Master Mule Blog

Fatal Error #27: Do they graduate or quit

Jim Muehlhausen : : Blog, Business Model Tips, Business Ownership

You are going to hate me for this one because I am going to tell you that you should WANT your best people to leave you.  No, I am not nuts.  I am simply a pragmatist.

Think about it.  If you have a true superstar, that once every 10 year person… can you really afford to pay him or her once he/she reaches their potential? Be honest – you can’t!

Therefore, you either hold them back in hopes that it takes them longer to figure out they have more potential than you can provide, or they leave on bad terms because they realizes you are trying to hold them back.

Here’s a better option: You let them grow as fast as they can.  You harness the power of their rising stardom.  You nurture and grow them and pay them as much as you can as long as you can. Then, you help them get that better job and celebrate it.

Now you have undying loyalty and gratitude from an employee that knows they could not have gotten there without you.

Think I am nuts?  Accounting firms have done this for years.  They hire the best and brightest out of school in huge numbers, knowing that only a fraction of them will be working there in 5 years.  Then they work hard to help these young auditors get jobs at their clients for big raises and big promotions.  Why?  Because guess who the auditor will be for that client?

Here’s the bottom line:  Ask yourself, do your best people quit you or do you graduate them?  There is no 3rd option.  If they are quitting you, you are failing them and yourself.  You can do better for them and your company will prosper as well.


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Business Model Innovation for Speakers

Jim Muehlhausen : : Blog, Business Model Tips, business models for speakers, speaking business model

I was pleased to be a guest on Speaker Match radio recently. Host Bryan Caplovitz asked some interesting questions regarding the best business model for emerging professional speakers.

You can download the interview at

Topics covered include:

  • How much should you charge for a speaking engagement?
  • What are the best additional revenue opportunities for speakers?
  • How do the best speakers make money?
  • Cast a wide net or focus on a tight niche?
  • Do speakers need a business model?
  • Is speaking the best business model for consultants and coaches?



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Can Best Buy's 5-Point Plan Work?

Jim Muehlhausen : : Amazon, Best Buy business model, Business Model Innovation, Business Model Tips, Showrooming

Many pundits are forecasting the demise of big box retailers, including troubled Best Buy. Sales are down. The stock has been pummeled. Now the company has brought in a new CEO with a new 5-step plan to turn things around.

Let’s take a closer look at his strategy.

1. Reinvigorate the customer experience

The first step in the “Renew Blue” plan is to offer shoppers special benefits and exclusive membership programs. Best Buy already does this and it’s not working particularly well. It’s hard to imagine what special benefits Best Buy can offer that will truly stand out from the competition. It’s hard to imagine their Reward Zone plan rivaling Amazon’s Prime program.

Additionally, Best Buy will try to be more “helpful” to customers. This means no selling and more “service.” I went into a Best Buy the other day and saw this new plan in action. I was asked if I needed help no less than 5 times in a few minutes. “Just checking out TV’s,” I said. By the fifth helpful person, I was annoyed.

Best Buy needs to realize that the internet has fundamentally changed the way people shop. Anything resembling sales, including “can I help you,” feels like sales. Sell is now a four-letter word. Best Buy can say they are not selling me, but why do they keep hounding me offering to help?  Because they want me to buy something, and that feels a lot like selling to me.

Best Buy trouble


2. Attract and grow “transformational leaders” and energize employees to deliver “extraordinary results”

Huh? Ok, hire great people and have them lead us through the wilderness.  Got it. Every corporation in the world wants to do this. It’s not even a new priority at Best Buy.

“The company plans to introduce a new store labor model to be implemented in all of its U.S. big box stores before the 2012 holiday season that will provide increased store employee training and a new enhanced compensation plan that introduces financial incentives for delivering on customer service and business goals,” read a press release in March.

3. Work with vendors to innovate and “drive value”

This one has some promise depending how Best Buy plays it. Best Buy is still the largest electronics retailer in the U.S. and can leverage that with vendors. Creating one-of-a-kind products, available only at Best Buy, is an idea on the right track. However, if Best Buy is simply looking to work with vendors to drive down costs, forget it.

Best Buy will not be able to compete with Amazon’s pricing structure and will need to find other ways to beat them. A recent study conducted by KeyBanc Capital Markets showed that Amazon’s prices were 8% lower than Best Buy’s even without the sales tax advantage.

4. Increase the company’s return on invested capital by growing revenue & efficiency

This includes cutting “unproductive” costs, such as administrative and non-product expenses.

