bloggers and the bloggers will decide if they're worth writing about.

Arringtons world does not contain real red-blooded businesses. It contains room for geeks, aps and ASP's. The very thought of a small regional business reaching out to the bloggosphere in an attempt to gain recognition or be seen by a certain demographic goes completely over Arringtons head. The PayPerPost duo brings up shoe retailers and single locations, Arrington acts like these types of businesses don't exist.

Mainstream media sells editorial

PayPerPost is doing exactly what tradition media does. My business Surface Medical spends money on traditional media. I'll highlight some local examples that I'm intimately familiar with.

Salt Lake Magazine offers paid 'advertorials' in runs with specific topics. For example: Salt Lake Magazine will run a 'health issue' in Jan/Feb. They then go and find health care advertisers and pitch them with inclusion in an advertorial section. The section is purposely designed to appear as though it's editorial. Only it isn't editorial. It's paid advertising. The attraction to the advertiser is that it looks like editorial. I've also been pitched and gone with a service provided by a local paper in which they have an auction, sell my inventory, and keep the money in trade for advertising dollars. 

Selling editorial is frowned on by the editors and love by the ad sales guys and the advertisers. 

The PayPerPost model for business.

Most businesses are not run by geeks or bloggers. Most businesses are local. Most businesses are small.

PayPerPost will be a marketplace whose success or failure will be determined by how effective their advertisers are. The market will determine the benefits and opportunity costs of using paid editorial. Some bloggers who don't disclose that their content has been paid for will be outed and flamed. (Probably by those do-gooders from Wikipedia.)

I'm getting gentrified in my old age.

Yesterday I was with the masses of bloggers descrying the PayPerPost sellouts. Today my view has moderated. PayPerPost is sticking with their mantra of 'markets are efficient and we believe in the American way'. Good for them.

Disclaimer: This post has not been paid for. 

Tag Jungle: It finds blogy things.

Phil Burns and the Tag Jungle crew gave me pizza today for lunch. That always makes me feel kindly.

Phil was trotting out Tag Jungle again before he tries to find money for more than pizza. That's always a good idea and especially for Phil. I'm generally geek-i-fied enough to follow discussions about blogging in general by I actually had to listen to follow some of the whatchamacallit goes in the gobblygook and comes out here stuff.

Jungle looks to be a real world solution for relevant search in the blogosphere and I'm anxious to see it in real world action.  I farted around with the alpha site for a little while and it looks promising. I was going to write a list of what TJ can do but I'll leave that to Phil. I will say that 'jungle juice' was first spoken by me. (I'll want some nachos at Fight Club.)

Phil et al are going on a roadshow to get more pizza money. Guy Kawasaki recommends watching this pitch by Majora. (Watch it online here.) Who am I to argue. 

I spoke briefly with Phil about building a pre-pitch dinner where Phil can pitch and receive feedback from investor types. I have a few people in mind. If I call you you'll get to see Phil gesture wildly and probably come away with a free T-shirt.

Barriers to imitation

Excellent post on 'Barriers to Imitation' from Early Stage VC.

google-trademark.gifFrom the post: So what do we really mean when we say what’s your barrier to entry?  I think what we mean is really the reciprocal. What’s everyone else’s obstacle to imitation?  Competitive imitation erodes your uniqueness as in Unique Sales Proposition. It raises the cost of differentiation and it gives the customer more perceived choices.   You have to spend more to stand out and get less market share for it.

Imitation comes in many forms. It can be a current claim, as is “we do the same thing.”  It can be a future promise, as in “we will have that feature, too.” Worst of all, it can be a rapid replica of your actual product.  It is the latter that most investors care about when they fear competitive “entry” or imitation.

Re-casting the question as obstacle rather than barrier also points to how to address the issue.  There is rarely a single obstacle that is so insurmountable as actually to be a barrier.  However, you can often outline a series of speed bumps that will slow down even the fastest fast follower.


Free alternative to Basecamp. Is there a flaw in 37 Signals business model?

logo-bc.gifHere's an alternative to 37 Signals popular Basecamp project managing software: ActiveCollab (Absolutly terrible name.) TechCrunch article link.

 A flaw in the newfound "simple" business model? Seems when somethings so simple it's easy enough to knock off. And since there are any number of programmers ready to provide a free service, where are the barriers to imitation?

