What Are Your Obama O's?
Creating a new revenue-generating business model is hard work.
Doing it under time pressure makes it no easier, adding stress that can break founders or compromise the quality of the product.
Building a reputation takes time, especially when you want to charge a premium or influence customer behaviour.
Combine this with an empty bank account, and you have a recipe for disaster.
But maybe we don’t need to generate revenue from our new business model straight away.
Maybe instead of having our cake and eating it too, what we need is “two small cakes”: fast money and a chance to further develop our model.
Maybe we need a dedicated fast money machine, separate from our new business.
Maybe we need an Obama O.
Obama O’s and Cap’n McCain’s were two brands of novelty cereal that were created and sold by Brian Chesky and Joe Gebbia, to help them get out of a financial pickle while they built their scrappy startup “Air Bed and Breakfast”.
At this point, their startup was based on the air mattress and Pop-Tarts they offered their house guests, and they saw huge potential to roll the concept out across an expensive city like San Francisco.
But they were also $40,000 in debt.
With the 2008 US election on the front of everyone’s minds, the founders launched the two cereal brands and sold them for $40 a box, generating a quick $30,000 in cereal income while the business took shape.
Interestingly, it was the cereal story and not the pitch that convinced Y-Combinator to accept Brian and Joe into the exclusive program.
What I love about this story is how the urgency for revenue opened the founder’s minds to random income streams.
They didn’t let their egos get in the way, they got to printing cereal boxes and gluing them together, but they also didn’t pretend that they were becoming a cereal company.
The Obama O’s were limited and effective – exactly what was needed, without being a long term distraction.
Whenever we talk about financials and cash flow, one of my favourite questions is “Do we need our own Obama O’s?”, because it’s such a specific type of solution.
The more creative you get, the more opportunities you’ll see.
Some examples I’ve seen:
A founder of a tech startup who takes on high-end consulting work whenever his business needs more cash – it’s not his passion but it’s a proven cash cow.
A bakery owner who has started a construction arm of her business during COVID-19, taking on valuable short-term building projects.
A solar lantern distributer who has taken on seafood distribution, again during COVID-19, making the most of her existing logistics capabilities.
The Boring Company selling hats and “not-a-flamethrowers”, raising funds for their tunnel digging business.
Here are some guiding principles for Obama O opportunities…
Obama O’s Make Good Margins
What would be the point if they didn’t?
The aim is to generate a profit, so there needs to be a good margin between the value to the customer and the cost to deliver the product or service.
A $40 box of cereal isn’t really a cereal, it’s a talking point or a piece of art.
A $6 box of cereal wouldn’t have helped the founders very much.
Obama O’s Respond To Existing Demand
In the original case, it was the interest in the 2008 election; the biggest topic in their country.
The founders weren’t looking to support either candidate or persuade voters, but rather make the most of the existing passion and support for both candidates.
You don’t need to make waves, you want to ride waves.
Obama O’s Use Existing Assets
Assets are what enable a business to generate revenue, be they tangible assets like machines and factories, or intangible assets like skills and brands.
The founders used their existing talents to design the boxes, their connections to produce them cheaply, and their existing audience to drive demand.
Without these assets, there would not have been an opportunity.
When you look for your own equivalent, start by thinking about what assets you have today; transferrable skills, excess capacity, valuable talents, anything that gives you an unfair advantage over someone like me.
Obama O’s Don’t Require Significant Commitment
Generally speaking, businesses make money by solving a problem in bulk, then charging customers individually.
The larger upfront commitment you make, the cheaper you can produce your product or service, like how a factory can produce a pie for less than you can in your kitchen.
For some industries, the only way to compete is to start at a large scale, and these industries aren’t right for an Obama O cash flow generator.
When money is tight, the last thing you want to be doing is tying it up in equipment, contracts or anything that won’t pay back its costs for several years.
You’re looking for something that can be built quickly and without an expensive setup.
Don’t buy a $5,000 camera to do a $600 photo shoot, better to borrow or rent one instead.
Obama O’s Are Cash Flow Positive
Ideally you want something that lets you earn money before you spend money, such as anything that can be paid in advance.
This ensures that you’re not drawing down on already scarce funds, and can use your customer’s money to pay your suppliers.
The aim is to generate cash, so it’s better to make less overall profit in exchange for the certainty of not creating bad debts.
Obama O’s Shouldn’t Conflict With Your Primary Brand
It’s ok to do something completely separate or abstract from your core business, customers might not even see the connection between the two.
What doesn’t work is when your little cash cow undermines your main brand, especially if it calls your integrity into question.
I personally wouldn’t launch a low quality version of your product/service, and I wouldn’t launch a business that sits in conflict with the ethics or mission of your core business.
Bizarre spin-offs are charming to customers, so long as you do a good job of each of them.
If you’re wondering if you need an Obama O right now, chances are that it’s a good idea.
Perhaps it won’t be your favourite thing you ever do, but please take photos – it will make for a great story in the future…
