31 takeaways from this course:
[EDITOR’S NOTE: On Christmas day, December 25, 2015 Seth Godin offered a free course on business models via skillshare to the first 2,000 to enroll. I was lucky enough to be among the first 2,000 to enroll. The following are my notes to some of Seth Godin’s most important points.
Check out this course on Skillshare.com.]
1. Business Models
00:00:36 As an entrepreneur:
- You’re in charge of what happens and what comes next for your business.
- You transact with people; you’ll sell to people willing to pay you more than what it cost you to make your product or service. Likewise (if you create a high-quality product or service) they will pay you less than they think it’s worth, otherwise why would they buy what you offer in the first place? This is the benefit of a win-win situation where neither side are left with regrets and unmet expectations.
[EDITOR’S NOTE: For more on conducting win-win negotiations, watch the lecture Common Mistakes, Underhanded Techniques & How to Improve in Negotiation by Stan Christensen and Where Game Theory &Evolution Collide by Robert Sapolsky, both lectures are for Stanford University.]
00:01:32 The benefit of building a small business over growing a large corporation is that as a small business you have no limitations, no restraints based on the decisions made by your company and industry in the past, so you can quickly adapt and mold your business with ease. The problem is also the fact that you have no limitations and restraints, because you are also left with many important questions to answer.
“Matching what you build to where you put it is more important than what you build in the first place.” Therefore the most important question to ask is ‘who am I building this for?’
[EDITOR’S NOTE: Recall in Paul Graham’s lecture A Checklist Of Counter-Intuitive Rules for Stanford University that ‘learning too much’ about the mechanics of starting a business may actually prove to be dangerous because the idea of ‘going through the motions’ of starting a startup: completing a ‘proven’ checklist of things to do makes the process easier to manage but in no way guarantees success. Most of the time, entrepreneurs go though the motions of launching their startup because that is what they were trained to do their whole lives.]
00:02:40 A business model is a “scalable, repeatable process where your organization creates value that somebody else is willing to pay for, and a method for improving your company valuation.” There are simple business models and complex business models, and determining your business model is one of the first and hardest questions you must answer.
What are your asset(s)? And how can you defend yourself from competitors, existing and future?
Google, as an example of a more complex business model, offers a search engine (as well as email, analytics, cloud storage,…) for free, and charges advertisers for preferential, VIP treatment of their message to Google’s users. Opposite a complex business model would be a simple stand selling popsicles which is conveniently located at the entrance of a baseball stadium. The business model is simple and transparent, and the next step is to expand and increase your location to other highly-trafficked and lucrative locations.
…IF your popsicles are good (asset #1), and IF people like your pricing(asset #2), and IF you have found a good store location(asset #3)… THEN you MIGHT have a sustainable business.
[EDITOR’S NOTE:
Just because you have a good popsicle recipe, and a good location, and people like your pricing doesn’t mean you have a sustainable business. To learn about the dark side of competitive business, read the book Defending Your Brand: How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks by Tim Calkins.
Also, for a great book on the different types of online business models, read Get Rich Click: The Ultimate Guide to Making Money on the Internet by Marc Ostrofsky.
For a great book on cherry-picking business models and ideas across industries, read the book Best Practices: Building Your Business with Customer-Focused Solutions by Arthur Andersen.
Lastly, as an example of an extremely complex and ingenious business model, read the book What They Don’t Teach You At Harvard Business School by Mark McCormack, who, on pages 64-65, tells the story of Raphael Tudela who, in the 1960s constructed a very complex web of step-by-step IF/THEN negotiation trades between Argentina, Spain, and Sun Oil Company in Philadelphia, Pennsylvania.]
00:06:18 The best business models are monopolies; meaning either you have something others don’t, or consumers have no choice but to come to you for a particular product or service.
[EDITOR’S NOTE: For more on the advantage of monopolistic business models, watch the lecture Competition Is For Losers; Aim For Monopoly by Peter Thiel for the Ycombinator series for Standford University.]
The fact that you must work hard is irrelevant. The fact that you have risked everything is irrelevant (to the customer). The fact that you are showing up doesn’t matter if there isn’t a business model and value created, and if a trade doesn’t occur.
But if you do have this, and it is scalable, ONLY then do you have a shot at building a business that will grow.
[EDITOR’S NOTE: For more on the difficulties of working hard as a startup, watch the talk Managing Your Professional & Private Life by Oussama Ammar by The Family.]
2. Freelancing versus Entrepreneurship
00:00:19 A freelancer is someone who only gets paid when they work; you’re effectively selling your time, while an entrepreneur is someone who is ‘building something bigger than herself.’ If you die tomorrow, and your business can continue on without you, you’re an entrepreneur. You must be clear: are you a freelancer or are you an entrepreneur?
