Give 80% to 20% and get 100%

Low prices and self-service were an opportunity I thought more businesses could explore. In June 2011, I asked whether every customer really needed the full package of help and extra service.

Low prices and self-service for a particular customer

Some people wanted their hand held, while others could do quite a lot themselves. My idea was to offer the core service at a lower price and let the customer do more of the work.

I used air travel as an example. For some, the most important thing was getting from A to B, while others would pay extra for comfort and service.

What was the essential core?

I also talked about selling businesses and Amino Virksomhedsbørs, in which I had an interest myself. There, I saw an opportunity to make information and contact more accessible.

I wasn’t claiming that a portal performed all the same tasks as an adviser. The point was to distinguish between what customers could do themselves and what they wanted help with.

Extra service could still have value

I explained that I’d paid for help myself when I preferred to spend my time on something else. So the more expensive offer could still make sense for other customers.

The 80 percent and 20 percent in the title were my way of illustrating the idea. They weren’t measured market shares. I wanted to find customers who were happy with a simpler solution and structure costs around that offer.

The examples and pricing considerations are from 2011. They show my view of the business model and are not a current comparison of providers or a guarantee that lower prices generate profit.

Also read about free access and paid options.

Low prices and self-service: Almost the same for far less

I start the video a bit haphazardly, running my hand through my hair. Some people have criticised me for that. Why do I do it? I don’t bloody know. That’s just how I am. But behind the slightly messy introduction is a thought about future businesses that I find interesting.

Technology and the opportunity to have work done in countries with lower wages make it possible to do something much more cheaply and almost as well. The crucial thing is to work out which part of the service customers actually need. Does everyone need the whole package? I discuss my own experiences of developing business ideas in Iværksætter til jeg dør.

I use the percentages to illustrate the opportunity. Perhaps you can give customers 80 percent of a traditional service for a fraction of the price. Perhaps a particular group of customers would choose it. That’s the difference I want you to think about.

I want to go to London, not get a gold card

Air travel is a good example. When I think of SAS, I think of a large operation with slightly wider seats, more staff, extra food, service at the airport, a glossy magazine sent to your home, a gold card for your suitcase and a lounge. All that costs money.

Then airlines such as Ryanair and EasyJet come along and ask: What’s the core business? What do people actually want? I want to get from A to B. I want to go to London. The other stuff may be interesting enough, but when it comes down to it, London is where I want to go.

What matters is that the plane departs, preferably on time, and that there are enough departures. Technology lets customers print their own tickets, and the airline can optimise its operations. I don’t know exactly how they do it; I don’t know about airline operations. But my experience in 2011 is that some low-cost airlines are very reliable. I see it as a possible shift in focus from extra refreshments to delivering the core service.

For me, that can be good enough. I’ve had coffee before leaving home and don’t need more on a two-hour flight. I don’t care about the magazine or the gold card on my suitcase. What matters is that the journey is cheap and reliable.

A lower price can create volume. That volume can then be used to optimise IT operations and reduce aircraft costs. It’s that relationship between focus, price and volume that interests me.

An example from my own backyard: Amino Virksomhedsbørs

I can also take an example from my own backyard. How does Amino Virksomhedsbørs compare with hiring a business broker?

At the broker’s, you can get coffee, sit in a comfortable armchair and hear how good your business looks. You go to meetings, meet nice people with fancy business cards, get firm handshakes and perhaps an invitation to corporate golf. And hopefully they’ll sell your business too.

In my illustrative example, you sell a business for DKK 1 million and perhaps get a bill of between DKK 100,000 and DKK 200,000 for the help. On top of that, you still need your own lawyer and accountant involved and have to put work into the sale yourself. Those are the pricing considerations I use in the 2011 video.

At Amino Virksomhedsbørs, we don’t have the fancy business cards or wide armchairs. I won’t invite you to golf, send you letters or provide the same VIP experience. I put it rather crudely and say I don’t care about you. Of course I want you to use the service, but the point is that personal pampering isn’t the product.

You have to enter your business details yourself. If you don’t know how to value it, at that time we work with a company that can do it. In the video, I think the price is around DKK 5,000 to DKK 6,000.

