One insight about business that I have had in the past six months relates to the value that the business provides and the position it occupies in the marketplace. I’m going to use a services based business as an example, specifically a Business to Business services business.
I’ve come to understand there are really two types of business: transactional and value based business. Transactional based business tend to focus on pushing a specific service that is well defined and can be fulfilled easily. There is usually a set price point, and sales people can be paid commission to make sales within the structure with less ownership of the result of the work. An example would be providing a monthly SEO optimisation service for $500 a month on a 12 month contract + a $1200 setup fee. The advantage is that if you can find a lot of customers who are comfortable at this price point. A dis-advantage is that there is less accountability to provide the service and likely less expectation of results at that price point.
The other option is a value based business. Usually this would be focused on a more customised solution. This would normally come to a higher expense as it takes more time to develop and takes more thinking so it requires a different type of team member to perform the solution. The solution determined by a value based business can potentially get a better result in some markets, and won’t be worth the time and money in other markets.
As the owner of a value based business, the reason that I want us to focus on value and not transactions is that transactional businesses can create commodities easily, and your service can easily be compared to others in the market-place. A more world-wide marketplace to platforms like Elance, ODesk and Freelancer has resulted in a “race to the bottom in cost” on many services, which makes providing a commodity not a desirable option. The disadvantage of providing a value based service is that your pool of customers is smaller, and you must rely on reputation and case studies to drive sales; not slinky sales tactics and a winning smile.