Page 109 - The $100 Startup_ Reinvent the Way You Make a Living, Do What You Love

Thanks to New Year’s resolutions, most fitness centers take in the bulk of
their new members in January. Jonathan’s strategy helped his business gain a big
increase in September, traditionally a difficult month. Also, September was close
enough to January that by the time the new year rolled around, many of the
members were committed enough to transfer to a monthly plan—at the regular
price.

EXAMPLE 2: THE INEFFICIENT BUSINESS MODEL
(MARKET INEFFICIENCY = BUSINESS OPPORTUNITY)
Whenever something is more complicated than it should be or any time you spot
an inefficiency in the market, you can also find a good business idea.
Priceline.com took advantage of hotel inefficiencies by creating a system that
allowed consumers to book rooms at name-brand hotels for much less than the
retail rates. Then other companies took advantage of Priceline’s lack of
transparency by creating a business model that allows travelers to know which
hotels Priceline works with. Each of these models includes a compelling offer:

Priceline’s compelling offer: Save 40 percent or more on name-brand
hotels, guaranteed.

Third-party compelling offer: Learn exactly which hotel you’ll get with
Priceline … and save even more when you know exactly how much to bid.

You can also derive a powerful business model from traditional systems that
lack transparency. If you want to make a traditional real estate agent mad, ask
the agent about Redfin, the Seattle-based service that splits commissions with
home buyers. I learned this lesson when one agent told me that Redfin “should
be illegal” and that I was doing a disservice to hardworking people by endorsing
it. Why are (some) agents so testy, and why should it be illegal to save
consumers money? Oh, because the money is coming from the pockets of real
estate agents, who are used to receiving full, hefty commissions regardless of the
amount of work they perform. Redfin has succeeded by challenging gatekeepers
and addressing a huge inefficiency in the marketplace.
Speaking of home owners, the DirectBuy franchise was started in order to
offer “ordinary people” (i.e., non-contractors) access to retailer pricing on
appliances and home electronics. To get around the concerns of retailers and
manufacturers, DirectBuy structured its business model on charging a flat fee for
consumers to join. The compelling offer is: Invest in our membership, and you’ll
save thousands on home remodeling.†