How many times have we heard this word since the COVID? Psychological resilience. business resilience. National…economic…organizational…personal resilience…it’s not by chance and it’s not a “buzz word”. Resilience distinguishes between the abilities of different organizations, different sectors, different countries, and individuals to deal with crises and challenges. The corona crisis revealed the weak points and the basic business instability that exists in certain sectors of the economy. Of the various elements of resilience, the level of resilience of the revenue model is a critical variable for success. Despite this, there is a tendency to treat it as a constant constraint and variable that our ability to design is extremely limited sectors of the economy that were at the center of public discourse during the Corona days, and identified 7 main characteristics for the degree of resilience of their revenue model
Switching Costs- What is The Barrier?
Switching to other cell phone company, going to a bank… just think about the consequences, and a cold sweat start dropping.
The paperwork, the queues, the need to learn a new system, the fear of losing the music and photos… every cell in our bodies is screaming – I don’t have the strength to go through it! If the barrier is a psychological concern or an economic barrier resulting from a transition price or required investment time.
There are sectors that inherently benefit from high barriers to switching between suppliers. The higher the customer churn barriers, the higher the durability of the revenue model. Changing your phone from Apple to an Android operating system may involve the loss of services and products you purchased through iTunes. When the barrier disappears, sometimes as a result of a technological or regulatory change, this is immediately reflected in the company’s revenue stream. Telecommunications companies have experienced this firsthand in recent years with the implementation of a regulatory change that allows an almost automatic transition between operators. The impact on the revenue model of the media world was extreme.
Fixed revenue stream describes the extent to which the business model is based on the fact that each sale requires a renewed sales effort compared to the alternative where a one-time sale creates a fixed revenue stream throughout the year or a fixed consumption of complementary services and products.
The degree to which organizations manage to move from single and recurring sales (such as in a clothing store or restaurant) to continuous consumption of complementary products or services can produce a leap forward in the level of resilience of the revenue model.
For example, in the world of banking and the world of telecommunications operators, the engagement model is based on a single sale that generates fixed income and from there begins proactive activity to expand the basket of services we consume, increasing the value proposition and hence increasing their share in the client’s wallet share.
Earning vs. Spending
Whoever manages to realize this principle is on the horse. The principle examines the level of investment required before you see the first shekel, or how much you need to spend before generating income.
Of course, the smaller the gap between expenditure and income, the higher the durability and the healthier the cash flow. The Dell company is known for its unique and differentiating ability to shorten the time spans between the demand creation processes and the demand realization processes. The manufacturing and delivery processes are close to the time when Dell’s salespeople generate a backlog of orders. Creating operational excellence that manifests itself in the creation of demand and only then its realization strengthens the resilience of the business model. Recently we see more and more companies adopting this model.
Game Changing Costs Structure
A few years ago, Nike developed a manufacturing technology capable of producing the shoe from the sole to the laces without human contact. Instead of thousands of people sitting in a huge factory and making shoes, one machine makes the shoe from the ground up to the base. For Nike, this process was a game-changing move that made it possible to lower the cost of creating shoes by 20%-25%.
Communication operators such as Zoom or Skype have created a differentiating competitive advantage as communication operators sitting on an Internet platform that does not belong to them. This technology enables advanced voice and video communication as a free service to a global user without geographic or regulatory constraints.
In contrast, the conventional retail and hospitality chains find it difficult to produce moves that significantly change the cost structure. They are still characterized by high fixed expenses arising from rents in shopping centers, inventory management and personnel expenses. The digital stores create a shopping experience with a completely different cost structure.
Others Who Do The Work For Free
What do: Facebook, Waze, Airbnb, Zoom, Skype have in common? Their business model is based on the fact that the customers or third parties do the work for them, and in some cases for free.
Facebook uses content that is not produced by it but by the users to attract revenue. The communication operator Zoom enables communication between people on an Internet infrastructure that it does not own. The Waze navigation platform relies entirely on user-generated information. The Airbnb hosting chain does not have rooms, cleaning services, or catering services, and if God forbid something happens to you while you are staying in one of the rooms you booked with them, or you have a complaint about the product they sell, they will politely and respectfully refer you to another party because they take responsibility limited only to the service experience you have had.
All of these produce innovative business models that allow overhead and fixed costs to be drastically lowered by the fact that you outsource work.
The ability to create an infrastructure from which the activity can be grown without the need for additional investments can be a significant growth generator. This is the case, for example, in the world of financial services such as credit cards and banking services (especially digital). These organizations can grow significantly in terms of their revenue capacity with a relatively small investment in infrastructure (with the exception of investments in computing infrastructure).
For Example, in the world of social networks – the main growth barrier for Facebook, LinkedIn, Twitter, or WhatsApp is the public’s desire to use their services.
Where are you located on the continuum of the relationship between the creation of new revenues and the need to invest in additional infrastructure in order to generate them?
Protection From Competition
Hasn’t it been annoying that you could only buy razors for Gillette sticks from Gillette? And why are Apple phone owners obliged to consume apps through Apple’s App Store? Until recently Nespresso had a patent on the capsules and coffee consumption from Nespresso machines was only through Nespresso capsules. That is, these companies rely not only on the strength of their product, but they also create an array that makes it difficult for competitors to enter your market and imitate your business model. The extent to which the business model in general or the revenue model, in particular, is protected from competition is a key element in creating the resilience of the company’s business model in the sector in which you operate. The protection can be based on a regulatory process, patent registration, accumulation of unique knowledge, a consumable complementary product that can only be consumed through you. In addition, there is any competitive barrier that obliges the customer to purchase direct and complementary products and services through you.
The world of banking benefits greatly from this, the world of communications operators lost this asset through regulatory intervention, and in the world of fashion or catering and hospitality chains find it very difficult to produce this protection, and produce solutions that are not always attractive in the form of loyalty programs and customer clubs.
In the same way that an earthquake shakes your house’s structure and tests your ability to withstand extreme situations, a crisis shakes your organization’s structure, business model, and ability to keep serving your customers, employees, and investors.
The level of resilience of an organization in each of the axes changes in light of changes in the organization, the sector, or the world. For example, a regulatory or technological change can change a sector’s resilience. This has happened throughout history and in recent years it has occurred frequently. This is happening in the communications market, the retail market and is increasingly realized in the financial services sector. And hence the typology presented in the article expresses our position regarding the behavior of the various sectors in the contemporary context. If you want to doubt, raise alternatives, and examine what was presented, we will reward you with our labor. Good luck on your journey!