Best Buy is aiming for a return on invested capital of 13 percent to 15 percent, in addition to a 5 percent to 6 percent adjusted operating margin target vs. 4.7% today. This percentage has been declining, not rising. It’s going to take more than wishing it higher to drive better results.

The best way to accomplish this may be moving to smaller stores the way it has been doing with its tiny Best Buy Mobile stores. If it wasn’t for RadioShack, this might make sense. Unfortunately, going heavy into mobile has been a train wreck for RadioShack. It’s hard to see how a similar strategy will work for Best Buy.

5. Making the world a better place through recycling effort and providing teenagers with access to technology

I’m all for cleaning up the planet, but I don’t see how recycling batteries gets someone to pay $50 extra for a television.

Teenagers can already sell their used phones and iPods online for cash.  The other half of the market doesn’t care about recycling.

Worst of all, there’s only a temporary need for recycling of CDs, DVDs, books and video games as these products move to digital delivery.  This strategy seems to be nothing more than corporate speak and PR nonsense.

Conspicuously absent from Best Buy’s plan of attack is what they plan to do about showrooming. As long as Best Buy pays for Amazon’s showroom space, their business model is a mess. To me, Best Buy should take the lead on combating the showrooming issue while they still have clout with vendors.

Here’s my laundry list of ideas, wild and not so wild:

  1. Get rid of appliances. Big boxes rule because they offer exceptional selection over smaller stores. Best Buy needs to focus on “wowing” customers with the offerings they have and get out of weaker areas. Lowes and Home Depot offer 3-4 times the number of appliance SKUs.  I don’t even consider shopping for an appliance at Best Buy, and I bet I’m not the only one.
  2. Lean on vendors for exclusivity, even if it’s only a token. Sony Television Model # FVG554 is $445 at Best Buy and $423 at Amazon. It’s not a tough choice. If I’m not in a hurry, I buy from Amazon. Best Buy needs to offer 27 or 28 inch TVs vs. 26 inches or 45 inches vs. 42 inches. Anything that makes it more difficult for customers to compare apples to apples. People want to buy things today. They don’t want to wait for it to ship. This can serve Best Buy. However, people don’t want to overpay. It’s an obsession. Take away the ability to compare and consumers won’t feel like they overpaid.
  3. Consider blocking cell service. I realize this is radical, but if the showrooming doesn’t stop, it’s over. The issue isn’t whether blocking cell phone service in the store will annoy customers, it’s will it stop them from shopping.
  4. Get exclusives on hot new products. Imagine if Best Buy would have secured an exclusive on Beats headphones when the company was desperate for distribution.
  5. Take Geek Squad up a notch. The perception of the talent level of the Geek Squad is that of your tech savvy neighbor. He can fix that virus or stubborn issue you can’t quite seem to get. However, the Geek Squad kid isn’t perceived to be talented enough to fix a business computer network. How about Geek Squad Elite? Get some $100,000 a year, highly talented technicians to work on the more complex and higher ticket jobs in addition to  the current $20/hour a little better-than-you-are  techs.
  6. Go member’s only. Customers are obsessed with great deals. Give them great deals, if they are members with different levels, e.g., $25/year for price level 1 and $50/year for even better prices at level 2. Costco has proven that you don’t need to make much margin on the merchandise if you can sell enough memberships.
  7. Instead of going to smaller stores, go big. Cut the number of total stores by two thirds, but double the square footage of the remaining stores. Turn these mega stores into the holy grail of electronics. These mega stores would act like a magnet to shoppers. Make up for the lost sales from closed locations with online pricing that rivals Amazon’s.

What do you think Best Buy should do to revive profits?


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The difference between the business model, framework and architecture

admin : : business model architecture, Business Model Design, business model framework, Business Model Tips

An interesting question from Marsha Campbell, HR Officer at National Commercial Bank Jamaica Ltd landed in my inbox the other day:

I noticed on your website you explained the difference between a model and a business plan. I would like to know what is the difference between the model, framework and architecture. Most sites that attempt to answer this question tend to be IT specific. Would you be able to shed some light?

Our business model research specialist, Huss Sadri, came up with the following answer.

A business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy and the design of organizational structures. Thus the essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.

Ultimately, the business model of a company is a simplified representation of its business logic. It describes what a company offers its customers, how it reaches them and relates to them, through which resources, activities and partners it achieves this and finally, how it earns money. The business model is usually distinguished from the business process model and the organization model.