As a freelancer you are faced with limited options, you can figure out how to:
- Have your work be in more demand so you can raise your prices.
- Hire people to help make your job easier so you can create more, with maybe a partner or two to help you scale horizontally.
00:02:08 Don’t make the mistake of choosing the cheapest available resource to do all of your work: you. Sure, you work a few more hours and you keep more money, but to the detriment of your private life and sleeping hours as well as to the detriment of the quality of your work as you are exhausted and creatively pushed to your limits. Plus being 100% occupied, you are unable to go and find new business.
Working in the business and working on the business are two different mentalities.
If, however, upon winning a new client, you could hire somebody to do the work as well as you could have done it yourself, then hire them and focus on growing your client base.
[EDITOR’S NOTE: For great advice on getting the advantage as a freelancer, watch the lectures 10 Proclamations to Win New Clients Without Pitching by Blair Enns and F*ck You, Pay Me by Mike Montiero of Mule Design for Creative Mornings.]
As an entrepreneur, every single task that can be done by somebody other than you should be done by somebody other than you.
00:04:40 Either be willing to bring people on and put yourself out of a job so that you can focus on growing your business or be willing to turn business away so you can focus on your craft.
Everything that appears on my (Seth Godin’s) blog, and every speech I give are because I personally wrote it because these are the things I like doing and refuse to outsource. But for other products such as online companies do I outsource so I can focus on the most important aspects of growing a business.
[EDITOR’S NOTE: For a great explanation on how to build craft while simultaneously growing your business, watch the lecture Integrated Product Design by Dror Benshetrit at Penn Design.]
3. Funding
00:00:18 One of the giveaways of a struggling entrepreneur is the sentence “I will do X ONCE I get my funding.” As though somebody with so much money that they don’t know what to do with it will miraculously hand the entrepreneur all the money they’ll need to get their startup off the ground, and with no strings attached.
[EDITOR’S NOTE: For more information on pitching your startup to investors, watch the lectures:
- A Checklist of Skillsets for Great Founders by Reid Hoffman
- How Angel Investors Judge Startup Founders by Paul Graham
- How to Introduce Your Pitch so Investors Want to Invest by Joshua Smith
- 16 Interview Questions to Close A Venture Capitalist by Rudina Seseri]
00:01:02 Venture Capitalism is famous, yet completely irrelevant unless you are deliberately building a specific kind of business; specifically, businesses which have a great chance of offering between 10%-100% return on investment (ROI) to make it worth their investment because statistically, most of the businesses they will invest in will fail and they will actually lose that money. If your business cannot promise that kind of ROI, then you are not of interest to a venture capitalist.
Even traditional banks are only willing to loan you money if you can offer them a 0% risk: you are willing to put down the money in other assets you own.
00:02:44 Only fundraise when you can buy a money-making asset. Raising money only to cover expenses and hoping that the money to pay back the money raised with some other revenue will destroy your business.
- Amature investors want to believe in your brand’s story before they invest
- Experienced investors want to know the ROI, and how quickly it will become profitable before they invest
00:04:13 The minute you sell a percentage of your company, you’ve signed up to sell you business because the only way for investors to turn their investment into cash is once you’ve sold.
4. Debt & Equity
00:00:21 Debt involves both equity and timing. If you owe X€ six months from now, but aren’t in a position to pay it, be prepared to suffer.
If debt & equity freak you out, then you need a business model where customers and vendors fund your business.
00:01:45 Crowdfunding platforms such as Kickstarter and Indiegogo have become extraordinarily successful, but only those campaigns who already have a large following of supporters who know and trust you tend to be successful.
“My kickstarter funded within 3 hours, but really it funded in 9 years, because it took me 9 years of blogging and talking and sharing to grow that audience.”
00:02:54 The desperate entrepreneur relies on loans from friends and family to make it is painful, crosses boundaries, and should only be used as a last resort.
00:03:22 Putting up a personal guarantee such as your family home, life savings, or your child’s education isn’t necessary. If this is your only option, then you don’t have the right kind of business model.
6. Hiring
00:00:48 Today, if you can describe it, there is someone who is willing to do it for you cheaply.
Unless what you’re doing is extremely time sensitive or value creation depends on an expert’s touch, outsource it.
You’re not building a big company, you’re out to build a company that works.
00:02:35 Hiring shortcuts such as finding who will work the cheapest is a great way to build an average company filled with average people. The people you hire need to be smarter than you on the things that you are paying to them.
Most importantly, you need to create a company and brand image that attracts the kind of people who are smarter than you and could do the job better than you.
[EDITOR’S NOTE: For more on recruitment strategies:
- Watch the lecture Attracting & Selecting the Best Candidates by Armin Trost
- Read my interview with Dave Trott on How Creatives Can Start Revolutions
- Read my interview with Julien Hérisson on How to Qualify Creatives
- Read my book How to Shape Human Behavior 2nd Edition]
7. Recruiting A players
00:00:51 All a resumé is is a branded piece of paper that proves you are good at complying with instructions. All you learn from an interview is that the person is good at doing an interview. As a startup you’re looking for people who are different.
