Business Models


Here’s one of the fastest growing companies in USA

CITI TRENDS

Headquarters: Savannah
Annual revenues: $290 million
Average annual revenue growth since 2004: 36%

What does it do ?
Citi Trends buys surplus merchandise from hot hip-hop designers and
sells it at rock-bottom prices to customers most stores
ignore–cash-strapped inner-city teens. “The company has carved out a
unique niche,” says Elizabeth Anderson, a retail industry analyst with
Cower & Co. in New York City. “Citi Trends has been able to drive
growth not only by offering branded merchandise at a lower price point
but through a low-cost real estate strategy where the Big Box chains
can’t compete.” In 2005 revenues for the profitable chain shot up 42%,
and comparable-store sales grew 16%.

Looks like a very plain simple business idea , but I guess what is not available to outside world, the intense hardwork and implementation that has gone behind making it a successful venture. It goes on to iterate the point that Execution is the Killer in the “ideas are dime a dozen ” world

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Transaction Scale Profit talks about the importance of big transactions which result because of big relationships.
Trasnsaction
Value Chain Position Profit :If one observes the user experience from the product / service and traces back the value added by each player in the making of the product , it is clear that there is generally a lumpy distribution of profit at one place, an enormous concentration of profit and power at a few points. These are called control points in the value chain . Whenever one analyzes a business , it is important to note the pre existing control points, radical shifts that have happened among control points and future shifts in control points , so that one can clearly see the profit potential.

My weekend essentially involved reading the various profit models that Adrian Slywotzky had put forth in his best selling book. It clearly mentions that not more than one model needs to be digested in a week.

What is Local leadership profit ? This involves firms taking up strategies that clearly leverage the leadership position at the regional level and then scale up in a tactical way. A few examples to kick off the understanding are walmart, starbucks who started in a small location, built up the leadership at each of their respective locations and then used it as a weapon to expand to other locations. At the same time, there are umpteen examples of local leaders who find it difficult to scale. What could be the reason ? Is it purely a matter of luck, or are there are operational issues, strategic issues that entail the success of a small local leader firm to take on the world ? Let’s explore

What’s necessary to build a Local business in the first place?

  • A strong demand for the product / service at the   local level , where there are considerable entry barriers for any outsider to   replicate the biz and run away with the profits
  • Sustainable value / rather than filling a one   time need
  • A marketing strategy to introduce the product /   service to the local population
  • Willingness to completely focus on the customer   at the regional level

What’s necessary to hold on to the Local business leadership position and scale it (more importantly) ? To answer this question , one must read closely 2 books atleast, Made in America by Sam Walton & Pour your heart in to it by Howard Schultz.

The other profit models which I have not blogged about, but are equally important to understand are

Entrepreneur Profit Model :
Extraordinary expense management

Specialist Profit :
Lower cost through better knowledge, Better price through reputation, shorter selling cycle, More rapid and universal penetration, Windfall profits because of the replication of high-valu, high margin answers

Installed Base Profit:
Install a set of hardware components and generate margins on the software/services part

DeFacto Standard Profit:
Be the standard in the market and soon a lot of ancillary players will start supporting the standard which inturn brings an increase in the sales of standard product

Brand Profit:
Higher margins through good brand image

Specialist.jpg
Specialist profit deals with those firms who concentrate on specialist products and focus on the implementation of the products . These are characterized by high margins , niche segment specific, high risk associated with the failure to address the right need /want of the customer. The difference between this and Blockbuster model is that in the latter, there is huge amount of cost that is involved in going after the product and it the blockbuster product is not a niche product but a product that is aimed to cater to a large set of customers, which inevitably means a brilliant marketing campaign

Specialist profit models apply to Pharma companies,dye businesses, speciality food business, niche paper business – In summary we can say that any high margin, niche target segment , has some patent with it, can be termed as specialist profit

My weekend essentially involved reading the various profit models that Adrian Slywotzky had put forth in his best selling book. It clearly mentions that not more than one model needs to be digested in a week.

