I’m starting up a new blog (Zune’dOut) based upon one of my branding/product ideas, but it most definitely won’t be a branding blog. I will continue to post on mgmtnow, and hope this will get me posting more often on both.

Focus

I’m super passionate about music in general, and specifically the Zune product Microsoft offers. Unfortunately I think Microsoft has really missed the boat on their marketing strategy for this product, and this is why they’re hovering at 3% market-share.

The Zune’s key differentiator is that it allows you to download unlimited music (so long as it’s on the pass) and keep it until you cancel, in addition you also get 10 songs a month rolled into the deal all for $15 a month. Think of this product as Netflix where they let you keep 1 movie a month.

The Problem

People were used to renting movies; no one is used to renting music. Netflix spent millions and millions on marketing to create an effective brand and get people used to the idea of subscription based renting and mail delivery.

Unfortunately, Microsoft has focused their marketing resources on trying to create a Zune is sexy image, when Apple the purveyors of everything sleek and revolutionary in design are the market leaders.  I don’t have the figures but given the subject matter of the tv ads I have seen I can’t imagine the subscription marketing efforts amount to anything more than 25% of advertising budget.

My Solution

One of the biggest challenges in a subscription system is keeping customers engaged. Netflix spent millions to create a profiling recommendation system, including a contest that led to a $1 million payout to a programmer to improve the algorithm.

I think Microsoft should be crowd sourcing their “algorithm”, now I’m not saying they have to get a bunch of programmers to improve the marketplace (not that it wouldn’t help). No I’m talking about encouragement, ecosystem building, and creating more features around music sharing “djing” outside of their current social efforts.

Since I see this as a great way to drive their subscriptions, I decided it would be a good project to undertake and see if I could get any traction behind.

Possible Revenue Streams

The standard AdSense model of revenue generation is obviously one way to go. Another interesting revenue stream may be Zune’s affiliate system, whereby they pay you a set fee for every Zune

Imagine for a second you’re an entrepreneur starting a small deli shop in downtown Manhattan. Your identity as a business is based upon using the freshest ingredients picked up daily from local butchers, and farmers markets.

Now imagine you’re a website dedicated to providing users with search results and serving up advertising alongside results. Your mantra is results, results, nothing but search results; ads are required by nature to be non-invasive.

Now the problem these two businesses face are run-away success. How do you scale out these models? How do you keep growing earnings while sticking to the same principles that the company was founded on.

These two companies are in the process of figuring out that the dream has changed for them, and now they need to find a way to grow their brand & offering to account for the new reality.

 

Ubiquitous Coffee

 

The Starbucks Example

When Starbucks started out it was nothing more than a whole bean coffee experience. Their focus was around finding the best beans in the world from all different locations transporting them to Seattle and roasting them to perfection.

A funny thing happened though, a man named Howard Schultz who worked for a maker of espresso machines (if I recall correctly), saw that this little coffee store operation was selling more of his product than Macys a large department store. He bought a ticket out to Seattle to figure out why, and fell in love with Starbucks and the rest is history.

If you really enjoyed this synopsis I strongly encourage you to read Pour Your Heart Into it by Howard Schultz, it is probably the most interesting and thought provoking business book I’ve read. Hands down it’s a must for anyone interested in product management, starting their own business, or is focused on brand identity.

The Starbucks shifts

Prepared drinks: The first shift Howard Schultz wanted to introduce was the latte and other prepared drinks to the US market. This idea came from Howard’s experience in Italy seeing cafés that remained packed throughout all hours of the day, coffee he found was more than a drink it was an experience in life.

Syrups: Another shift was the introduction of flavored syrups, likely installed to disrupt competitors who used this as a differentiator. At first glance it doesn’t appear to mix with Starbucks mission to brew and sell the best coffee bean but we’ll look into that later.

Cold coffee: This shift was just a necessity of driving business during different seasons, and in different regions. When investors are demanding returns for their hard earned money you simply cannot ignore these sorts of opportunities.

Bottled products: Starbucks partnered with Pepsi to create the Frappuccino this created a product to rival soft drinks and take advantage of a different sales channel than Starbucks typically managed.

Packaged Coffee available at Supermarkets: Not everyone had a Starbucks close to them once, not everyone wanted to mail order. Once Starbucks had discovered a technology to keep the coffee fresher longer this was an obvious move.

Franchising: In order to scale further Starbucks franchised into grocery stores, Target, and many other businesses. The key to this expansion was giving franchisees the same level of training as Starbucks employees.

