Monday, November 26, 2012

Lesson #129: "Productize" Your Business for Maximum Efficiency

In the startup world, "customized solutions" really makes investors nervous, as customized typically means: (i) lots of human involvement (which can get expensive); (ii) difficulty in profitably scaling the business (compared to non-customized technology offerings); and (iii) inefficiencies in your sales and fulfillment teams (reinventing the wheel over and over again).

So, where you can, you need to "productize" your business offering for maximum efficiency.  Instead of offering clients anything and everything they want (because you cannot efficiently be all things to all people), focus on designing core products or services that you can easily sell and fulfill over and over again, without having to reinvent the wheel for each client or sale.  Even if customization is one of your key selling advantages versus competitors, there are ways to offer customization in more efficient ways.

Let's look at an example.  When I was at iExplore, one of the ways we differentiated our tour offering was to allow travelers to customize their vacations to their exact specifications.  In the early days of this business, we would let our customers customize anything and everything they wanted, including their desired destinations, activities, trip length, dates of travel, hotels, etc.  This wreaked havoc on our travel agents, having to source travel services from suppliers all of the world, over and over again.  And, whatever higher prices we were able to get from a highly-customized solution, we were giving it entirely back in terms of much higher fulfillment costs and lower margins.

To fix this, we "productized" our tour offering to allow customers ways to customize their trip, but in ways that made better financial sense for the business.  We did this as follows: (i) we did not offer customization to 225 countries around the world, only the 50 countries that we deemed to be our best sellers; (ii) we did not offer clients any hotel of their choosing, we designed five star "Gold" versions of our trips (staying at hotels like the Ritz Carlton) and four-star "Silver" versions of our trips (staying at hotels like Marriott), picking the best hotels in each price point in such regions; (iii) we created preset itineraries with key activities that would be provided on each trip (e.g., safari game drive at Masai Mara Kenya), with pre-bundled upsell opportunites (e.g., hot air balloon ride); and (iv) we worked with a fewer number of preferred ground operators where the fulfillment process could be fine tuned and we could negotiate the best volume discounts.  We still let the travelers pick their desired dates of travel, which was the most important thing to them.

By doing this, we had taken 90% of the "heavy lifting" out of the customization process with preset procedures and processes our sales team could sell by, and our operations team could fulfill by.  And, at the same time, offered a product that was still largely customizable by consumers, differentiating us from our pre-set packaged tour competitors, but in ways that did not cripple our business.

So, where you can, offer a fixed product or service offering to maximize efficiency in your business, biasing technology-driven solutions over human-driven solutions for maximum scalability.  But, if customization is required, look for ways to "productize" your offering, to help simplify your ability to sell and fulfill these products or services.

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