Investing in your outbound marketing to attract those different people is one of the best investments you can make.
00:01:24 In such a freelance culture, it’s easier for you to try before you buy. Never hire someone long-term without having at least hired them and have seen how they perform on one project alone.
8. Naming your company
00:00:20 Your business needs a name because:
- Your name gets people interested in what you have to tell them before you tell them. A name that connects to your predefined and highly-targeted consumer’s world-view and evokes emotion before you even walk in the door is a good, solid name you can build upon.
- Your name should make it easy to find you, and not a competitor when I type your name on Google. Search Engine Optimization (SEO) is built right into your name if it is unique and different from your competitors.
[EDITOR’S NOTE: For more information on naming your company, refer to my interviews with Art Director Gregory Ferembach, Art Director Marine Soyez and Freelance Product Designer Timoni West.]
00:03:54 Google searches are unpredictable and unreliable UNLESS consumers are searching for a niche that only you have. Your unique name would be an example of that niche.
00:05:11 Short names aren’t worth much anymore. A 4 letter name means nothing if people aren’t talking about it. You want a name that people talk about.
Make a list of the types of emotions you’d like to evoke and the mood you’d like to create. This will help you create your name.
9. Partnerships
00:00:30 Effort isn’t enough, sooner or later you need ideas and money.
It’s wrong to give away equity to someone only because they were there when you thought up the idea.
00:01:22 An even split among your founding members is great until…
- One of them disappears 6 months later
- One of them becomes lazy or less involved
- One of them comes up with a revolutionary idea that triples revenue
Instead, divide shares of equity using objective and measureable performance-based goals. ‘If you make X€ in sales, then you receive X% of reveneue.’
00:05:11 Engage people in a partnership. Create a product or service that your consumers will be proud to have sitting on their desk, and be proud to mention you in a conversation and say that they are an owner of your product, and they will do your marketing work for you.
10. Cash Flow
00:00:18 Cash flow is the difference between making a sale and actually having that cash in your bank account; between paying the people who produced your product and actually selling the product.
At Walmart’s beginning, items sat on their shelf up to 5-7 days before somebody purchased it. This was a great cash flow issue because Walmart didn’t have to pay for that product for 30 days. Growing actually lead to a ton of cash in their bank account. Amazon is the same way.
On the flip side of this, the product owners who agree to give Walmart 30 days to pay have to front the money to have their product made, shipped and stocked on the shelf, and then wait for Walmart to pay them. For you, cash flow is working in the opposite direction than it is for Walmart. Walmart takes no risk, you are taking all the risk.
With your current business model, will you constantly be spending and waiting for money, or will you constantly be living off of money?
00:04:01 To get on the positive side of cash flow, either have your vendors – the companies who are supplying your product or service pay you up front, or have your customers pay for your product before they receive it.
Having a product so cool and useful that customers will pay you before it is ready is the essence of crowdfunding.
11. Pricing
00:00:02 The other half of cash flow is pricing. The logic behind selling your products and services for cheap is that consumers are more likely to buy from you, and they are less likely to be disappointed.
Unless you’ve figured out a way to offer the exact same or better quality product for cheaper, then lowering your price, and your resulting return on investment (ROI) to be competitive, puts you in a price war where the least financially backed business (probably you) will lose.
What signal is your price sending? You should be in the business of creating value; not being cheap. Don’t lower price, increase value.
00:01:05 For non-commodity products, the price you charge for your product or service is a story in and of itself, and an indicator of quality.
00:02:30 If your client is B2B, then your client is spending the company’s money, and their #1 concern isn’t ‘Did I pay a cheap price?’ Their concern is ‘Will my boss think that I got value for money?’
[EDITOR’S NOTE: For more information, watch the Ycombinator lecture Choosing Between B2B vs. B2C Business Models by Aaron Levie for Stanford University, and read my interview with entrepreneur Derek Sivers.]
12. Positioning Your Company in the Market
00:00:20 After having successfully decided on your business model (outlined in this course) and created your business, your marketing decisions will make or break everything about the future of your business.
To determine your marketing position:
- Draw an X and a Y axis onto a blank sheet of paper.
- Choose two important elements that customers care about in that market.
- Of those two elements, chose the extreme positions that your business will become known for over ALL the other options available on the market. “The most X.” If your answers aren’t something you can’t specialize in, or that would require significant time and budget, return to step 2 and try to find 2 more important elements.
- Somewhere in there you will find an unserved business opportunity to meet consumer needs, where you can offer an excellent ROI for your consumer, and where you do not have any competition.
