Very nice job. I had not heard of Stem before this blog post but it looks like an impressive business. The operating strategy questions I have for Stem are:
1) In terms of scope, is there a way to partner with utility companies to speed up adoption? Perhaps offering a special discounted energy rate from the utility. Since they know the customer’s demand will be less variable, maybe they would be willing to do this.
2) How do customers measure the energy savings generated by Stem? Unfortunately, as you pointed out, energy consumption is highly variable month to month which I believe leads to energy costs being fairly opaque. If a customer cannot immediately see the savings (besides the software telling the customer a number), Stem needs to have an appropriate communications strategy to explain the benefits of the product.
Fantastic post. You really laid out the key operating decisions made to support the low-cost everyday carrier business model.
Indigo seems like a great business. I am impressed that they were able to gain market share so quickly. How did they change the cultural norms that existed in aviation, around full meals, service, entertainment, etc.? I am particularly curious about their promotions strategy since mass advertising / sponsorship like the other airlines would not make sense since you’re targeting a lower price customer. Perhaps pricing is transparent (through online search) and Indigo’s lower price is enough to win customers.
I also think of airlines as a fairly high fixed, low variable cost business. Specifically, the cost of the planes and various regulatory fees (airport fees, air licenses, etc.) is fixed and these components seem to be fairly big. Therefore, I would have expected the incumbents to have a high utilization, volume strategy but that was not the case. Have they reduced prices or introduced economy brands? If they do, I wonder whether Indigo’s lack of loyalty programs will hurt it in terms of customer retention.
Great post. I think Zenefits is a great company, but think we should temper expectations a bit. As you said, it’s business model is centered on the hub and spoke model, which means they must own the central employee record and utilize it for the various functions you mentioned. The question I have in terms of the operating strategy is around scope. Should Zenefits own all the functions (particularly payroll as well as compliance, timesheet, etc.) or work with partners? If they work with partners, I believe a significant portion of the value created is owned by the partners (specifically ADP). Choosing to do it themselves means a massive investment in product development as well as dealing with competitive response by the incumbents in these various categories.
Secondly, I question the scalability of this operating model, at least in the context of it being characterized as a pure SaaS company that is completely technology enabled. Zenefits is taking on an SMB insurance brokerage industry in the US that represents about 500K employees. Certainly, Zenefits’ software is more scalable than the mom and pop insurance brokerages, but to imagine a tech company taking on this industry at dramatically lower headcount is unreasonable. Zenefits currently has a 1:100 ratio in terms of headcount to covered employees, which is not much different than the status quo ratio (roughly 45-50M people work for small to medium enterprises in the US). Of course, Zenefits will not scale linearly from here in terms of headcount, but you are asking for some immense efficiency in order to consider this a pure SaaS business.
Overall I think the company is still great, but on a more modest path.