A blog on using the power of Disruptive Business Models to build successful businesses...and other stuff. by Joe Agliozzo

Monday, May 10, 2004

Coreflix sold to public company

Today we completed the sale of the Coreflix (tm) online DVD rental business to Americana Publishing, Inc.(OTC Bulletin Board: APBH). I have written about this business before, but in short it was a DVD rental service geared towards "action" and "extreme" sports titles. This was the first "disruptive" business I have launched and it proved to me the basic tenets of disruptive business model design, as described by Clayton Christensen in the Innovators Dilemma and the Innovator's Solution:

1. An initially smaller or niche market where there was a need, but not a lot of solutions. This was great because the customers were basically "nonconsumers" of DVD rentals in action sports (because no rental program existed). The best part was that we were able to launch early in the process with a very basic product and the customers were happy to have it and we had confirmation right away that we had a business.

2. We were patient for growth (and still are) but impatient for profits. We bootstrapped this company (VC's saw the market as too small, and they may yet be right, for their purposes such as hurdle rates of return, how much capital they need to invest, etc.), so we wanted to launch as cheaply as possible and then use cash flow to finance refinement of the business and expansion of the customer base. This is exactly what we did, and combined with 1. above, it worked beautifully.

3. We chose a rental model. I believe that rental models are inherently disruptive, because you are providing a solution that is inferior to the full benefits of ownership, yet fits the needs of many segments of customers. It also uses the principal of looking at the "job" the customer is trying to get done - which in this case was "view" DVDs without necessarily needing to pay the high price of owning them. Many/most action sports DVDs are also typically viewed only once, so the "job" the customer is trying to do is watch a DVD once, which is definitely better satisfied by renting than owning (especially given the stubbornly high prices at retail for purchasing these DVDs).

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