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Businessnatomy: The Analog Business Model

Businessnatomy : The Analog Business Model | Introduction Part 3

When evaluating business models, you have to start with the basics. You need to understand the analog perspective before you even try looking at digital business models. The traditional business models of yesterday were simpler than they are today. One of the best analogies I can give you is a personal one from my days of selling software.

Some years ago, a software company named DacEasy, targeting small business in the accounting sector, came out with the following analog business model:

Product: DacEasy Accounting Software -- targeting small business and combining the following modules: General Ledger, Purchase Order, Accounts Payable, Accounts Receivable, and Inventory, etc. into an integrated, seamless system.

Price: $49.95 (Fifty bucks) when the competition was selling the same solution for $5,000 or even higher. At the time, this was a revolutionary offer for entrepreneurs and small business.

Customer: Entrepreneurs, startups, retail, wholesale, consulting – basically small businesses up to $10,000,000 in revenue in various sectors – even home offices could use the accounting system.

Distribution: Direct marketing (mail, telemarketing, trade ads), distribution, retail (computer stores, mass merchants, wholesale clubs, software stores, etc.)

Marketing: Direct advertising in computer magazines, public relations (a critical component of the entire marketing mix), channel advertising, retail advertising, direct mail, and telemarketing.

DacEasy became an instant hit because its price-to-performance ratio was substantial. How can you not try out a software accounting package for $50 bucks – the price of a dinner? The founders of the company believed that many would try it. Many entrepreneurs tried it and loved it.

The business model, despite selling a “digital product” in a software package (including manuals), was still analog because the Internet was still in its infancy. The company sold software direct to consumers through their telemarketing department at full retail price (sometimes with additional price specials as long as it didn’t create channel conflicts with wholesales or retailers); and utilized wholesale distributors, who in turn sold to major retailers. DacEasy had few direct accounts with mail order houses but the majority of its sales came from direct telemarketing sales and distribution into retail channels. Back then, the war was fought on the retail shelves and the business model had to have retail distribution in order to grow fast. NEXT

 

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