Five Common Successful Business Models

Service, Product, Operation, Channel, or Exchange Copyright 2017 IntelliVen, LLC and Peter F. DiGiammarino. All rights reserved. Quotation, reproduction or transmission is prohibited without written permission from IntelliVen, LLC and Peter F. DiGiammarino

It is best to choose one of the five common business models over multiple models or a hybrid. Products Hardware, Software (tools, systems, applications, departmental, enterprise, cross-company, cross-industry) Services Staff augmentation, Project management, Consulting, Program mgt., Systems development, Systems integration, Engineering Operations Hosting, Outsourcing, Facilities management, Service processing Run time: 1:30-3:00 Channel Reselling, Contracts Exchange Dynamic markets, Marketplaces, Information Exchanges

Outcome: to gain a deeper understanding of each business model Group Activity Outcome: to gain a deeper understanding of each business model Break into 5 groups (count off by 5s) Work in your group to answer the following for the business model with the corresponding number from the previous slide: What is it? How does a business of this sort get paid? Provide an example. Run time: 1:30-3:00

There are five common high-tech business models (cont’d) Exchange Channel Operation Service Product Payment Description Example Business Model Per copy Per unit Software, hardware, or information Hewlett Packard Microsoft Per hour Per deliverable Hourly or project consulting or service PWC Booz Allen & Hamilton Per unit of time Per unit processed Outsourcing Facilities Management USInternetworking EDS outsourcing Run time: 1:30-3:00 Percentage of revenue Set up and administer connection between buyer and provider GTSI IDIQ contractors AOL Subscription fee Transaction fee Broker links between many buyers and many sellers NYSE Metals Exchange

The business model defines characteristics Products Hardware, Software (tools, systems, applications, departmental, enterprise, cross-company, cross-industry) Services Staff augmentation, Project management, Consulting, Program mgt., Systems development, Systems integration, Engineering Financial Model Focused, vs. hybrid business model Defines Critical Competencies A Operations Hosting, Outsourcing, Facilities management, Service processing Run time: 1:30-3:00 The underlying business model defines the financial model, critical competencies, and metrics of success. Hybrid businesses are rarely successful for long because they are too complex financially, require too many competencies, and have no identifiable metrics of success. Channel Reselling, Contracts Success Metrics Exchange Dynamic markets, Marketplaces, Information Exchanges

There are inherent risks to adopting multiple or hybrid business models Financials Competencies Metrics Business Model EBIT=20% P/E=100X Sales, Call Center, Development No. of Salesmen, salesmen tenure, $/sale, sales/salesman Product EBIT=15% P/E=25X Project Management Account Management Staff utilization Average hourly rate Service EBIT=10% P/E=10X Efficiency of operation Driving to scale Cost per unit Service levels Operation Contract management and administration Space, Inventory mgmt EBIT=3% P/E=5X Contract order backlog Commitment level Channel EBIT<0 P/E=n.a. Domain competence Efficiency of operation Number subscribers Number of Transactions Exchange

Which business model is the right one? Example: Cunningham Crane Locates, fixes, and resells secondhand cranes throughout the world Refurbished Cranes A reliable crane at a good price Construction Companies Run time: 1:30-3:00

For any given solution, there are multiple possible businesses Exchange Channel Operation Service Product Customer: Construction Companies; Problem: Reliable Cranes; Solution: Refurbished Cranes Build, or procure and refurbish, cranes to sell Assess, recommend, and service cranes Own, maintain, and operate cranes for rent Connect crane buyers and sellers Broker link between crane seekers and crane owners who bid to sell their cranes

Choose which business model is best for you based on: What you are good at and what you like to do. Resources available (people, money). Economic returns sought. Appetite for risk. Run time: 1:30-3:00

No one option is always correct Customer: Banks; Problem: Customer Access; Solution: Phone, Branch, Mail + Internet Product Sell software to enable access via Internet (S1) (AMS) (ORCC) (Andersen Consulting) (e-Loan) Service Hourly services to help banks develop own Internet front-end Operation Operate a service by the account/month to let bank customers access via Internet Run time: 1:30-3:00 Channel Connect banks to suppliers of Internet front-end software Exchange Match any of several banks with any of several front-ends based on needs, price, and availability

Subscribe www.intelliven.com Follow @intelliven Thank you. Q&A Peter  asks Ray a question: So Ray, you’ve worked in some small companies and some very big companies. What do you think is the same and different in how they approach services sales? A: Big companies have advantages in terms of being able to bring a wider range of capabilities so they often focus on how can we sell every offering to every big client. That is usually the right strategy for them. But just because a big company has done something really well somewhere does not always mean they can bring the right resources and skills to bear every account. Small companies are naturally more agile and they need to be very focused and passionate about what they do and make sure they communicate that. In addition to being passionate, small companies need to be equally focused on what they don’t do and be as specific and clear with clients about that. For small companies, it’s about getting clear. What are the few things they are great at, the few accounts they are going to be serious about, and the sales strategy they are going to live or die by. There is always room for great small companies but you can’t be great if you are not really clear about what you are going to be great at. Subscribe www.intelliven.com Follow @intelliven