The Gilman Company Blog

Business Model Pressure: How to Adjust

In the past two years, countless small to mid-sized businesses (and many large businesses) have succumbed to the economic downturn. Call them what you like, failed businesses or failed business models.

At the end of the day, business models are now under a substantial amount of pressure. To continue growing it's certainly business as unusual. The challenge here is successfully adjusting a business model.

Consider a fundamental rethinking of value, not just to provide more value, but also to provide different types of value. To successfully adjust your business model, rethinking value won't be enough. You will have to take material steps to reorganize based on these new or added values.

Also, recognize that adjusting your business model will create volatility, so walk softly and plan transitional moves to reorganize that don't jeopardize the value you already have.

Get a Gilman consultation.

Recharacterizing the PC

Dell is taking a hit and the culprit is likely a greater demand for low-end PCs from non-commercial buyers. Of course, the economic downturn is a player, but even more so, could it be that a fundamental change is taking place in the minds of PC buyers?

Coming full circle, the PC is about getting basic things done. Really, the high end bells and whistles come up short more often than not for home users and the the advent and flood, or perhaps more importantly the idea of netbooks has effected a change in the way people think about personal computing. Dell's problem here may not be so much about the machines, but more about the machine users.

I'm going to go out on a limb here and write that most non-commercial users don't know how to leverage the power of a high end machine. Here, high end machines aren't realizing actual value. Microsoft's cumbersome operating systems play a part in this problem. Selling the machine to vendors before it's sold to the user is probably another one. Trying to generate revenues outside of core products typically presents a challenge.

PC users are making especially practical buying decisions and most have been there and done that. Welcome to the new, re-characterized PC.

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Pay What You Can: The New Kid on the Revenue Diversification Block

No, it's not a traditional pricing model, but if your product or service can stand some revenue diversification, "pay what you can" is a great way to shake up your market presence.

In some cases, it's a great way to reduce production costs, which is exactly what the rock band Radiohead did with an album release. Go ahead and download. Then pay whatever it is that your willing to pay for our music. "It's up to you," the band wrote. 1.2 million downloads and the band grabbed some serious attention.

Another one is events. Trade related events are taking a major hit now. However, if you don't get people to your event, you're toast. Some organizations are applying a "pay what you can" model, then turning it around on vendors, sponsors, advertisers and visitors for some creative revenue diversification. If your model is particularly compelling, and "pay what you can" is compelling, others will want to leverage (and pay for) the opportunity to be involved.

Bonus tip: make sure you're marketing related to any "pay what you can" promotion is heavy hitting. "Pay what you can" is an eye opener, but only if you do something to get in front of those eyes.

Design an effective "pay what you can" promotion...

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Profits Up, Sales Down

A Forbes.com article yesterday noted that Toys 'R' Us 4th quarter profits rose by 11%. Pretty good performance on the profit side.

On the other hand, sales at the retail toy giant declined 6.3% from $5.83 billion. In light of the economic crunch, a decline in sales makes sense. But, how do you get an increase in profits in light of declining sales? With corporate and payroll expenses declining by $73,000,000 at the toy retail giant, it's not too hard to understand.

Clearly, Toys 'R' Us has undergone some operations streamlining over the past few years and has done a pretty good job of managing its e-commerce segment in light of the fact that it also has about 1,500 brick and mortar retail stores to funnel products through. When you cut $73M in costs and and operations still result in a solid profit, you've done a pretty good job managing operations.

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Take One For The Team: Premium Parking and Other Perks

As adjustments and cuts take place, perhaps even layoffs, it's important that executives and other leaders communicate to employees that they too are team players, that executives are just as vested in dealing with the downturn as the rank and file. Even a token sacrifice like premium parking, first class air or another seemingly extravagant perk, one that employees will recognize, will go a long way with morale. The goal should be to do what you can to avoid or mitigate negative chatter about perks.

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Aligning Costs with Revenues

Now that you've had a few months to settle in to 2009 and we're all brushing the dust from the onset of the economic downturn, you probably have a good idea of where your cash flow is at and what you can probably expect throughout the remainder of 2009.

If you're not already, this would be an excellent time to take a magnifying glass to your costs and revenues. Your cash flow could be one of the most critical elements of your ability to get to the other side of this downturn. Cash flow is about surviving. Profit and loss reports are about how well you happen to be doing. Look at all of you data in each of these areas closely.

Get a Gilman consultation.

Seth Chavez

Your Rival Folds: What Now?

Not necessarily an issue that we always contemplate, as it's typically about staying ahead of business rivals and being a vigilant competitor. But, what to do when your competitor in a unique market falls off the map? One day they're just gone. A scenario that is much more likely now than it has been in a very long time.

One of the most important things you can do is to understand the signs that this competitor is about to fall and do what you can to fill up the space in the market that will soon be open. Typically, this means expansion on many levels. Look to the key talent that made your competitor a rival in the first place and expand products and services to meet the needs that will soon go unfulfilled.

Every element of this is very important, but perhaps the most important is to make these moves exceptionally fast. Depending on the nature of the product or service, the customers of your competitor will move on quickly. Better to be at their doorsteps sporting a smile the moment your competitor goes under.

Get a Gilman consultation.

"This is Not the Time to Cut Your Marketing Budget"

I've heard this a million times over the past several months from various sources. Okay, maybe only a few hundred thousand times. Either way, saying "it's not the time to cut your marketing budget" is like saying it's not the time to cut your commuting expenses. That is, if you want to get to work.

Marketing is a very simple concept. Not even the most salable products can go without some type of marketing. You have the next best thing, yet you still have to let the right people know that it's here, that you have it and that they need it.

If you have to be convinced that your marketing budget is on par with your other budget priorities...

Get a Gilman consultation.

Value Entertainment and the Video Game Industry

Entertainment is a recession oasis. No matter how bad things might get, entertainment will happen and consumers will pay for it. That doesn't mean that consumers aren't looking for a good value for their entertainment spending.

One of the strongest retail entertainment segments is video game sales. According to the Wall Street Journal, Gamestop has done surprisingly well, even in light of the recession. Why? Video games are a cheap form of at-home entertainment. But why Gamestop and not other video game retailers like Wal-Mart and Gamestop? Because Gamestop is focused, caters to gamers and has the ultimate cheap skate weapon: they buy and sell used games.

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Consumers Spending Solid on Some Low Ticket Products

How are some companies that produce low ticket items showing such strong results, even in a down economy. They're raising prices by single digit percentiles. Turns out that consumers are less concerned about low tickets than they are about big tickets and consumers will certainly feel the financial relief of skipping on big ticket items as opposed to low ticket comfort oriented products.

The Wall Street Journal recently reported that Nestle has shown very strong results by adjusting prices upward in various markets worldwide by rates between 6.8 and 8.4%.

At least one way to get into the low ticket product market, if you're not already there, is to un-bundle some combination type products or look for low-cost products or services that are in your category and that your current marketing and sales channels can easily support.

Get a Gilman consultation.