A business model can be described by looking at a set of building blocks such as for example:

  1. Market Attractiveness of the Business
  2. Value proposition
  3. Revenue Distribution
  4. Sales Performance
  5. Competitive Advantage
  6. Key resources
  7. Cost structure
  8. Pitfalls & Risks
  9. Exist Model
  10. Customer Value

Business architecture is a part of an enterprise architecture related to corporate business, and the documents and diagrams that describe that architectural structure of business. Business Architecture articulates the functional structure of an enterprise in terms of its business services and business information. The key views of the enterprise within the business architecture context are:

  • Business Strategy view: captures the strategic goals that drive an organization forward. The goals may be decomposed into various tactical approaches for achieving these goals and for providing traceability through the organization.
  • Business Capabilities view: describes the business functional abilities expressed via business services of an enterprise and the sections of the organization that would be able performing those functions.
  • Business Knowledge view: establishes the shared semantics (e.g., customer, order, and supplier) within an organization and relationships between those semantics (e.g., customer name, order date, supplier name).
  • Business Operational view: defines the set of strategic, core and support operational structures that transcend functional and organizational boundaries. It also sets the boundary of the enterprise by identifying and describing external entities such as customers, suppliers, and external systems that interact with the business. The operational structures describe which resources and controls are involved.
  • Organizational view: captures the relationships among roles, capabilities and business units, the decomposition of those business units into subunits, and the internal or external management of those units.

Business frameworks Operationally, the business framework generally describes the corporate organization or management structure or may generally outline company policies or an organization might develop a framework to achieve a particular goal or An innovations framework may outline policies, procedures and management changes the company will use to achieve innovation and growth etc.

Effective leaders provide a business framework in which people and business partners can work efficiently and effectively, both individually and collectively, and succeed for mutual benefit. A framework comprises:

  • goals and strategies,
  • policies,
  • organization and culture,
  • relationship contracts and arrangements,
  • business processes,
  • roles,
  • tools,
  • systems,
  • objectives and
  • Measures and incentives.

A good business framework creates an organizational environment in which people think and act for themselves, yet collaborate to achieve common goals and objectives.


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Is Barnes & Noble’s Business Model in Trouble?

Jim Muehlhausen : : Barnes & Noble, blockbuster, Borders, Business Model Tips, Failure Stories, Public Companies

Could Barnes & Noble (NYSE: BKS) be the next Blockbuster? The once-dominant Blockbuster business model disintegrated into bankruptcy this year and seems unlikely to ever rebound. A close look at the Barnes & Noble business model yields many of the same issues as Blockbuster:

  • Blockbuster faced intense competition from disruptive business models such as Netflix and Redbox. B&N’s business model is under attack from online competition, half-price bookstores, and Amazon
  • Blockbuster insisted on sticking with a retail store model despite signs that the growth was elsewhere. Barnes and Noble continue to focus on palatial retail bookstores despite retail rents of $250/square foot. In fact, B&N had to close a high-profile Lincoln Center location due to its $1.25 million monthly rent.
  • Blockbuster was slow to embrace digital technology. The first Kindle was released in 2007. B & N released the Nook in November 2009. It is estimated that Amazon sold 3 million Kindles in 2009 alone, many of them prior to the release of the Nook.
  • Barnes & Noble margins continue to decrease while competitors increase margins through lower cost operating models
Banners & Noble Income & Expense      
  First Half 2010 * 2 2009 2008 2007 2006
# Stores 717 774 798 801 804
Sales 6,604,294 5,121,804 5,410,828 5,261,254 5,103,004
Margin 1,603,640 1,251,524 1,640,821 1,638,292 1,569,995
Net Profit 150,170 75,920 135,799 150,527 146,681
% Margin 24% 24% 30% 31% 31%


From the outside it appears Barnes & Noble is working from the Blockbuster Business Model Playbook. They insist on hanging onto a dying business model at all costs. They ignore disruptive technology as an annoyance rather than an opportunity. They come late to the technology party with “better” products like the Nook Book reader.

Barnes Noble Business Model

Certainly there is a need for brick and mortar bookstores. Unlike videos, one doesn’t go to the bookstore twice a week. It is unlikely that vending machines will start dispensing books. However, digital books have already made significant inroads. What does it mean to Barnes and Noble if digital books become 50% of all book sales. Effectively, this cuts each B&N store’s sales in half thereby making nearly all of them unprofitable.

Amazon’s Kindle has a huge head start in the digital market. It appears that the Nook will be the equivalent of Blockbusters video vending machines- superior in features yet little market acceptance.

So what is Barnes & Noble to do? First, B&N must come to the realization that there will be 1/5th the number of retail bookstores in 2020 than there are today. To combat this, Barnes & Noble must actively embrace the next new technological innovation. It doesn’t matter what the innovation is. They have already lost the digital book reader race as well as the online bookstore race. It’s time for them to bet on some new technologies and hope they can leapfrog their current situation.