What is Local leadership profit ? This involves firms taking up strategies that clearly leverage the leadership position at the regional level and then scale up in a tactical way. A few examples to kick off the understanding are walmart, starbucks who started in a small location, built up the leadership at each of their respective locations and then used it as a weapon to expand to other locations. At the same time, there are umpteen examples of local leaders who find it difficult to scale. What could be the reason ? Is it purely a matter of luck, or are there are operational issues, strategic issues that entail the success of a small local leader firm to take on the world ? Let’s explore

What’s necessary to build a Local business in the first place?

  • A strong demand for the product / service at the   local level , where there are considerable entry barriers for any outsider to   replicate the biz and run away with the profits
  • Sustainable value / rather than filling a one   time need
  • A marketing strategy to introduce the product /   service to the local population
  • Willingness to completely focus on the customer   at the regional level

What’s necessary to hold on to the Local business leadership position and scale it (more importantly) ? To answer this question , one must read closely 2 books atleast, Made in America by Sam Walton & Pour your heart in to it by Howard Schultz.

The other profit models which I have not blogged about, but are equally important to understand are

Entrepreneur Profit Model :
Extraordinary expense management

Specialist Profit :
Lower cost through better knowledge, Better price through reputation, shorter selling cycle, More rapid and universal penetration, Windfall profits because of the replication of high-valu, high margin answers

Installed Base Profit:
Install a set of hardware components and generate margins on the software/services part

DeFacto Standard Profit:
Be the standard in the market and soon a lot of ancillary players will start supporting the standard which inturn brings an increase in the sales of standard product

Brand Profit:
Higher margins through good brand image

Specialist.jpg
Specialist profit deals with those firms who concentrate on specialist products and focus on the implementation of the products . These are characterized by high margins , niche segment specific, high risk associated with the failure to address the right need /want of the customer. The difference between this and Blockbuster model is that in the latter, there is huge amount of cost that is involved in going after the product and it the blockbuster product is not a niche product but a product that is aimed to cater to a large set of customers, which inevitably means a brilliant marketing campaign

Specialist profit models apply to Pharma companies,dye businesses, speciality food business, niche paper business – In summary we can say that any high margin, niche target segment , has some patent with it, can be termed as specialist profit

Profit_multiplier_model_1Profit Multiplier Model is seen in firms which try to leverage their base and build multiple avenues to build profitability. "LionKing" story can be the base and other multipliers can be LionKing Broadway movie, Lunchboxes, TShirts..This model is different from Multi component profit model where the product tends to be the same, but the packaging is different. In this model however, only the base like IP, Skills and assets are same, the resultant products are different

Profit_multiplier_model_1Profit Multiplier Model is seen in firms which try to leverage their base and build multiple avenues to build profitability. "LionKing" story can be the base and other multipliers can be LionKing Broadway movie, Lunchboxes, TShirts..This model is different from Multi component profit model where the product tends to be the same, but the packaging is different. In this model however, only the base like IP, Skills and assets are same, the resultant products are different

This type of profit model is more relevant for R&D firms which aims at a blockbuster and puts all the resouruces behind ONE product and then reap the benefits of the products if it succeeds / close the shop if it fails

Profitability5_1Time Profit model typically is followed by a firm which comes up with a product,skims the market by catering to the early adopters and let the other players in the industry copy its products, specs . Hence the entire focus of the company is to come up with products at a faster rate. Intel is one classic example in the semi conductor industry where its self annihilation strategy coupled with time profit model has kept its flag high in the highly competitive market. When Intel are first to market with a
new product, profits happen in the first four or five quarters and then
drop down very quickly to almost zero after that. To make a profit,
Intel must work hard to maintain a two to three-year lead over its
competitors. Diffusing the product as instantly as possible helps
extend their period of profitability.

What are the other companies that use this model ? Food for thought !

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