Re: Business Model Reality Check

[Andrew Plato <gilliankitty -at- yahoo -dot- com>]

"Kathryn "Kate" Kaminski" <> wrote ...

> 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.

Small businesses should be profitable in 12 o 24 months. 

> 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.

Way over-saturated market. What "soft skills" are we talking about? 

> 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.

So let me get this right. Your friend SME does all the work, and all you do is
host the training and take 75% of the take. That's an awful deal.  You're not
providing that much. 

> 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?

Depends on how well the site it marketed. 

> 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?!

Nope, you're not blind. This does not sound like a viable model. 

> 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.

Good question. If you wouldn't use your own service, then you answered your own
question. 


> 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?

Probably not. Because as you said, such skills can be easily learned elsewhere
for free. Alternatively, people can buy a book and then they have something
tangible. You're not offering anything tangible. 


> 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?

They wouldn't. You're trusting the quality of your business to others. That's a
mistake. You cannot trust others to have your best interests in mind.
Especially when you're only giving them a 25% of the take. 


> 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.

If you're going to take 75% of the income, you had better have an
infrastructure and value-add that is really useful.  Consider this - somebody
wants to hire you for a project. They're going to pay you $25 and hour and bill
the customer $100 and hour. What is that person doing to warrant such a margin?


Furthermore, how are you going to compete with established training centers,
universities, and vocational programs?  

You'd be better off to do straight instructional design consulting. Then offer
people the option of hosting material on your web site. Sell your skills, not
some made up service with marginal value.

Most small businesses subsist on the owners/principal's skills for the first
two years or so. A small business is all about the owners at first. People
aren't going to buy your name or promise, they're going to buy YOU.  You have
to be able to sell yourself before you can sell something else.

If you can make a name for yourself, then you have to transform the business
from "all about you" into a vision and brand. This is a big test for small
businesses and its where most fall apart.  If you can successfully translate
what YOU do best into a brand, you have to sell that vision. If the brand is in
demand, then you have to streamline its message so you can build steady cash
flow. Eventually, after 6 or 7 years, the business should run itself with out
the owners. 

You should try to focus on selling yourself first. Make that work. Then figure
out how to translate what is unique about you into something that is unique in
the marketplace. 

Furthermore, its not unusual for businesses to go through many iterations
before they find what works. You must be willing to tear down everything and
start over from nothing when something doesn't work. 

If you're having trouble determining what is unique about you or your business,
consider that issue carefully. If you are not unique, then you cannot compete
against more established competitors. Your competitors have a LOT more money
and momentum then you do. You have to give people a reason to use your services
over an established service. 

Good luck. 

Andrew Plato



	
		
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