In addition, Barnes and Noble should take a look at what IS working: closing stores. Their store count continues to shrink but sales per store has increased from $6.8MM per in 2008 to $9.2MM in 2010. This is almost entirely due to reduced store count. Instead of allowing the market to force store closings, Barnes and Noble should proactively right-size. Better yet, B&N should buy Borders. Last week, Bill Ackman who owns 37% of Borders said he would back a purchase of B&N at $16/share. The idea of a Borders/B&N merger makes sense but $100 million market capitalization Borders should be the target, not the acquisition. B&N’s market capitalization is ten times that of Borders. I am dumbfounded that B&N can’t wrangle up $100 million just to shutter Borders. Closing their own stores isn’t free. Simply buy all 519 Borders stores and close 500 of them. That is a cost of only $200,000 per store closing. Borders sales for 2010 were $2.8 billion. Assuming only 25% of Borders business flows to a nearby Barnes and Noble at their standard 24% margin, this adds $168 million per year to B&N’s bottom line and effectively doubles their market capitalization adding another $900 million

The bottom line is that Barnes & Noble better get serious about changing their business model. It’s time for inventor of the big-box to lead again. The current Barnes & Noble business model of slightly better coffee bar, slightly bigger store, and slightly more featured book reader isn’t working.

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Are Black Friday Blowouts Bad for your Business Model?

Jim Muehlhausen : : black friday, Public Companies, retail business models, Uncategorized

Excellent business models require excellent margins. On this Black Friday 2010, it makes me wonder if $4 toasters are good for business models or bad for business models? Please join the conversation and vote above. The answer to the question is probably “Yes and No.” That is, Black Friday is both good and bad for business.

Let’s lay out the pros and cons of Black Friday Deals


  • Drives large dollar volume of sales, albeit at very low margins.
  • Generates goodwill.
  • Defensive move to drive customer’s money into Store X’s coffers vs. their competitors.
  • Drives more profitable add-on sales (although many 3am shoppers buy only the blowout deals).


  • Drives large dollar volume of sales, albeit at very low margins. This generates much organizational effort for very little profit. After all, activities generate cost, not sales. Black Friday is the perfect example of “trading dollars.”
  • May not generate goodwill at all as customers get frustrated over limited quantities of 32 inch televisions
  • Courts the most cost conscious and least loyal customers
  • Adds unnecessary stress to managers and employees stuck staffing stores at 2am.
  • Cannibalizes profitable sales by emptying customers’ wallets on low margin purchases.
  • Opens up company to potential lawsuits (injured customers, perceived injustice for lost deals).

I’ll bet that if we could secretly poll the large retailers, they would love to collude and collectively cancel Black Friday. This new American tradition props up sales, but at too great a cost. I look forward to hearing your opinions.

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What Secretariat Knows about Business Models

Jim Muehlhausen : : Business Model Design, Business Model Tips, horse racing, Secretariat

With the release of the movie “Secretariat” last week, the great race horse is again in the spotlight.  Interestingly, there are several lessons business owners can learn from Secretariat.

Owning a race horse is typically an exhausting and money-losing venture, much like a business with a poor business model.  However, winning race horses such as Secretariat can make millions in prize money.  In fact, Secretariat earned $1,316,808 in prize money during the mid-1970s.

However, race purses are not the end-game in the horse business.  The best business model for the horse business is stud fees.  When Secretariat retired, his owners signed an initial syndication deal worth an approximated $6,000,000 (in 1975 dollars).  After this deal ended, Secretariat may have sired as many as 600 additional foals.  According to Wikipedia:

As part of his first crop at stud, Secretariat sired Canadian Bound, who was the first Thoroughbred yearling racehorse ever sold for more than US$1 million. At the 1976 Keeneland July sale, the auction bidding for Canadian Bound not only broke the $1 million barrier, but the colt ended up being sold for $1.5 million.  He also sired General Assembly, who won the 1979 Travers Stakes at Saratoga while setting a still-standing race record of 2:00 flat. Andrew Beyer has said that General Assembly’s speed figure in that race was one of the fastest in history. Like Secretariat in the Belmont, General Assembly never duplicated that performance in another race.

How does this apply to your business model?  Many businesspeople find themselves chasing the equivalent of race prize money.  The endeavor is profitable, but it is not where the REAL money lies.  The real money and the best business model is the stud farm business.  What is your version of the stud farm business model?  Winning races is still important in the stud farm business model.  After all, who wants offspring from a losing horse?

