In a highly competitive era, in which almost every business is operating on thin margins, it is the ability to constantly innovate and find new ways to generate revenue that keeps one in the game. Companies change their models, diversify their offerings and even attempt to enter new markets in terms of geography and industry, among other things, to create additional revenue streams to get an edge over their competitors.
Consider Netflix, for example. It started as a mail-order DVD rental service in the United States and has not transformed into a streaming giant that not only buys movies and TV shows for its platform but also produces its own. It has worked its way backwards into the supply chain, finding new ways to generate revenue at each stage.
There are many such examples. Let me talk about a few ways you can create sustainable revenue streams for your business based on my experience as an entrepreneur.
1. Create new offerings
Developing new offerings in terms of products or services is one of the most obvious ways of creating a new revenue stream. Launching new products can open the doors of an entirely new market for you. However, you must keep two things in mind while attempting this:
One, the new product you are offering should have a short development cycle and not involve significant investment to ensure that it becomes profitable quickly. Two, it must appeal to your existing customer base. If it does not, you may have to spend time and money cultivating a new base of loyal users, and that has its own set of problems.
As Steve Blank, adjunct professor of entrepreneurship at Stanford, says, “Greatest risk is not development of new product, but development of customers and markets.”
Most toothpaste companies, for example, have come up with their own toothbrushes and mouth fresheners. These neither involve a large investment or path-breaking innovation and, most importantly, will appeal to the customers who are already using the toothpaste.
2. Invest in innovation
While one part of developing a sustainable revenue stream is to create new product offerings, the other is to keep your existing products attractive and competitive. As I already mentioned in the opening paragraph, that can only be achieved through constant innovation.
“In three years, every product my company makes will be obsolete. The only question is whether we will make them obsolete or somebody else will,” American business magnate and Microsoft co-founder Bill Gates famously said a few years ago.
Investing in innovation helps you keep existing offerings attractive and competitive, gives clues about new offerings, and, thus, helps in diversification.
3. Be ahead of the curve.
You not only have to innovate but have to do so before your competition gets there. Only then can you carve out a large share of the industry for yourself.
If you are a new player and want to shake up the industry, you will have to be the next big disruptor. You will have to offer something significantly different from your competitors. Being ahead of the curve can help you achieve that.
If you are an established player and doing well, you too have a task cut out. If you can’t be a disruptor yourself, you’ll have to be ready to manage disruptions well.
Some people may want to discount this point. They would do well to read the story of the rise and fall of Kodak. If you can’t manage disruption, you’re bound to go down.
4. Add on to your best offerings.
This is one of the most rewarding ways of generating additional revenues.
If you have a product that is doing well in the market, you can add more offerings to it, things that can enhance the user experience. In other words, you can build an ecosystem of products and services around it, all of which will come at a premium.
These offerings will appeal to those who are buying the product now and those who already use it, thus creating a great demand for them in the market.
Look at Apple’s iPad, for example. It is an appealing product as a stand-alone offering and has performed well for years without additional offerings. But in the early years of the last decade, Apple started offering pen and keyboard with it. These products have created a new revenue stream for Apple on the back of an existing product.
5. Develop partnerships
Strategic partnerships with other brands can be of great use in revenue generation. Most importantly, it can take your products to your partner’s new customer base.
The most logical way of doing this is by forming partnerships with players who are not a threat to your brand or products. At the same time, you must ensure that you invest in partnerships that complement your products. For example, if your brand makes dishwashing detergent, you can enter a partnership with a brand that makes dishwashers and together offer a value proposition that is attractive to customers. An ed-tech platform can offer, for example, certificate programmes with distance education universities. There’s an endless list of examples.
6. Monetize your data
Today, almost every company operating in the market collects and uses data to deliver better products and services. But after it has been used to its fullest, the data lies ideally in storage. Have you ever wondered that it could be of use to someone else, perhaps someone who is not a competition or a direct threat to your business? You can explore such opportunities. They will not only offset the cost of data collection and analysis but may also produce profits.
However, when you engage in such activities, you must ensure that your customers know about it and their privacy is not compromised. There are laws that you must study and account for in your plans before signing up for data monetization.
This is by no means an exhaustive list. While the methods listed here are some of the most concrete ways of generating sustainable revenue streams for your business, you can also look at other options such as e-commerce, consulting, memberships, service plans, etc. The method(s) that will work for one business may not work for another. You will have to find the plan that suits you through experimentation. You have to remember not to lose focus on your existing offerings while you work on new ones. After all, you don’t want to lose the revenue you already have while you work on creating additional means.
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