You wouldn’t plan losses into your business plan. Or would you? Step out of the traditional box and into the bigger picture…
love watching big and even small companies introducing smaller projects, initiatives and services that do not make sense initially, but then they all start to work together in a grand master plan and strategy. On the other hand, in this part of the world, companies, big and small, cannot seem to stop surprising me with ridiculous ideas that do not make any sense today, nor three years down the road before they are phased out in shame.
In addition to the above, I’ve seen my share of great products and services that were so damn good, but were abruptly discontinued for lack of effort, interest or the narrow visions of their founders and business teams.
The biggest problem startups and even big profitable companies face right now is that their ROI model (if it exists) is heavily skewed toward making a profit from direct sales as soon as possible. The ROI is even sometimes thrown out in favor of the direct payback period. With such model, a startup like Instagram will be shut down within months and the founders of WhatsApp will be begging the loan collection agents for a couple of weeks to figure out how they can make their payments.
Back in the day, a business could easily survive by importing crap from elsewhere and charging a premium to sell it to end users. These end users did not have any other place to get the same goods or services. The model survived until the profit margin shrank to unbearable limits, which resulted in reducing the quality of products or services, or maybe charging for other sub-components. Think of phone shops in the early 2000’s and how they switched to mobile accessories.
Aside from the above, many other factors started making things more difficult for traditional direct profit oriented businesses. These factors ultimately lead to the urgent necessity of adopting radical, if not insane, business models that make no sense for the average person.
I have been mesmerized by companies that take a huge loss in the price tag of each product while thinking ahead to their market share within the next couple of years. Back in 2006, Sony was losing around $300 on each PlayStation 3 console it sold for $499. Amazon was selling the Kindle Fire for less than the price of its components. But the two companies managed to turn this around by utilizing the product to build a full-fledged ecosystem with a substantial market share. Coupled with supporting services and financing tactics that are not visible to customers, both managed to keep their heads up in the face of fierce and ruthless competition. The same is also applicable for digital goods like Kindle books that are sold at a loss by an entity like Amazon, which managed to brutally cut competitors in the physical and digital world and make eBooks a viable product category after the failure of multiple giants who tried years and years before.
A company that aims to survive must be willing to become a loss leader while thinking of ways to build a credible market presence like Amazon. Amazon built an empire by having automated price scanning algorithms that aim to automatically undercut competitors’ pricing of products it has in stock. Similar tactics were also used to ensure that music albums and books were always available for lower prices, even at loss.
“A company that aims to survive must be willing to become a loss leader while thinking of ways to build a credible market presence like Amazon.”
There are other nasty examples of loss leaders like Inkjet printers manufacturers who are selling printers at a loss and ink cartridges for prices higher than Dior 5. Not to mention razor blades that ensure that customers will always buy replacement blades for a price higher than the unit itself.
The best way something like this can work is to aim to satisfy customers in ways they don’t expect. Do not rip them off, because they will defiantly move somewhere else. Instead, provide them with more value and figure out another non-evil way to make a profit in the long run, indirectly and through volume. Try to make your offers too good to be true, and make customers and competitors wonder how the hell you can keep doing what you’re doing.
Such strategies can be impossible with a market as small as Bahrain’s. But just remember, it’s not 1989 and you don’t even need a store and a showroom in Dubai, Riyadh, or even New York, to reach more customers. Think big and think of a market share that’s not limited; all you need is a solid plan and the stamina and endurance required to make sure you can achieve your objectives.
The other question is, will any financing scheme in Bahrain support such an ambitious business plan, no matter how compelling and convincing it may sound? I think they may ask for a copy of your electricity bill first!