Many CEOs find themselves with a winning racehorse but a moderately profitable business model.  These CEOs spend all their time, energy, and money trying to build a better race horse.  Instead, they should focus on building a better stud horse.  Quite simply, some business models are better than others.  The race horse business model is inferior to the stud horse business model.  Savvy horse owners understand that a winning race horse is a cost of entry into the lucrative stud horse business model.

Ask yourself, what portion of my business is like the racing business model?  How can you transition or augment your business model to be more like a stud farm?  The answer might be worth millions of dollars.

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10 Initiatives using the crowd to generate new ideas

Jim Muehlhausen : : Business Model Design, Business Model Innovation, crowdsourcing, Private Companies, Public Companies

This is a guest post by Anders Sundelin, expert in business model innovation, with the popular blog The Business Model Database.

Crowdsourcing or mass collaboration has become popular words for using an external group of people as part of the value creation and value capturing process. Organizations have for a long time used groups of external participants for various contests and market research activities, what is new is the scale, speed and cost of conducting such and other activities.

Early examples were the reward offered by the British government in 1714 for a simple and practical method for the precise determination of a ship’s longitude, with over £100000 given in the form of different encouragements and awards, or the Orteig Prize of $25000 won by Charles Lindbergh offered by hotel owner Raymond Orteig in 1919 to the first allied aviator to fly non-stop from New York City to Paris or vice-versa.

Recently there have been a growing number of initiatives combining awards, the “American Idol” concept with social networking platforms for idea generation, marketing and recruitment purposes. Below are 10 examples of traditional and non-traditional corporate initiatives:

Cisco I-Prize was an idea competition where the winning team got the opportunity to be hired by Cisco to found a new business unit and share a $250000 signing bonus. Cisco also committed it may invest approximately $10 million over three years to staff, develop and go to market with a new business based on the winning idea. Ideas were posted and commented by others and refined by the community, forming new teams of all-stars sharing similar ideas. More than 2500 idea providers from 104 countries presented 1200 ideas. Winners of the different phases were given access to Cisco’s collaboration tools and experts and in the end 12 finalist teams presented for a judging panel. The winning team, based in Germany and Russia presented Cisco with a business plan that improves energy efficiency by using the network as a platform for visibility, manageability and control of energy-consuming systems.

Dell IdeaStorm is an initiative and an online community for anyone to share ideas with Dell and vote for the ones they like. Dell’s objective is to connect with its users and get ideas for new products, services and “the way we do business”. So far, more than 10000 ideas have been submitted and nearly 400 ideas have been implemented. In addition to the open discussion Dell posts specific questions and areas for customers to submit ideas. There are no material rewards associated with IdeaStorm.

Electrolux Design Lab is an annual global design competition open to undergraduate and graduate industrial design students who are invited to present innovative ideas for household appliances of the future. There are different themes every year and visitors of their online webpage can vote for statements to indicate desire for future themes. Finalists are invited to participate and present their ideas to a jury of high-level designers and experts. Electrolux awards three prizes: 1st place is 5000€ and a 6 month paid internship with accommodations at one of Electrolux global design centers. The 2nd place winner receives 3000€ and 3rd place 2000€. The competition is very much promoted as a way to get jobs and business opportunities and several finalists are currently employed by the company.

Goldcorp issued a now famous challenge to the world’s geologists when they provided all their data on the Red Lake mine online if the contestants showed them where they would be likely to find the next 6 million ounces of gold. The prize was a total of $575000 with a top award of $105000. More than 1400 scientists, engineers, and geologists from 50 countries downloaded the company’s data and started their virtual exploration. The winners, who had never even seen the mine, were a collaboration by two groups in Australia which together developed a 3D graphical depiction of the mine, used geological-modeling software and database mining tools to find the gold. According to Fast Company Goldcorp has drilled four of the winners’ top five targets and have hit on all four.

IBM Innovation Jam has become a famous example where the company’s researchers, employees and outside experts are invited to join in a virtual brainstorm session, posting their ideas, commenting and voting for their favorites. The jam consists of interlinked bulletin boards and related web pages on IBM’s intranet, supported by systems for centrally managing activity and extracting useful answers to important questions. In the 2006 edition, the largest IBM online brainstorming session ever held, there were 150 000 participants from 104 countries and 67 companies. As a result 10 new IBM businesses were launched with seed investment totaling $100 million.

My Starbucks Idea is an initiative and an online community to gather product ideas, experience ideas and involvement ideas from the crowd. Visitors can share their ideas, view other’s ideas, comment and vote to make ideas popular. There is also a blog on ideas in action for users to see how Starbucks is putting top ideas into action. Ideas are chosen based on algorithm (number of votes, comments and recency of post) and by “Idea Partners” inside Starbucks. Providers of ideas that get implemented may be given credits on the site but won’t be compensated in any other way.

