By David Steakley
This week’s insight comes from David Steakley, who has contributed several great posts to Berkonomics this year. David is an active angel investor in Texas and is a former management consultant, where he obviously plied his trade well. – Dave
Companies can strike it rich by finding an element of business operations which many companies need, but few have the capability or expertise to execute with excellence – and then aim to supply that element. Sometimes this is called a white label strategy, because your customers offer your product as their own product, writing in their brand name on the blank label in your underlying offering.
But, more often, this is just the virtualization of what we used to call outsourcing. On the web, not only does no one know much of who you are, but no one cares how you sourced your widgets.
Bazaarvoice, a company in Austin, Texas is a great example of this kind of operation. To be quite frank, the first two or three times someone told me what they do, I couldn’t understand it. My preconceived notions of the possible range of business models simply didn’t include this one.
[Email readers, continue here…] Basically, the company created software for online forums. Really, that’s a business? Yep: revenues of over $100 million per year with a market cap around $800 million. The company identified an element of operations which almost every online retailer already has, or needs, but very few do well on their own. Moreover, the company’s offerings allow the retailer to change a thing which may be seen as mostly a pain – into an engine for increasing sales, for sharpening the retailer’s value proposition, for catching and solving problems before they become real problems. In short, the underlying value of that company is the old-fashioned underlying value of outsourcing (if there was one): the outsourcer not only does it for you, the outsourcer shows you how to do it right, and does it at lower cost.
Now listen to one of Bazaarvoice’s short pitches: “Our industry- leading social commerce solutions capture & amplify user-generated content, driving the highest social media ROI, for the world’s largest brands.” Forgive me, but I had no idea what that meant.
I heard another pitch recently, for a company which must have been unknowingly inspired by that other obscure pitch. This one wants to supply product comparison mechanisms for online merchants. You know, those bubble charts of products and features, by model? Do you want zoom in your camera? How much zoom? How many pixels? Thank god I had finally grasped Bazaarvoice; otherwise I probably would have sent these guys packing.
There’s a lesson in this for business operators. Look around your operations, and identify areas of cost which, as far as you can tell, do little or nothing to enhance the profitability of your operations – but, you must have them. Can someone do it better than you, and at lower cost? Have an open mind. You’re used to outsourcing payroll, bookkeeping, and logistics. Just for an exercise, see if you can identify someone to outsource absolutely everything in your business.
You have only so much management bandwidth. It can only make you more effective – if you’re able to focus your attention on the things you’re best at doing – your core competency.