I’m going to make a confession – I’m a hippy. I think the paradigm shift towards greener thinking is a significant step forward for ecological sustainability, but surprisingly, this isn’t what this post is about.
Natural progression is a concept which can be applied not only to the organic world, but also to business process and marketing.
As a business, we are still in our infancy. We’re closely watching our projections and our board meetings consist predominantly of financial dialogue – our exit strategy is still well-greased and constantly updated – though given our takeup/conversion rate, that’s a document that’s fast becoming redundant.
When Chombo’s business and marketing plan was written nearly eight months ago, we had a good long think about the type of company that we wanted to be. The direction you take within the first year of your existence determines the end-game of your business strategy. We were faced with two choices: we could either grow our company quickly, hoping to amortize our investment with a takeover within 24 months of our go-live, or slowly grow our business, risking losing our investment due to an inability to service our running costs due to poor uptake.
We chose the latter.
Our end game is simple: to build a hosting company which provides a renewable income stream to fund additional investment into the telecommunications market. Oh, and a Ferrari. Vroom vroom vroom.
As a result of that decision, we’ve make key decisions regarding advertising, promotion and the way we spend/invest money, both in our infrastructure and business, as well as in stocks, bonds and currency.
Key Decision One: Contracts and Prepayment
We believe contracts for web hosting are ludicrous. Shared infrastructure means the costs of hardware acquisition are shared between many customers – as a result of this, the amortization of that investment is the responsibility of a number of customers, meaning that account churns/transfers do not affect the profit margin of the individual unit nearly as much as dedicated hardware does.
Our growth strategy is centered around natural, organic growth. The shortcomings of many initially successful hosting companies lies in the fact that their enthusiasm to bring new products to market often results in over expenditure and an inability to service debt/running costs. This results in a business model that is unsustainable. The biggest problem is the fact that this unsustainability is both silent and deadly – the inability to gauge the markets reaction to a new product combined with an inherent distrust in new technology means that, whilst often being touted as “innovative”, their well-wishes are often met with third degree acceptance, with little to no uptake. Unfortunately, we’ve yet to find a distributor/carrier that accepts innovation as currency.
As a result of this, I am going to let you in on another Chombo secret – we do not re-invest customer’s prepayment into the business until their money is accounted for in the form of an offered service. We merely treat prepayment as an “account credit”, acting as a “pseudo-bank”, as you will. Lets break this down into an example.
Say you’ve prepaid our $9.95/month service for 12 months as a $119.4 lump sum. Our business rules enforce that we invest NO MORE than $9.95 a month of that money into the business. This ensures that our business model is always sustainable – it also removes the temptation to invest that money into new and potentially disastrous ventures. Instead, we seek our re-investment capital purely from the profit that the business is generating.
Our plans/policies are designed in such a way that, even if a customer uses all of their allocated resources, they still turn us a profit. Admittedly not a large one, but there is no Chombo customer which is not an asset to our business. We are not loss leading.
This avoids a “debt-spiral”, where the business is forced to constantly seek cash injection through the takeup of further prepaid accounts. Which brings me to my next point…
Key Decision Two: Giveaways, Promotions and Specials
When developing our marketing strategy, we opted for a method which would maintain high customer retention. We wanted our drawcard to be the quality of our services, not our price-point or the prospect of a “freebie”. The age-old adage “there’s no such thing as a free lunch” is tried and true and the reliance on promotions to generate new leads is not congruent with the type of business that we are attempting to build.
Don’t get me wrong – I am not suggesting that the use of giveaways and “90% off if you buy within the next two days!” promotions don’t get bums on seats – admittedly, if we were building a business to sell then we would have spent the predominance of our budget on advertising and ridiculous “prizes” rather than network infrastructure and ongoing operational-expenditure support. Ultimately, customers that seek your service based on its own merits are customers that are more valuable to the business than the host-jumping cheapskates looking for something for free.
I’m not saying we’ll never do a giveaway or a promotion – in fact, we’ve discussed a few around the boardroom table, but the nature of these promotions will be just that: products or services directly related to our business which are offered because we believe they will add value to our clients.
Maybe we’re doing it wrong. I’d like to know your thoughts.