Netflix Prize is an open competition to improve a collaborative filtering algorithm helping Netflix customers find new movies they would like. In the first challenge the company provided a data set of 100 million of the ratings customers previously supplied and made it available to any programmer together with a baseline of prediction accuracy to beat. To win the competition, the programmers needed to share their methods with Netflix, describe the algorithm for the world and provide a non-exclusive license to Netflix. Every suggested algorithm (more than 44000 valid submissions) was broadcasted on a leaderboard to fuel competition. The grand prize, $1000000, was reserved for the entry which could improve Netflix’s algorithm for predicting ratings by 10%. As long as no team won the grand prize, a progress prize of $50000 was awarded every year for the best result thus far. The competition took place between October 2006 and July 2009. In August 2009 Netflix announced it would run a second competition with shorter time spans and the challenge based on demographic data rather than previous ratings.

Nokia Mobile Games Innovation Challenge invites developers to submit mobile gaming concepts to any Nokia N-Gage, Java or Symbian-based Series 40 or S60 device. The three most innovative game concepts are offered Nokia Publishing pre-production contracts, targeting publication or winning concepts and the first winner is awarded with 40000€, the second 20000€ and the third 10000€ for further development of game concepts. The winning participant must agree that Nokia has the right to acquire, subject to a mutually acceptable agreement, the intellectual property or exclusive license to the game concept.

P&G Open Innovation Challenge are events that so far have taken place in the UK where design professionals and entrepreneurs are invited to submit propositions for products which fit P&G’s criteria and have the potential to build businesses worth over $100m. To protect the idea providers’ intellectual property, ideas are not seen by P&G but are reviewed by its partners National Endowment for Science, Technology and the Arts (NESTA), British Design Innovation and Oakland Innovation. Up to ten of the most promising ideas are given access to feedback, advice and up to £25000 in financing to develop the ideas into a stage at which they can demonstrate commercial viability. Up to five of the strongest applicants are then given the chance to present their finalized ideas to P&G which may decide to invest in the idea and sign contracts. If P&G doesn’t invest the creator is free to take the proposition to other brands and or investors.

Virgin Earth Challenge is a science and technology prize to find a viable technology which will result in the net removal of anthropogenic, atmospheric greenhouse gases each year for at least ten years without countervailing harmful effects. The individual or group that is able to demonstrate a commercial viable design will be awarded $25 million, making the award the largest science and technology prize in history to be offered. The challenge will initially be open for five years with the judges including Richard Branson and Al Gore, meeting annually to determine whether a design has been submitted during the previous year that should win the prize.

Questions to ask before using the crowd

  • Will the expected output answer key business needs?
  • What will be the value proposition towards participants?
  • Will the organization be able to motivate and incentivize participation?
  • Are the tasks suitable for distributed activities?
  • Can the tasks be broken into small chunks?
  • Are there adequate resources and capabilities within the organization to manage the process?
  • Are there effective filters, such as the crowd itself that can effectively identify what is valuable and what is crap?
  • What will be the added costs and risks from the activity?
  • What would happen if other actors in the value network or competitors knew about or participated in the activity?
  • Will the organization be able to manage the costs and risks?
  • Will the business benefits exceed the added costs and risks?
  • Should the invitation be open or closed?
  • Can anyone participate or should there be criteria of approval?
  • What information should be provided and what should be kept secret?
  • Should the participants see each other’s ideas or contributions?
  • Should it be possible for participants to build on each other’s ideas?
  • How should own and participant’s intellectual property rights be managed?

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Does Blockbuster’s Woes Signal a change in the Big-Box Business Model?

Jim Muehlhausen : : Big Box, blockbuster, Business Model Innovation, Business Model Trends, Public Companies, redbox, Success Stories

Many business models have been built upon the foundation that bigger is better.  Business models such as Barnes & Noble, Best Buy, Home Depot, Wal-Mart, Costco, Men’s Warehouse, and more were all predicated on the presumption that massive selection would act as a magnet pulling in customers from miles away.

Does the continued demise of Blockbuster signal an end to this business model?  Like the other companies, Blockbuster built superstores with unparalleled selection and size.  However, it seems that Redbox’s minuscule selection coupled with many locations (and cheap pricing) is a superior business model to the Big-Box strategy of Blockbuster.

For instance, there are currently 19 Blockbuster locations in greater Indianapolis, Indiana and 162 Redbox locations.  The typical Blockbuster has approximately 8000 DVDs vs. only 500 in a Redbox machine.  The big-box business model would indicate the Redbox does not have enough selection to be successful.  However, it appears that convenience, de minimis $1 pricing, and reasonable selection trumps selection or product depth in the video rental industry.

