Thursday, 24 June 2010

Business Models - Industry Services

A well developed industry usually has a surrounding set of specialist organisations dedicated to providing services to members of the industry as a neutral provider. Some obvious examples are trade associations and trade magazines. The range of services that can be provided is rather large. While few of these will have the scale to go IPO or any such ambitious thing, if they are well run, they can provide significant profits to their owners, typically individuals. It is rather puzzling that many more of these kinds of organisations do not exist in India. Perhaps there is not enough appreciation of the business model or how to leverage off of it.

Let's look at the US Debt Collection Industry. Its one that I am quite familiar with, and that's far more developed compared to the industry in India. For starters, it has many distinct sub-segments. The industry thinks of themselves as credit card debt collection or telecom debt collection or healthcare debt collection. Even if you are a leading debt collector for the credit cards industry, it cuts little ice with the same bank when it comes to selecting debt collectors for their automobile loans. And expertise in either field cuts little ice when it comes to debt collections on overdue mortgages. Consequently, the specialist organisations tier into ones focussed on debt collections generally and specific to these various sub-segments. 

The most obvious manifestation of the sub-segments is the various trade conferences which are dedicated to these specific niches. Trade conferences bring together the industry (or sub-segment), its buyers and its vendors. For example, a telecoms debt collection trade conference will have firms specializing in telecom debt collection. It will be their buyers, which are the individuals in various telecom companies dedicated to efficient debt collection, and their vendors, usually technology providers, but also trainers, trade magazines, law firms specializing in the field, industry associations, etc. There would typically be a bunch of talks or seminars on topics of concern to the industry at large. There would be a trade show area where participants set up stalls. And there's a lot of networking. 

A trade conference, well organised, can be a significantly profitable venture for the organisers. Sources of revenue are many, and include charges for attending, for participation in the trade show, sponsorships, charges for conference materials and potentially something from the hotels where attendees are staying.

Some of the other opportunities for Industry Services have been touched upon. These are trade magazines, industry associations, law firms, recruitment firms, M&A / investment advisory firms, firms specializing in training, firms specializing on operations management, technology providers of various kinds, benchmarking firms. The scope of services is quite large. 

Industry Associations frequently provide a range of services, ranging from lobbying, creating industry standards of a self-regulatory kind, negotiating specific kinds of deals for industry participants. For instance, the debt collections business has a need for a specific wordings in their  insurance policies, and the trade organisation works with insurers to customise insurance cover to meet those needs. Of course, publications such as newsletters, books and periodicals also come within this area. In professional services industries, such as architecture or design, industry associations are pretty close to trade unions. Think of the CA institute or the Bar Council. And Trade Unions, at least the well run ones,  often provide these kinds of services to their members.

Hopefully we will see more entrepreneurs set up these kinds of organisations. Outside investors are not necessary in most cases. It needs laser focus on the needs of the industry. A specialist service provider will usually win over a generalist just from knowing the customer better, being able to market in a more focussed manner, and being able to reuse their knowledge across this niche industry leading to much lower costs. This combination leads to much higher margins, but in a smaller market, so the total value is not large. No Private Equity firm will get excited.  However, it is perfectly worthwhile for someone with initiative.

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