"Simply put, we need to be as innovative in presenting our products as we are in creating them. No — make that more innovative,” says Rob Weber, serial entrepreneur and founder of AgileSwitch LLC. For decades business has cherished certain fixed models as high and unimpeachable as sacred scripture: “No one will ever pay more than two dollars for a cup of coffee.” “You cannot give something away for free, and then charge for it later on.” However wise such traditional maxims seem, they don’t always point the way to profit.
As the wildly successful LinkedIn goes public, Weber will demonstrate just how the company shunned the mold and blossomed into business’ foremost connective entity at the New Jersey Technology Council’s CEO Forum on Wednesday, May 25.
Challenged with setting forth business models for his own startups, Weber has become a scholar of when plans work and when to flout conventional wisdom. Growing up in Philadelphia with a factory-working mother and a warehouse supervisor father, Weber is not sure when his entrepreneurial seed got planted. But by 1982, when he graduated from the University of Pennsylvania with a dual major in engineering and business, he was well equipped. Weber immediately joined Howard Lawson Venture Associates and began launching new technology companies on their way.
Within two years, Weber took over marketing the newly formed Ensoniq, a digital audio company that developed musical synthesizers and sold music chips to Apple. After Ensoniq’s buyout, he took hold of a failing electronic connector firm and turned it around for another high-profit selloff. With these funds, Weber gathered several other angels and formed Robin Hood Ventures in Philadelphia. Then, as president of Intellifit Corporation, Weber took the new firm to leadership in creating body scanners for personal fitting in the apparel industry.
Today Weber employs his magic on his latest firm, AgileSwitch, which develops efficiency-boosting technologies for alternative energy sources. He also helps his wife, Ellen, manage their marketing consulting firm, Antiphony Partners, based in Wallingford, PA.
“You’ve got to be willing to stand the time-honored business models on their head,” says Weber. “The key is when, and how.”
Lanterns & kerosene. History has it that when sales managers asked John D. Rockefeller what they should charge for the lanterns they were taking into China, he sat back and smiled. “Hell, give ’em the lanterns. We’ll get them on the price of the kerosene.” This sensible rule stills holds true for printers and toner packs — keep the customers buying the consumables. That’s where the money is. Often. But not always.
When Apple introduced the iPod, everybody knew that you couldn’t make money selling hardware. Microsoft had proven that. But Apple challenged the kerosene-and-lantern rule. They concentrated on selling the iPods, and they made it work by continually improving the kerosene. “Apple presented the tunes and music to folks in better and better formats, and while they were at it, became a hero in the music industry by paying the artists,” says Weber. “This fit in quite naturally with their underdog-booster image.”
Challenging the obvious. When online shoe store Zappos.com actually encouraged its customers to overbuy and return what they didn’t need, the company was viewed as a laughingstock. After all, every business person knows that returns cost money and, naturally, discourage them.
Further, when Zappos lacked what the customer desired, the company would send her to a competitor that did have the item. Zappos built such trust and became so firmly established as the shoe resource that, well, where else are you going to go?
Dell computers, while not currently a shining star, also took an early and healthy share of the international market by challenging the obvious. Why make a computer and then sell it, they asked, when you can sell it, and then make it?
This approach was the reverse of the zero-based-inventory method that so many manufacturers had established to avoid costly warehouses full of parts. Instead of crunching suppliers into exacting delivery schedules, Dell did not turn on the assembly line until a customer ordered a computer. Sales operational expenses plummeted and profits per unit soared.
Sometimes a successful new approach takes merely a change in who does the work. Traditionally, obtaining home-viewed DVDs placed all the onus on the customer. It was he who drove to the store, rented it, hustled it back, then scoured the rack for his next choice. Enter Netflix. The customer simply checks his selections. They arrive on his schedule, with return, postage-prepaid envelopes that he pops back in the mailbox, awaiting his next flick. The simplicity keeps customer hooked and happy.
LinkedIn’s choice. By 2005 the barely two-year-old LinkedIn serviced more than 2 million people, and founder Reid Hoffman pondered several options for turning his youthful giant into a profitable venture. The obvious methods rushed quickly to mind. Raising fees from a job-based listing service might work, but LinkedIn had already offered too much to become a mere Monster.com competitor. Establishing fees for heavy users was one alternative. So was direct contact, like online ads, sponsorship, or shifting to a more corporate sales approach.
In the end, LinkedIn opted for a multi-pronged model that derives revenue from advertising, premium membership fees, and automated head-hunting services.
In all his compiling of these unusual and iconoclastic business models, Weber has always sought them as fuel for his own firms. When he first began marketing Ensoniq in 1984 “every manufacturer, particularly the Japanese, were very proprietary of their technology,” Weber says. “Instead, we decided to make all our software open source.” The result was that Ensoniq built a vast network of developers continually feeding new ideas, and customers, into the company. “It turned out well,” he says.