One has to wonder if this trend will expand to other industries?  Could someone create a book vending machine loaded with bestsellers?  Best Buy and Apple already have mini electronics stores inside a vending machine at airports.  Could get Big-Box model be destroyed by “cream-skimming” machines?  That is, as vending machines get less expensive, could they be used in fashion similar to Redbox to sell the fast moving, popular products?  This would leave the physical Big-Box store without a major profit center. 

Certainly, there is a limit to how the Redbox business model could be moved to other arenas.  It seems the criteria for success are: de minimis or cheap pricing, better convenience, more locations, and small but reasonable selection.  Good luck to all the new entrants!

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Hipmunk Changes Travel’s Business Model

Jim Muehlhausen : : Business Model Innovation, Business Model Trends, Hipmunk, Orbitz, Public Companies, Travel business model, Web Business Models

It is always an interesting debate- what is a business model change and what is not?  The new travel site is attempting to re-invent internet flight search.  Founder Adam Goldstein has created a site which displays flights visually vs. a text format.

Using Orbitz to aggregate flights, Hipmunk is starting with an additional layer of cost.  The site is easy to use.  Airlines are color coded.  The user can easily see departure times, connection cities, and cost.  The visual format is definitely a significant improvement over competitors.  However, is this format simply an innovation or a new business model?  how long will it take for competitors like to copy the visual format? 

Techcrunch said, “When you see the results you’ll never want to see flight results in any other format,” It’s one of those ‘that’s so obvious why didn’t I think of that’ moments.”  It may take a year, but you can bet you will see this format as the default on most travel sites.

So where does this leave Hipmunk’s business model?  It appears that Hipmunk has a one to two year window to grab market share before its innovation can be knocked off.  Then Hipmunk is left with a business model with lower margins than its competitors.

In order to solve this issue with their business model, Hipmunk has three good options:

1)    Become their own aggregator.  Cutting Orbitz’ profit margin out of their cost structure puts Hipmunk on an equal playing field with the other competitors such as Expedia, Travelocity, Priceline, and Kayak.

2)    Sell.  Hipmunk’s technology breakthrough is attractive to competitors.  By purchasing the technology, a competitor could eliminate the inevitable upcoming cost to match Hipmunks interface plus grab Hipmunks market share.

3)    Expand the graphical interface to other areas.  Hotels are the most obvious area for expansion.  Current sites already have some form of visual presentation for hotels in a selected area.  Perhaps Hipmunk’s expanded business model could include a visual representation of the hotel combined with all of the places you plan to visit so you could better choose a central location?

Kudos to Hipmunk for their innovative business model.  Let’s hope that Hipmunk can continue to out-innovate the competition.

Leave a response » Sells iPad for $17,739

Jim Muehlhausen : : Business Model Design, lottery business model, Public Companies, Success Stories, swoopo,, Web Business Models

To better understand the business model, let’s review a previous post, Swoopo’s Innovative Business Model.  In a nutshell, you buy $0.01 bids on Swoopo for $0.60.  Then you bid on iPads, TVs, Gold bars, etc.  You might win an iPad for $35, but Swoopo has sold 3500 $0.60 bids for the privilege of “winning” the iPad for $35. 

Now, Swoopo has taken the business model to the next level.  Here is my favorite auction, 750 bids ($0.60 each) worth $450.

Auction 319106

Auction Sale Price                                                   $37.05

Placed bids by winner (1206)                                  $723.60

Fair Market Value                                                    $450.00

Price Overpaid                                                         $273.60

Effective cost/bid (3705 total bids @ $.60)   $2.96

In our previous blog post, you saw an iPad sold for $59.93 or 5,993 bids costing $0.60 per bid.  However, if the person buying the iPad used the bids similarly priced to the ones won at the auction above, the effective sales price of the iPad would be a mind-blowing $17,739.28 ($2.96 per bid times 5,993 bids).

One has to wonder if Swoopo keeps a performance metric called Effective Sales Price in Excess of Fair Market Value?   To this end, I have some alternative tag lines for Swoopo:

  • Profiting from consumers inability to do math
  • It costs less when you only spend credits
  • iPad lottery
  • Thanks for subsidizing my cheap electronics
  • I could never throw that quarter on the plate at the carnival, but I can spend $1200 to win a $300 gadget

I have nothing against Swoopo.  To the contrary, I believe they are business model geniuses.  It’s the incessant consumer desire for a “good deal” which is the issue, not Swoopo’s business model.  Swoopo’s business model is nothing but a modified lottery.  Until consumers realize that lotteries are a math disability tax, Swoopo’s business model will continue to thrive.

