In Pursuit of the Ideal (Online) Business
This is my first Blog post for Logan Tod having joined the team only last month. I thought that this would be a great opportunity to explain why I moved into the online/digital industry and why I see an ocean of opportunity therein.
My background is varied and so, to the outside observer, online may not seem like an obvious choice for me. After studying chemistry at university I qualified as a chartered accountant in the Banking & Capital Markets division of PriceWaterhouseCoopers. My clients were principally niche funds and hedge funds which sparked my interest in the financial markets. After leaving PwC I took a year off to formulate my own investment strategies before joining Vodafone to model the savings achievable from the outsourcing of their IT function.
In late 2006, after reading one of Richard Russell’s famous Dow Theory Letters, I realised that operating on the Web offers many advantages over traditional bricks and mortar companies and decided to design, build and launch my own website. In his letter, Russell describes the twelve elements of an ideal business. I consolidated a couple of them to cut the list down to ten and here’s what I would like you to do – as you run through the list of ideal company “ingredients” below, cross-reference them against the online/digital channel…
Ingredients of the Ideal Business
1. The ideal business sells to the world, rather than a single locality
The greater the reach, the greater the potential for growth and ballooning revenue. Exposure to global markets also acts to diversify your income streams between regions and currencies, which has certainly been helpful during the latest series of financial crises. A business which is able to cross borders and take advantage of evolving global trends will always outperform competitors constrained to a particular locality.
2. The ideal business does not require big cash outlays or major investments in equipment
If you can create a business which requires little capital to set up and run you will have a distinct advantage over those with heavy overheads, especially during lean times. But beware, low start up costs also increase the risk that you will be swamped by competitors and copycats. If you provide a unique product offering, as discussed in (7), potential competitors will have to work harder to dent your competitive advantage.
3. The ideal business has minimal labour requirements and enjoys low overhead
The ideal business requires proportionately fewer staff, has no requirement for an expensive location, large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc. Many great companies have grown from a tiny basement or garage office. Nowadays there are increasing number of “virtual companies” which consist of a few executives who have outsourced all of their manufacturing and services to external companies.
Take a look at this interview with Tim Ferris of http://www.fourhourworkweek.com/blog. The entire interview is fascinating, but from the 50 minute mark he discusses his virtual assistant…
4. The ideal business is portable or easily moveable
Easy for the “virtual corporation” to action. Work from home or work from your local Starbucks while enjoying a Mocha Frapuccino!
5. The ideal business is one in which your income is not limited by your personal output
If you earn an hourly, daily, weekly or monthly salary, your income is limited by the number of hours you can work in a day. In the ideal business you can sell to 10,000 customers as easily as you sell one.
6. The ideal business offers a product which enjoys an “inelastic” demand
Products which people need or desire regardless of price experience inelastic demand. Often this tends to be rare and expensive materials which are used only in small quantities, such as rare earth metals in electronic equipment. But it can have other interpretations also, certainly my wife would argue that the latest pair of Jimmy Choo’s exhibit inelastic demand (she needs and desires them regardless of price!).
7. The ideal business sells a product which cannot be easily substituted or copied
Perhaps copyrighted or patented product offerings. Also consider news or information about a particular niche market.
8. The ideal business enjoys cash billings
Your cash is not tied up for long periods with complex credit terms.
9. The ideal business is relatively free of all kinds of government and industry regulations
We can but dream!
10. The ideal business satisfies your intellectual needs
Does an Ideal Business Exist?
Continuing with my own experience: After reading the above I set about creating a business that would satisfy as many of the above criteria as I could. Using my background in the financial markets I launched a macroeconomic investment website (1. global reach), which has a successful track record of predicting invstment trends (7. cannot be easily copied). I designed and built the website myself (3. minimal labour) using a single laptop (2. low capital outlay) and frequently work from Starbucks (4. portability). The website challenges me daily (10. satisfies intellectual needs) to optimise SEO and search engine marketing, to provide great content, to ensure that my designs are user-centric and to run A/B and multivariate testing in order to evolve on a continuous basis. Importantly, this limited amount of output allows me to communicate my views to the entire globe (5. income not limited by personal output) and income is received from affiliate agencies on a timely basis (8. cash not tied up for long periods).
As you can see, there are two components missing: I don’t offer a product with inelastic demand and I am not free from government regulation. But I got close. So the question is: “does an ideal business exist out there?” If it does, I bet it is an online business.
