A few years ago when I was in the business of selling laptops online, I witnessed firsthand the folly in designing a business to depend solely on walk in customers or random referrals. I had online channels to attract people looking to buy fairly used laptops from the UK and partnered with a local computer shop at computer village to serve as the company’s office and pick up location for customers. The online platform supplied a consistent flow of customers and maintained our cash flow.
Because I visited the computer market from time to time, I observed how most store owners struggled to survive. Most of them sit around all day barely making sales. These people wake up early every morning, go through the crazy traffic to get to work, then sit all day waiting for customers to walk in and buy from them. At the end of the day, they go back home with little to nothing to show. Their consolation is that success is about showing up every day and their day of breakthrough will come. While I was making sales sitting at home, these people go through rough days and barely have something to show for it. So what is the difference between my business model and that of these people? In this article, I’m going to share with you the most powerful business model in the 21st century and why any serious business owner should design their business using this money-making model. This is not a matter of choice but a matter of whether your business will succeed or fail.
In the past, the business was largely dependent on the size of real estate. You needed to build a factory, office and storage facilities; and you needed to employ a lot of workers to produce at a cheaper cost to make a profit. Today the most successful companies own little real estates and physical assets. Uber is the largest taxi company in the world but owns no taxi. Airbnb is the largest hotel company but owns no hotel. Facebook is the largest media company in the world but creates no content. YouTube is the largest video library in the world but creates no content.
These companies adopt the network effect, shared economy or demand-side business model. This is the most powerful way to design businesses today. And you don’t have to be Uber, YouTube or Facebook to incorporate it into your business.
It’s simply the concept of building marketing into your business model. To better understand this, let’s go back to my previous example of selling laptops online and compare that to the regular business in the market or across the street.
My business focused on bringing together a group of people interested in a product. I quickly grew this user base to over 25,000 people; with about 30 percent of them within my state. The more people joined this network of potential used laptop buyers, the more valuable my business became because I could easily reach more people and sell more products. This number and the engagement also increase the possibility of trust. I typically sell off every batch of imported good within one month because I already have a network of potential customers. My business was focused on creating demand.
Compare this to someone who rents a shop, gets a supplier and stock up; then leave demand for their product to chance. This is a supply focused business model and I believe it’s a dangerous way to do business today. The demand focus business model is not just about selling a product or service; it’s largely about creating a market you can control by building and facilitating a network of people together.
A product or service becomes more valuable when more people use it and when these users can be brought together as a group under one platform.
Have you ever been to an industry trade show? Every year, there are much industry-specific trade shows around the world; in fashion, food, auto, agric, tech and most other industries. Businesses pay to get a stand at these shows because they believe people who attend these shows will likely have an interest in their product. It’s usually a good place to get paying and potential customers, and expose your business to more people. People come to these shows with the intent to buy something related to the industry.
You’ll observe that a trade show works with the same network effect model I described earlier on. The more businesses on stands, the more variety of products and services people can access. The more there are people attending the show, the more potential customers. In a well-organized trade show, a business can sell more in 3 days than it does in 2 months. I have attended trade shows as a buyer and a seller. In one of the shows I attended as a seller, we sold in 7 days what would normally take 3 months to sell.
Imagine if you could replicate this concept of a trade show where you are both the organizer and the business on display. And this show has people in attendance 24 hours a day, 7 days a week, year in year out. The more people attending your trade show, the more new people join. You can even decide to sell stands to other businesses to showcase their products and services.
If you think this is just an imagination, then that means you are really ignorant of what has been going on the past two decades.
My company has run a trade show that receives starting from 10 to 40,000 people every day for the past 10 years. This trade show never ends. We sell stands to other businesses to showcase their business to our daily attendees. In fact, we outsourced the job of selling our stands to another company so that we can focus on making our shows engaging, interesting and attractive. This is what most online media platform, influencers and e-commerce sites do. It is also what I did to sell off laptops almost as soon as they arrive. And I believe every serious business should have a trade show; directly or indirectly.
So how can you, an everyday business, adopt this network effect, trade show or demand-side business model? Whatever you choose to call it doesn’t matter. What matters is that you understand this business model and how it works.
The network is more powerful than a product. Many people first think of what to sell before thinking of who to sell to and how to reach them. Do it the other way round. First, establish who you are going to sell to and how to reach them. For instance, if you are in the business of renting wedding gowns, your target audience will be single ladies, even if it’s often the man that takes care of the bill.
Still using the wedding gown rental service, you want to have a network of single ladies. It could be a trade show on wedding planning tips and ideas. You can use a social media account for this; a blog or a YouTube channel would also work. This will keep you consistently in the face of people who will need your service anytime soon. Those that are not ready can recommend you to their friends. Those that have already used your service can share testimonies to encourage other people to use your service.
Any business that wants to leverage network effects will face the difficult hurdle of attracting the initial sufficient amount of users to produce enough momentum for a network effect to take place.
At first, you will have to put in extra work to get to that critical number where the network becomes self-sufficient. Once you reach that initial number of users, it almost creates a perpetual effect. So whether you are building a website for search engine traffic, social media influence or any other channel, you have to invest your time and resources to grow to this point.
If you just want to make a living – it’s okay to just sell something and hope that people find you to buy them. But if you really want to build something that makes a fortune; something significant and wide-reaching – you want to run your own trade show. That’s how you become a king or queen in your niche. That’s how you compete and dominate your market. That’s how you create exponential wealth.
If you found this article helpful, we’ll appreciate if you share it with someone.
This post was last modified on %s = human-readable time difference 6:51 pm