We have a buyer database with more than a thousand people across different industries and price ranges. My assessment is that we have lots of potential buyers and good exposure, perhaps more prospects than the business brokers. But you still don’t get a VIP service.

When there’s something you ought to do, you might get an email suggesting that a lower price could bring more enquiries. You have to contact interested buyers, negotiate and involve your lawyer and accountant yourself. You’d need to do that last part with the traditional solution too.

In my examples, the solution can be free or cost a few thousand kroner. I mention DKK 6,000 to DKK 7,000 and also around DKK 8,000, depending on valuation, advertising and how urgently you want to sell. A gold listing can show the business on the front page. My point is the difference between that kind of solution and a DKK 200,000 bill.

I describe it as getting 80 percent of the service for far less. For customers who can do things themselves, that can be interesting. For customers who love the golf, magazine, armchair, handshake and feeling of having their hand held, the more expensive solution may still be right.

I pay to save time too

I see the same opportunity in other industries. RobinHus is my example of people who can bake cakes and show their own home, saving a large part of the fee that way. Dating.dk is another example. Previously, you could spend weeks or months at nightclubs or pay a marriage agency for interviews and adverts. Now you could look for contacts online at a much lower price.

Look at the industry you’re interested in. Perhaps some fat cats have been creaming off the profits for years. They live off a buyer database, capital and a network, but have also built up an enormous cost structure.

Offices on Kongens Nytorv, BMWs for the salespeople, glossy business cards, golf events and time to call, help and follow up all cost money. Maintaining the network does too. And the customers pay the bill.

I’m not dismissing all that service. I’ve used home myself and paid DKK 160,000 to have my property sold. With RobinHus, I might have saved DKK 120,000. But I didn’t have time, and I could afford to pay someone else to do the work.

If I’d had less money and more time, I’d have chosen differently. That’s exactly the difference between customers’ situations. I think it’s a shame when people with plenty of time and little money choose an expensive solution without looking at what they could do themselves.

I use the example that someone on an ordinary income might take three years to save DKK 100,000 after tax. If they could instead put two weeks’ work into self-service and save the money, that’s a difference worth thinking about.

You don’t need to win every customer

The opportunity isn’t necessarily to copy the established business and try to reach all its customers. Find a group of customers and ask whether you can reach them with something cheaper, more efficient and with more self-service.

At Virksomhedsbørsen, we have a buyer database, a structured database, a communication platform, the option of a valuation and a network of consultants. We can make much of that available without holding the customer’s hand through everything else.

In that example, I say we’re targeting 80 percent. In your industry, perhaps only 20 percent are up for a low-price concept or an automated solution. That can still be a business.

The traditional provider will struggle to persuade a customer to pay DKK 200,000 if that customer believes they can get what they need for a twentieth of the price. My claim is that the provider then has to create a new business that also competes with its old one. That takes balls of steel.

Automation can have people behind it too

Can you automate or partly automate something in your industry? Can employees in countries with lower wages do the manual work a computer can’t handle?

I mention Amazon’s Mechanical Turk as an example of a model where people can carry out small tasks. That could be validating data or images, recognising things in pictures and other tasks where material needs to be sorted, approved or rejected.

It doesn’t have to be something the computer can solve itself. Perhaps you build a small interface, and on the other side real people elsewhere in the world do the work. The checked material then comes back. I see many opportunities in that combination.

Look at what you keep rather than turnover

Perhaps you can only win over 20 percent of customers, and perhaps each generates only 10 percent of the turnover of the premium segment. But if your costs are also a fraction of the expensive company’s, it starts to get interesting.

In my final illustrative example, the traditional company keeps one krone for every hundred in turnover. You might keep DKK 75 out of a hundred because the model is set up completely differently.

With that difference, monthly turnover of DKK 200,000 could leave around DKK 150,000 in the example, while DKK 1 million at the other company leaves only DKK 10,000. The figures illustrate the idea: Lower turnover can be far more interesting if you keep a much larger share.

That’s how I want you to think. Look around your industry. Which customers need a simpler solution, and how can you deliver it with a completely different cost structure?

Best wishes, Martin