10 Things SMEs can learn from a Telco Business Model

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Most Micro-businesses, which we mostly refer to SMEs in this part of the world and SMEs in proper, either run their businesses without a proper business model or no one within the business has clear understanding of the business model that guides the organization.

 

My quest to understand how businesses operate started from childhood. Every time I look at a business, I ask, myself, how are they making money? I also want to understand the complex systems and processes running behind the scenes that make these organizations run successfully. This quest led me to discovering business models and how new businesses can succeed by running the right model.

Most Micro-businesses, which we mostly refer to SMEs in this part of the world and SMEs in proper, either run their businesses without a proper business model or no one within the business has clear understanding of the business model that guides the organization.

In this article, we will be shedding more light on the traditional Telco Business model and a few things SMEs can learn from this business model.

First, let’s start with the basic concepts of business models and the various element it entails.

A business model describes the rationale of how an organization creates, delivers, and captures value in economic, social, cultural or other contexts (Alexander et al, 2010).

Image: Business Model Generation (Alexander et al, 2010)

The components of a standard business models are;

1.      Customer Segments: these are group of customers targeted by an organization or group of people a company intends to reach. An organization could choose to focus on any customer segment that they are in to serve e.g. Corporates, Mass market, Youth and High value segments.

2.      Value Propositions: this simply captures what a customer stands to benefit from purchasing a product or service. For Telcos their value proposition is majorly centered around offering the best data, voice and SMS services

3.      Channels: these are touch points from which customers interact with your business. This could be for the purpose of awareness, sales, experience or post purchase support. e.g. Mobile, Retail, Web, Distributors, Retailers etc.

4.      Customer Relationships: this is the kind of relationship a brand or company has with its customers and this forms the overall experience a customer has with a brand. Customer relationship may be driven by several motivations such as acquisition, retention or customer engagement to promote consistent spend and up-selling.

5.      Revenue Streams: these are points through which cash is generated by an organization. Revenues streams can either be transactional (one-off) or recurring (ongoing). In both cases, Telcos have a huge revenue stream flow varying from traditional Voice or Data revenues, VAS revenues, SMS revenue, Roaming revenue, Devices & accessories revenue, SIM related revenue (customized lines), Mobile Financial Services, Gaming/Lotteries, Mobile ads, Data warehousing (data centres) revenue , Corporate Cloud Storage services, Fibre optics services etc.

6.      Key Resources:  this describes the major dependencies required for a business model to work. The resources, could be in form of physical assets (factory), Intellectual property, human resources or financial resources. For Telcos their key resources are their network, brand and their customer base.

7.      Key Activities: this involves the important activities a business has to carry out for their business model to work. These could be in form of marketing activities or sales distribution channels etc. Telcos key activities is majorly around Network maintenance (Engineering), Service provisioning (IT) and Marketing.

8.      Key Partnerships: these are alliances a company has to form to get the best out of their business models, in order to reduce cost, leverage on each other’s expertise, get things done faster, create more value, reach more customers and ultimately make more money. In today’s telecoms environment, network engineering have been outsourced to the network maintenance Infracos e.g. Huawei, Nokia-Siemens, Ericsson, ZTE to reduce cost, while Towers or base stations are now installed and managed by tower companies like Helios Towers, IHS etc. Other key partners are VAS providers, OEMS, Marketing agencies, Software Providers, Sales Distributors etc.

9.      Cost Structure: since a lot of activities within a business model involves cost, the cost structure of every business model must be efficiently managed. In other words, the lower the cost structure a business’s operates, the more it can maximize profits as revenue increases. Whatever side of the divide your business belongs, cost driven (low price value proposition) or value driven (premium value proposition) just ensure it works well for your business. For Telcos, most of their cost go into network maintenance and marketing.

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Having established the meaning of the components of a standard business model, the image below represents a pictorial representation of a Telco business model.

Image: Business Model Generation (Alexander et al, 2010)

As illustrated in the above image, the Telco business model isn’t quite as complex as we all think and it is a fair representation of what you would find in almost every Telecommunications company around the world.

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SMEs & Micro businesses are the engine room of today’s economy. They are essential for sustainable growth in the economy. In order for these businesses to grow, we must all support them, since they are also the largest employers of labor in our economy.

I will like to share my thoughts on few points in which SMEs can learn from the Telco business model below;

1.      Structure: Every business must operate with the right structure or organizational framework, backed up with the right systems, policies and processes for it to succeed. This is one of the qualities you will find in Telcos because of their large operational business, they rely on their unique structures to ensure everyone is contributing to the organizations success.

