Business Model Reality Check

["Kathryn \"Kate\" Kaminski" <oudeis -at- tampabay -dot- rr -dot- com>]

Hi,

I am in _desperate_ need of a reality check. The owner of our very small 
company currently makes money selling our services, mine and hers. My 
relationship to her is somewhat like that of sub-contractor to contractor. 
With the profits from selling our services, she's been funding the 
development of a product/service that would eventually be the basis for the 
company. In the meantime, though, our operating funds depend on keeping 
current clients. Given that you should plan on five years before you see a 
profit on a new venture, we need to continue to cultivate more clients. 
Attrition happens.

Here's the new model:

The idea is to offer inexpensive non-credentialed soft skill courses to the 
general public, as well as people interested in building their professional 
skills. We'd take our training materials and turn them into courses in the 
field that we know best.

We'd also reach out to SMEs, beginning with our colleagues. There is an 
incredibly tiny sales budget. The web site for the courses and word of 
mouth are supposed to be the major sales methods. (PLEASE: I know the 
"field of dreams" approach failed. :)

Friend SME decides to offer a course on "Font Fondling for Techwriters" or 
"How to Become a Contractor" or "Grow Mushrooms in your Garage." Friend SME 
uses materials she already has, such as a Power Point presentation, and 
adds test questions. Alternatively, she can build from scratch. A 
proprietary tool turns the PPT into an on-line course. There's no quality 
control over other SME courses, so no labor cost there. Cost is in hosting 
courses, collecting money (PayPal), and disbursing money to the authors.

Friend SME would receive 25% of gross. Courses cost $2-5 each. If Friend 
SME's time is worth $30/hr and if it takes 50 hrs to develop a one hour 
course, then at:

$2.00/course she' have to sell 3000 courses.
$3.00/course, she'd have to sell 2000 courses.

Even if I low ball it and say it'll take 25 hrs, that'd still require some 
decent site traffic. What have I heard, 1-2% of site visitors actually buy 
something?

I know that my employer sees $ coming in for little work on her part. But, 
you have to make sure you get authors to write more courses and you have to 
get traffic to the site and make sure they BUY. I don't see the market? I 
might be blind?!

1. As far as I can tell, there is nothing to guarantee an author that the 
gross sales ARE indeed the gross sales. How do I know that, in the last 
quarter, my course was sold 25 times?

2. With no sales budget, what drives learners to the site? Its existence on 
Google, apparently? We've recently discussed the "joy" of getting Googled. 
So, that does take some work and it takes time. I think the other answer I 
rec'd suggested that the authors friends would come to the site, take the 
course (out of curiosity, professional courtesy, etc.) and say to 
themselves, "Wow! I could do this. (Maybe I can do it better than this 
cat!) Let me in on this deal."

3. You get what you pay for. 'Nuff said? Or am I wrong?

4. Why would I take one of these courses, if I can learn the same thing for 
free? Why would I want to expose my credit card # for $2.00 at a site that 
has no established reputation? PayPal has been mentioned, so that's an 
option. I won't use PayPal, myself.

5. Would professionals take soft skills courses from a "university" that 
has no formal credentials? Would anyone be impressed with a resume that 
said you'd taken a course in "Project Management for Dummies" at a 
non-credentialed site?

6. Personally, I would want more quality assurance. If someone takes a 
course that is awful, why would they take more or encourage others to take 
more?

I'm in desperate need of a reality check. Beat me over the head and tell me 
I'm wrong and why. Tell me what holes you see. Would you do this? Or 
something in between. I am putting on my flame-protective gear after I 
click send.

Geez! The groupthink on this one is so overwhelming that I'm starting to 
feel like I'm nuts for pointing out holes. Indeed, I've pretty much kept my 
counsel on this one, which isn't what I normally do, but it seems best in 
this situation. Also, from what I see happening now, the company isn't 
spending enough time on its current business model. If we lose another 
client without making sure we have more in the pipeline, I don't see how 
she's going to make it. It takes 5 years to turn a profit on a new venture, 
and we've also put two years into development. Were I a business owner, I'd 
want to recoup most of that investment.

Thanks so much for your thoughts.

Kate


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