Leave a response »'s Innovative Business Model

Jim Muehlhausen : : Business Model Innovation, Business Model Tips, Business Model Trends, lottery business model, Public Companies, Success Stories, swoopo seems to be a mash-up of Black Friday meets the Lottery plus eBay.  This ingenious business model allows Swoopo to sell a $699 iPad for $3,653?

According to,

We are an internet company with a unique, worldwide business model. We are the creators of “Entertainment Shopping“ on the internet, and, one of the first companies to combine e-commerce and entertainment. All of our auctions are buzzing from the first to the last second. Every user can get top of the range, brand-name products for extraordinarily low prices.

Here is how the business model works: our online customers buy “bids” in advance. They cost $0.60 each and are sold in packs of 40, 75, 150, 400 or 1000. Bidders have the choice of placing single bids, or, using an electronic bid assistant called the “BidButler”. Every bid placed, increases the price of the product by 12 cents and the auction countdown by up to 20 seconds. To help keep track of the money spent on bidding, each auction displays the amount spent on bids by the customer and how much the bidder would save overall, if they won the auction at that moment.

The ‘last bidder standing’ when the countdown reaches zero, wins the auction – usually at a very low price; winners save, on average, 65% when compared to the recommended retail price.

Swoopo has taken the consumers insatiable desire to get a great deal and simply made them pay for the privilege.  Bargain hungry consumers feel like they are saving money, and perhaps they are.  Well, at least the winner of the auction is saving.  I wonder what the fully loaded average sales price of an iPhone on Swoopo is vs. one sold at Wal-Mart?  That is, let’s add up all the $0.60 bid purchasers who did not win and add them to the total.

Swoopo’s business model is genius on many levels.  The business model is not a technology play but a psychology play. plays to buyer’s psychological need for the thrill of victory buying a product for significantly less than retail.  Much like a dollar lottery ticket, losing bidders artificially subsidize the low winning price with their $0.60 bids.  This amount is deminimus so many people write the cost off to “aw shucks.”  Add in the frenzy of an auction and we have a web version of the annual Black Friday consumer stampede.

Kudos to Swoopo for taking the low-cost business model to the next level.  Although a business model requiring the payment of money to save money might seem counter-intuitive, Swoopo is pulling it off.  Here are a couple examples how works.

Auction Example:

iPad 64GB WiFi (Retail price at Best Buy $699)
Auction Sale Price $59.93
Winner placed 181 bids $108.60
Total Price Paid $168.53 (savings $530.47)
Non-winner bids cost $3487.20
Total to $3655.73

As you can see, if you are lucky enough to win, you almost always buy for a fraction of retail.  On the other hand, there are not many business models which sell readily available retail items for five times more than all other outlets. has leveraged the dynamics of buyer psychology and basic human emotion into a powerful business model.  It will be interesting to observe this site in a few years to see if this business model is simply a fad or the next eBay.

At $.01 per bid, 5,993 bids at $0.60 each were placed, plus $59.93 winning cash bid, for a whopping $3655.73 total sales price.  This auction makes me feel so stupid. Silly me, I went to the store and bought an iPad for $699.  What was I thinking?  I could have had one for $59.93.  but wait, who bid $59.92?  They won nothing.  Let’s assume 50 people were duking it out for this iPad and that they placed an equal number of bids.  I know, this is not the case, but let’s run the math.  This computes to 120 bids at a cost of $72 each.  So 49 of the 50 bidders paid $72 to NOT win an iPad.

One has to wonder if this business model has sustainability.  When will those 49 people get back in line at Swoopo for another trip through the spanking machine?  On the one hand, people do it for the lottery all the time.  On the other hand, it has to be frustrating to win nothing and pay for it.

The lottery business model works because large numbers of people pay deminimus sums to win very large prizes.  For Swoopo to work in the long run, I suspect the same will be true.  Effectively, losing bidders artificially subsidize the low winning price.  If this is spread over many so it does not cost $50 to lose, the business model will work.  However, if people grow frustrated of paying to lose, the business model is doomed because the cost spreading will diminish.

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Stop Hiring Your Competitor's Rejects

admin : : Uncategorized

You can’t build a great business around average employees.  Ask yourself, “Where have your great employees come from?”  My guess is that “cream” rose to the top rather than you stole the person from your competition. 

Watch a video to learn how to build great talent instead of settle for other’s castaway employees at

51 Fatal Business Errors #1 from Jim Muehlhausen on Vimeo.

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