2.      Marketing: this is one of the key areas SMEs and Micro businesses are not doing so well. Every big business or multinational running a proper system set aside a percentage of their annual revenues for marketing. Marketing is very essential to the success, sustainability and profitability of a business. Hence, the need to engage in unique marketing activities is very important. Marketing in its unique sense helps you identify the needs of your customer (marketing research), how you solve the problem (product development), how you communicate the solution to the customer (marketing communications) and how you present the final product (branding & packaging).

3.      Multiple Income Stream: today’s world present companies with new challenges, where the old ways of doing business may no longer be relevant for the sustainability of the businesses. We have seen a lot of small businesses fail, by not realizing the potential revenue online channels creates for them. This also has to do with customer segment, because while you believe your business serves only one customer segment, they might be other unique group of customers who are also in demand for your products but your business is not focusing on them. As illustrated above, telcos have numerous revenue streams and that is vital to their sustainability

4.      Partnerships: there is a common African Proverb about the value of Team Work that says: “If you want to go fast, go alone. If you want to go far, go together. This proverb gives us insights about team work or partnerships. This is vital in today’s business world because each partner relies of the strength or areas of expertise of the other partner. In essence, Telcos welcome and embrace mutually beneficial partnerships, where everyone brings something to the table and a win-win situation is generated. Telcos realize the value of partnerships, and they go into partnerships because it could even be another source of revenues for them or a way of reducing certain cost or streamlining their cash flow.

5.      Distribution Model: one of the 4Ps of marketing is Place and this refers to where customers buy your product and the means of distributing that product to the location. One of the key things here is that the product must be available at the right place, at the right time and at the right quantity. One of the problems micro-businesses face is having the right distribution networks for their products and this automatically affect availability, which ultimately translates into revenue loss. Most big businesses like Telcos understand the importance of quality distribution networks, because it is the secret link to product availability for the final customer on the street.

6.      Customer Retention: to a typical small business, losing one customer doesn’t sound like a big deal, but every big corporation know this simple marketing truth, that customer acquisition is more expensive than retention, i.e. It is cheaper to market to existing customers, hence customer retention is very important. When a customer leaves a Telco network, it is said that the customer has “churned”. In order to prevent a growth in churn rate, Telcos use predictive analytics tools to understand customer behaviour and prevent churn before the customer finally makes up his mind to leave. SME’s and micro-business should take a cue from this idea, by creating a customer database, studying their user behaviour and then be able to counter churn by looking at reasons why the customer may likely leave and proffering the right solutions.

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7.      Service before Profits: in this part of the world, people go into business first because they want to make money or they want to survive and not because they have a service or solution to a need. It’s like putting the cart before the horse. In order to guarantee present and future profitability, businesses must put services or solutions to customer needs before profits. In most cases, these SMEs do not have proper financial or tax records and do not even know if they are making actual profits. Business owners must also desist from dipping their hands into the company’s purse and keep a good financial statement in order to know the true state of profitability while delivering quality service to customers.

8.      Embrace the BIG Picture: the ability to visualize the destination is very critical to you getting there. A common saying sums up my preceding statement “if you don’t know where you are going, anywhere will look like your destination. Growing up on the streets of Lagos, Nigeria, I saw so many micro businesses startup and after 25yrs, these businesses are still where they are, no growth, expansion or signs of profitability. It shouldn’t only be acceptable that only corporate organization or big businesses, should have a mission and vision. SMEs and micro-businesses should also have their vision and mission statement, boldly written for everyone to see, so we can have a glimpse of where the business wants to see itself in the future. Like Steven Covey said in his book, 7 habits of highly effective people, “begin with the end in mind”.

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9.      Resource Control: the telco business is a game of numbers and economics of scale play a huge role in profitability. In essence, there is a fixed amount of resources you can use in serving a group of customers and if you try to stretch it, you will create a bad experience. The ability to plan the resources you need to take care of your present and future customer base matters a lot. Also, as the customer base grows, there should be proper projection on the level of resources that would be needed to satisfy the future expectations. This closely relates to the point on the BIG picture, and most SMEs make a lot of mistakes in this area because they fail to manage their resources to deliver on the business expectations

10.  Business Plan: having a business plan is very important to any business. As much as this point is emphasized in most SME seminars, most micro businesses and SMEs still do not have a proper business plan that would guide the affairs of that business for a minimum of 5years. It is important to have a plan but what’s more important is sticking to the plan and allowing a little room for flexibility when required. A business plan will give you an idea of the level of financial inflow to your business annually and project where you will be in 5 to 10years time, in order to help you plan your resources properly.

In conclusion, these are just some of my initial thoughts on these topic, there is still so much more micro-businesses and SMEs can learn from Telcos.

(Michael Nwoseh is currently the Specialist, Media Planning & Management at Africa’s fastest growing telecoms company, 9Mobile (former Etisalat Nigeria)

Please feel free to share your thoughts and contributions in the comment box or send an email  to michaelnwoseh@gmail.com.

 

 

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