Recipes have changed over the years, with the biggest change being the elimination of fat. Ingredients for business success have similarly changed—no fat. Now it’s content and communities—not capital

Recessions have traditionally been good times to start new ventures and to expand SMBs (small and mid-size businesses). Larger competitors retrench, leaving some market niches exposed and unprotected. Workers are available, often at reduced rates.

Recessions loosen long-time business relationships and create brand-new opportunities. Recessions are Joseph Schumpeter’s “creative destruction” on steroids.

This recession is exceeding all expectations for creative destruction; but with a few substantial differences.

First, while risk capital was available for emerging ventures in previous recessions, it has simply vanished in this recession.

Second, the need for risk capital has dropped dramatically for certain types of businesses, particularly those focused on information services.

The New “New Business Model”—Everything You Need is Free.

OK, “free” is a little bit of an exaggeration. But the cost of business expansion is dramatically lower than in the past. For instance:

• You don’t need an extensive network of offices. Most knowledge workers already have home offices. They work at a customer site, at home, or with co-workers at a coffee shop.
• You don’t need a sophisticated telecommunications system. Virtual PBX’s, portable telephone numbers, internet-based telephone service, and conference call services are inexpensive and readily available.
• You don’t need a big advertising budget. With Google Ad Words, you can pay only for results. Better yet, create your own promotion with social networks, blogs and email communication.
• You don’t need production equipment, raw materials, or inventory. The data is the business.
• You don’t need a computer facility to host your information database. Google, Amazon, Microsoft, Salesforce and others offer cloud computing for free.
• You don’t need any back office. You can outsource accounting, HR, IT, CRM, and almost every other internal business function.
• You don’t even need employees. You do need a team, but new business models use clusters of associates.

If everything is free, then what do you need to build your business?

You need content and communities.

You don’t need capital!

This is an over-simplification, but allow me to make the point.

You Need Content

Your business needs something of value to provide to customers.

In the information age, this is content—not just entertainment content, but a cluster of information, typically housed in a set of inter-connected databases. In previous posts we discussed Google, Jigsaw, and Alexa.

Another example is deCODE Genetics. For only $195 and a sample of your DNA, deCODE will map your genes, identify a collection of your genetic risk factors, and map your genetic ancestors. This business model combines a proprietary database with a physical connection to each customer.

Granted, the actual consumer service is a “nice to have,” but the business model is powerful. Your business generates a continuous stream of data. Package it and build a data business.

You Need Communities

Communities are more than just a collection of customers, suppliers or employees. Communities have common interests.

Your business is only the conduit, or the meeting place for your communities. The most effective communities have some structure. Online games are excellent models for your communities. Provide enough structure and rewards to stimulate the community, but then let it grow.

You Don’t Need Capital—You Do Need a Cash Business Model

This may be one of the biggest surprises of the new century. The internet, low-cost communications, and the availability of low-cost support services have dramatically leveled the playing field for new businesses competing with established organizations. You don’t need huge capital investment to build an information business.

With no investment capital, you need a business model that generates cash quickly.

Here again, technology and the internet have conspired to meet your needs. Credit card payment systems eliminate the collection hassle. Internet delivery and prepayment terms shorten the cash cycle.

All you have to do is provide compelling value for your customers.

Go do it.

This entry was posted on Tuesday, June 9th, 2009 at 5:30 am and is filed under Business info, Strategy. You can follow any responses to this entry through the RSS 2.0 feed.
Tags: data, recession, risk, success, venture capital
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