A good business model should encompass three elements: the customer, the business, and the organization, which are the cornerstones of the entrepreneurial idea. Specifically, first, it is necessary to pay close attention to whether the product is loved by customers; Second, we must ensure a profit model to create value for customers and shareholders, after all, it is difficult for enterprises to maintain without profits; Third, we must build a strong organizational capacity to achieve efficient replication and large-scale expansion, while maintaining continuous improvement in efficiency.
In the early days of entrepreneurship, although entrepreneurs can design products that are popular with customers, only 5%-10% can achieve profitability. The reason is that some entrepreneurs do not hesitate to reduce the price of sales in order to attract customers, such as mineral water sold at a factory price of one dollar for nine cents, although it wins the love of customers, but it is not sustainable commercially, and the unprofitable business model will eventually drag down the company.
To build a good business model, you need to meet three things: customer liking, commercial profitability, and strong organizational ability. In practice, however, all three are challenging and increasingly difficult.
Businesses with high upfront investment must ensure that the gross profit margin is maintained at a reasonable level, and cannot simply pursue revenue growth, after all, revenue is not equal to profit. In recent years, many CFOs have been promoted to CEOs, reflecting the fact that companies that focus only on revenue and ignore profits are less likely to withstand cyclical fluctuations, and inefficient companies are more likely to be eliminated from the market.
Conversely, the increase in gross margin will reduce the overall expenses, and as the business scales, the efficiency will also increase. Taking Epoint Cloud as an example, its subscription-based profit model achieves stable revenue by charging monthly hardware and service fees, and continues to grow with the number of customers.
Entrepreneurs who want to build a large company need to anticipate the core challenges of their business model with a team size of 1,000 and 10,000 people from the outset, and build capabilities accordingly. Avoid watching while doing to avoid detours.
EpointCloud's business model revolves around three business teams: sales, engineers, and remanufacturing plant employees. These three support each other to achieve linear growth. As long as these three teams are managed effectively, the efficiency can be significantly improved.
For example, when the business is small, each engineer only serves a small number of customers per unit area, and as the business scale expands and the geographic density of customers increases, the number of customers each engineer can serve increases, and the efficiency will gradually increase. That's why we're committed to researching how engineers work, how they work and how they collaborate. The advice for entrepreneurs is that if you want to grow a big company, you should avoid relying too much on the project system. The complexity of the organization increases dramatically due to the project-based system, and customized services consume the best talent in the organization. We hope that outstanding talents will focus on developing universal products and solving common problems of enterprises, so as to achieve efficient operation and scale effect of the organization.
What are the challenges facing the business model in the medium term of development?
The first is the issue of the product. Many companies are easy to be satisfied with past achievements in the middle and late stages of entrepreneurship, only providing products from the supply side, ignoring market demand and product use scenarios, resulting in customer loss. The key to maintaining a core customer retention rate of more than 85% is that we always adhere to the customer strategy and maintain close contact with customers. We position ourselves as service providers, going deep into the customer's site to help solve problems.
Entrepreneurs often find it difficult to start a business, or complain that customers are picky, or think that customers are ignorant. However, when entrepreneurs can self-reflect and think about how to better meet customer needs, the road to entrepreneurship is not so difficult. Entrepreneurs should review their own problems more often in order to create high-quality products that are close to the market and loved by customers.
I still make it a habit to visit more than 20 customers a year, sometimes with sales, sometimes with customers repairing computers. A keen perception of product issues and a deep understanding of the business are indispensable competencies for CEOs.
The second is a matter of strategy. After the founders have business sensitivity, how to accurately capture the opportunities and avoid the enterprise falling into the dilemma of multiple heads is the key. When considering specific businesses, it is important to be clear what can and cannot be done. My core consideration is to strive to be at the top of the industry in my core business area. We focus on the key aspects of the customer experience, optimizing and enhancing it. If there's a better solution, we're not going to do it.
For example, in order to improve the speed of receiving goods from customers' computers, we first consider whether there is an optimal solution in the field of logistics. We found that SF Express could meet the demand, and it was difficult for us to surpass, so we decided to cooperate. However, there is no solution in the industry to improve manufacturing efficiency and customer computer quality, so we have invested in research and development to successfully create a unique remanufacturing line and remanufacturing robot.
For another example, in view of the slow speed and high cost of domestic IT (information technology) on-site service, we have independently developed fast and low-cost service products, realizing 2-hour on-site maintenance, thus innovating the service timeliness of the entire IT industry.
Then there is the issue of organization. In the process of business innovation, unifying the corporate awareness and strategy execution is often challenging. For example, when we increased the number of hours of on-site service from 24 hours to 4 hours, the team was not only not excited, but also fearful, questioning the unreliability of my decision. However, I am well aware that the limitations of personal cognition determine the height of development. When we innovate and break through, we need to think backwards and find out what new resources to create, rather than relying on existing ones.
No matter what stage of development your business is in, the more courage you need as you move forward. In the face of uncertain markets and customer needs, every step is like stepping into uncharted territory. My advice is that companies should focus on their core business. So, what might a high-quality business model look like in the future that will stand the test?
First, there is a pattern with a positive circularity effect. In the later stage of enterprise development, more and more positive cycles can be formed between businesses, indicating the stability and profitability of the business model. Taking Epoint Cloud as an example, its SKUs (Stock Keeping Units) are relatively concentrated, and the top 20% account for more than 90% of the supply chain, simplifying supply chain management. Complex supply chains and too many SKUs and SPUs (standardized product units) will greatly increase the difficulty of enterprise management.
The simplicity of our supply chain stems from the front-end leased IT service model. High-quality products and efficient services have won the trust of customers, which in turn has prompted us to continuously improve the quality of remanufacturing equipment, attract more customers, achieve price optimization, and finally form a virtuous positive cycle.
Second, there are deep barriers to business models. The business model should have deep barriers, preferably throughout the entire industrial chain. Taking Boeing as an example, it not only builds aircraft, but also operates airports, and also builds a ticket sales platform, which will greatly increase the difficulty for competitors to enter the game. By continuously strengthening our core capabilities and building a portfolio of multiple systems, we can not only increase profit points and reduce costs, but also effectively respond to market uncertainties. Similar to Amazon's business model, it provides a wide range of products, low prices and fast delivery, and combines cloud services and streaming services to build a barrier that is difficult to break in a short period of time.
E-point Cloud integrates the service industry and the remanufacturing industry. Remanufacturing, especially the processing of non-standard products, is more difficult than the manufacture of new products. Our remanufacturing facility has full manufacturing capabilities beyond chips, which is our core competitive advantage. There are few new entrants in this field, because the technical threshold of remanufacturing is very high and difficult to overcome.
There is no perfect business model in the world, but if you are pursuing higher barriers, you need to work in key areas. Regarding the dispute over the importance of business models, my view is that we should seek "heavy" core competencies and "light" non-core competencies.