Private label: When Starbucks acquired Seattle’s Best Coffee they utilized is as a sort of private label with which they could attack markets that would otherwise dilute their brand, this led to being able to serve SBC lattes out of McDonalds.

White Label: Similar to private label but the intent here is to use someone else’s premium brand like “Jumping Joe’s Espresso” to sell Starbucks beans without anyone ever knowing the origin of the beans.

Starbucks take-aways:

I’m blown away, and exhausted after rattling off that list and I likely even missed a few different shifts that happened. Throughout all that change they were able to keep their core brand intact and expand upon its meaning by asking themselves the same question every time one of these opportunities came up:

“Does the proposed expansion dilute our core ability to deliver on our promise to bring the very best coffee bean experience to the customer?”

It seems like such a simple question to ask but with proponents on both sides of the issue it is quite complex. When at an impasse Howard Schultz often relied upon were his customers to make the decision for him. He would use a few stores to test a suggestion such as: frozen drinks, or syrups. Usually, the customers would come back with an unequivocal answer, sales would rise dramatically proving the validity of the idea and he’d act on it.

It’s important to keep your identity as a business, but being closed off to bringing in new ideas that are not counter to your mission statement and branding will cripple your ability to grow the business.

Recently on LinkedIn I answered a question of a fellow entrepreneur. His question had to do with going to a Venture Capitalist or a better established business to pitch an idea he had, but couldn’t implement on his own. His concern was on his ability to do so and protect his idea.

The Dilemma

When you’re the small start-up and you need money you’re put in a place where you don’t typically hold a lot of power. Potential investors will be completely invasive with their questioning and business reviews, at the end you’ll be lucky if they don’t know your business better than you do.

The problem this gentleman, and any small investor, faces then is how to maintain a position of strength in negotiations. VC and M&A activities are all about the big investor squeezing as much equity as he can out of the start-up.  The more of a business model and plan that is replicable the more equity a VC can extract.  This is counter the preference of the entrepreneur who really wants to make a deal (for as little equity), since they’ve deemed sacrificing a piece of the company a necessary process to accelerate growth or build in stability into the business.

Building in Value

Given the preferences and tactics of the buying parties in these transactions, we know its vital that a entrepreneur come in with the most attractive business plan possible. Knowing who your audience is, having achieved current run-rate business, and having a brand customers are aware of are just some of the things you can do to drive value into the bargaining table.

The element that is often over-looked and extremely valuable is Intellectual Property: the patents, copyrights, trademarks, and trade-secrets that the company holds. These intangible things represent the ability to lock in value by removing an area of the market from competitors.

By focusing the conversation onto IP, and by having a thorough understanding of IP the entrepreneur protects their value first by dictating a asset has value and asserting it most be measured into the asking price, and secondly by removing a possible exit strategy that sees the potential investor become a direct competitor.

Take-aways: Control the conversation and navigate into IP valuation. Assert and qualify the investments you’ve made in intellectual property. Explain to the potential investor how your IP makes this a unique product, one that doesn’t have many substitutes.

If you need to catch up:

See Part 1 / See Part 2

The Audience

Assuming there is a problem, and it is worth fixing leads to the follow up question:

Who Cares?

This is your customer segment. Your core audience, and should be your primary concern in all business decisions.

Back to our Okonomiyaki example our customer base is described by the following characteristics:

• Enjoys eating out
• Is nomadic in dining decisions (likes variety)
• Wants something more adventurous than a burger during lunch
• Is tired of sub-par ethnic food offerings, and the strip mall feel of other fast food restaurants

Matching the product offering to this market provides the best opportunity for success and allows for better audience targeting.

The phrase money doesn’t grow on trees comes to mind. It’s important to understand no matter how easy it seems some people come across amazing results you’re not likely to achieve runaway success right out of the gate. Its hard work to go from a concept to a finished product and this stage will be the most trying and present the biggest challenges you will see in releasing a new product.

How do you navigate the murky waters of being a start-up? How do you launch a new product that has no market to build off of?

The key is accountability. You need to have clearly defined goals, metrics, and an action plan.

Goals

• Do you have a revenue target, or an Income expectation?
• Do you have a market share expectation?
• Is the product just geared towards gaining exposure?

Metrics

• What is success on your goal? What is the top line metric to track to?
• Are there any other metrics that feed into the success metric that also need to be tracked
• When will you achieve the goal?

Action Plan

• How are you marketing the product?
• Who are you targeting?
• What is your messaging?
• What start-up capital do you need?

These are all straight forward easy questions; you would be surprised how often entrepreneurs and Product Managers miss these questions though.

Takeaway: The time before you’re making money is the most difficult period in business; only through preparation does one equip themselves for success.