Do Young Entrepreneurs Still Want To Change The World?

w887097-001.jpgWhen I decided to become an entrepreneur, a streak that always lay dormant in me, one of the criteria I had when Ilooking at a business is, is it changing the world in some small way? That's always been my goal is to create something that is better than what has existed in the past. Most notably, my first real, true start up, not including my previous failed businesses, is Surface Medical Spas, which, from the beginning, was designed to change the way cosmetic medicine is practiced and delivered. The current medical system is totally antiquated and inefficient, and Surface brings efficiency to the marketplace based upon technology, not individual physicians' skills.

My current start up, Nimble, is designed to replace advertising and marketing for local small businesses. It is designed to bring hyper-competition into the marketplace and allow any business to manage its own inventory in real time by selling its unused inventory at a discount directly to the public or some other small business; that is a cool deal.

It surprises me personally when I meet entrepreneurs whose only goal in life is to make money by what I see as less than purely ethical or idealistic reasons.

I recently ran across an entrepreneur at a gathering who was truly excited about his new business. He had come out of UVSC Entrepreneurial Program and one of his assignments had been to start a new business. The business he had started was an online ppc business, and he was very proud that he was making about $1,000 a month doing it. His business consisted of purchasing a domain, running up the rankings using SEO, providing a bunch of ppc text links at a dead end, and, from my opinion, tricking browsing consumers into clicking one of these ad-links. That was his business model.

Businesses like this irritate me to some degree because they add nothing. They just skim a little bit of money by unsuspecting businesses and people (I routinely categorize realtors in this category as well).

My own feeling is that if you are going to run a business and expect people to pay you money that you should be actually adding value. Just providing dead links so that somebody is tricked into clicking on them, adds zero value and to be honest I think is at least cloudy on the ethical front. I know many business owners that will do anything for a buck. Potentially, if I had one of these sites, I might think about that as well. I do have sites that run adwords and I do make a little bit of money off of them, at least enough to pay my bills, to keep the sites up and going. But to provide no content, I think is just scummy.

Where are the young radicals out to change the world and stick it to the man? 

Old media must embrace the amateur.

Clicking through my regular morning reads from my RSS feeds I came across this article 'Old Media Must Embrace The Amateur'  by Tom Glocer (head of Reuters), on the Financial Times. I have to say this is right along the discussion lines of a lunch we had yesterday with an 'Old Media' source.  Actually, I think these guys get it. Unlike some discussions we've had with local media outlets, there wasn't a 'circle-the-wagons' type mentality. Change is constant and if history teaches us anything, it's the folly of fixed defenses. Here are some of the more interesting snippits but the articles worth a read.

Woot and the power of limited inventory.

Limited supply + large demand = motivation.

For anyone who doesn't know, now's your chance. Woot is an online business that takes a single product of limited inventory, discounts it heavily, and releases it every day at midnight.  If the products good it sells out pdq so you have to be quick to the button. Steep & Cheap is's like-concept but offers outdoor stuff.

I found out about Woot from Alan Young when he was working with the University Venture Fund. Allan told me that Woot was changing it's users sleeping patterns since they'd stay up 'till midnight to see what the next Woot was.

Of course it's the limited supply. Limited supply + large demand = motivation.

The problem many businesses have is that they don't really have limited supply, they have lots of supply. It's this factor of being able to offer unlimited supply that exerts a downward pressure on perceived value for internet companies. How much will people pay for email? Nada.

What can a business do to decrease the perceived supply of its offering? Depends. If you're direct competitors also have unlimited supply you're in trouble because your customers will switch. It's only if you're offering is unique enough that the opportunity cost is now perceived by the buyer to be lower with your offering.

It's the perceived value and opportunity cost that buyers use to make purchasing decisions. That's it. It would be really simple if all consumers used the same criteria to judge but they don't. There's slop in the decision making process since every individual use their own criteria. But that's also where the opportunity lies for any business.

Women purchasing shoes are using a very different standard of value and opportunity cost than men. (Way different in my wife's case.)

Woot proves the point. Changing the habits of customers is not easy, but if the perceived value of the offing is there it happens without a second thought. 


Niches more profitable than hits?