I am back at lectures today for the start of the second year of my MBA. I am now studying my electives and I have chosen a strategy/ technology track which is where my interests lie.

Today I am starting “Strategies for Fast Track Venturing”, which from the course outline is to study theories and techniques that are reshaping strategic management in fast moving environments. It asks: what are the key factors that determine whether a venture makes money and grows to a significant size?

One of our fist readings is called ‘Bottom Feeding for Block Buster Businesses’. D. Rosenblum, D. Tomlinson and L. Scott (2003). Harvard Business Review March 2003.  There was nothing in the article that most people do not already know but there were some interesting points that I wanted to summarise.

Unprofitable customers are the bane of most companies and a lot of companies actually encourage their worst customers to buy from their competitors.  The authors argue that as customers are scarce this this may be a rash move and that actually you can turn these unprofitable customers into profitables ones.

So how do you go about serving these unprofitable customers? It almost always means redesigning your business model:

1. Simplify your offering – often a product is unprofitable because it has features that customers don’t want or will not pay for. This also links back to the ‘Reduce/ Eliminate’ from blue ocean strategy which will reduce your costs.
2. Minimal marketing expenses – serving cost-sensitive customers means you cannot waste money on marketing and should instead rely on word of mouth marketing.
3. Personal, convenient and pleasant service – often the cost-sensitive/ fringe customers are used to being shunned so good service will be a big surprise. It is also about showing that every customer is valuable.
4. Careful use of technology – sophisticated technology might not always be the answer, chose the technologies that your customers are familiar with.
5. Realistic financial targets – low margin businesses require a lot of scale before they are profitable so take a long-term view