In this article, we look at how simplifying management to develop the minimum business model reduces costs for an enterprise and its stakeholders. Consider Plentyoffish dot com and its founder, Markus Frind.

To wit, Markus Frind was determined to create a business that could be simply, easily, and quickly managed by him. Because staring at a computer screen gave Mr. Frind eye strain, he tried to minimize that aspect of his work. Since he wrote and maintained all the software... as well as ran the company... his business had to be very simple and he made it that way. As a result, he reported being done with work in just ten minutes on many days.

In most cases, minimizing the time of the person running the business will dramatically reduce costs for the enterprise and all stakeholders. If you focus on minimizing leadership time, I think you'll be amazed at how low your and stakeholders' costs can go.

1. What large, high-value needs are organizations and individuals unable to satisfy from any existing sources?

2. Locate ways of getting paid that don't cause customers much pain.

3. Find a low-cost method of filling such a need that doesn't require much of your own time.

4. Keep your methodology secret so no competitors can duplicate or improve on it.

5. Build your reputation so that you can add customers that can benefit more.

As a result of such thinking, you, too, can expand your business size while shrinking costs as you squeeze out the time you spend managing your business and making it better.

A good way to start is by examining the economic payoffs of how you spend your time now. Locate the most productive 1 percent of what you do and seek to make everything you do even more productive than that 1 percent, while working a lot less.

With that perspective in mind, let's go on to consider a minimum business model. I find that most entrepreneurs don't think much about such business models. In fact, many entrepreneurs prefer to think about how many more people they employ and how busy those people can be kept. Actually, such a people-intensive business model will have lots of extra costs... unless employees pay you for the opportunity to work.

I first learned about minimum business models after becoming interested in if you could have a one-person corporation bringing in more than a billion dollars in annual revenues. I expected that most people would believe that such an accomplishment was impossible. Instead, I found that virtually all experts agreed it was possible, and many provided examples of what had been done in the past... or could be done in the present.

Peter Drucker told me about the first such business that he had found, a Swiss investment bank owned and operated by a man who spent most of each day on the telephone introducing those who needed capital to those who had money to invest. The banker's fees were about 5 percent of the sums invested, and he raised tens of billions of dollars a year. As a result, the bank's revenues (against which it had almost no expenses) were over a billion dollars a year.

Let's examine the example more closely to understand how it worked. You and I could sit in our offices and make lots of telephone calls offering to place capital and asking to access capital. Everyone who couldn't raise enough capital would be delighted to speak to us. Those who wanted to invest and already had more deals to look at than they had time would be politely unavailable. Those who could easily raise capital would not so politely ignore us. We would have no revenues by operating in that way.

Clearly the Swiss investment banker must have had access to very attractive deals that made investors substantial sums of money. Unless you once worked for a large, successful investment bank and provided lots of high quality deals while there, it takes awhile to develop such a clientele. I don't know this banker's employment history, but I suspect that he may have had such experience.

If we think about this gentleman's success, we can guess that he probably began with a more complex and expensive business model than the one we are suggesting.

How might such business success be accomplished instead by using a simple, inexpensive business model? I raise this question for two purposes:

1. To provide an idea that you may want to implement

2. To provide a template that you might apply to another business opportunity

Before reading the rest of this article, I encourage you to write down all your ideas for duplicating the investment banker's success with a simple, inexpensive business model. I provide that encouragement because you will gain a lot more from the lesson if you attempt to find your own solutions. The more time you spend in this way, the more valuable this lesson will be for you.

Have you written your ideas? Good. Let's now look at the subject together.

Think for a minute about what kind of successful deals would probably come to such an investment banker. If the company needing capital were well known, had a stellar balance sheet, and generated lots of cash, the company could have undoubtedly saved money by holding an auction among twenty investment banks that wanted to find investors. That's what the Tennessee Valley Authority (TVA) did in the 1990s to raise more capital. Because it was an agency of the U.S. government, owning the TVA's bonds was low risk, and the organization used that advantage to spend less for raising capital.

What else can we conclude about the client company that was looking for capital? The client probably didn't want a lot of publicity or to make much disclosure. Otherwise, the deal would have been shopped around the globe to all potentially interested parties. Swiss investment banks have an above-average reputation for secrecy, and a one-person investment bank would be in a position to keep secrets better than a large one. So we can assume that these are "hush-hush" deals for some reason.

Since such an investment bank isn't going to be able to do much on-the-ground due diligence, either the deal doesn't need that kind of examination or the company providing the capital is prepared to find its comfort in something else.

Here's an example of what I mean. If you need money to finance a project in a famously unstable country, everyone knows that it's risky doing business there. But if the project's customers agree to deposit enough money into a Swiss escrow account to cover the first ten years of their purchases, the capital provider can comfortably agree to fund such a project after placing a lien on the escrow account that puts him or her ahead of the customers' claims. If the investment bank's client and the project's customers have already agreed to such an arrangement, it's simple to raise the money. Despite this low risk in practice, the client company doing the project might not want any publicity due to potentially negative political ramifications in the famously unstable country from the financing details becoming known.

By looking at how such "hush-hush" deals might be done, it becomes clearer what role a single investment banker can play: See how he can structure deals so that they will be attractive to a wide group of confidential capital providers. You don't need a big staff to design such structures. After all, the details for putting the deal together are going to be worked out by some of the best independent international lawyers and accountants.

Who can provide such confidential capital? Well, it has to be someone or an entity that's not regulated and doesn't have to disclose where its money goes. Such investors are often high-risk managers of private capital pools that don't borrow money to leverage their deals. You can pull out a list of the world's wealthiest people from Forbes and begin thinking about who fits this profile. There will be about thirty names that will strike you as being a good fit.

What do you do next? You telephone such people and organizations to inquire what kind of deals they are looking for. Chances are they will send you a list of requirements by e-mail. If they don't, you can just look up any past public transactions and draw a profile from those deals. If you have detailed questions after being able to articulate what the person or organization appears to be looking for, someone will usually answer you.

Then the fun begins. You think of trustworthy industries, companies, and people needing money that would probably prefer to keep the details of the funding secret. After you identify some such prospects, think of a structure the potential investors would be glad to use (such as my theoretical example of having project customers put money into an escrow account in Switzerland to secure transactions in a risky country). Then, you contact those who probably need funds to see if they would like to hire you on a contingent-fee basis to put together deals. Most won't. Some will. Sign contracts to represent the ones who hire you and develop term sheets describing the deals they want to do.

Then, go to those whose investment criteria match what you've put together on the term sheet. Some may be interested, or none may be. Find out why some or all aren't interested. Then, either work with your client to adjust the deal to make it more appealing, or develop a totally different type of deal that capital providers like better.

Keep repeating this process, and eventually you'll have a business like the one Peter Drucker described to me.

Okay, so let's say that you don't want to establish such an investment bank. The same thought process applies to the business you do want to establish... with one exception: Imagine that the billion-dollar one-person business already exists and then work backward to figure out under what conditions such a success could develop.

Here's an example: Let's assume that you instead want to head up a bank with fee revenues of over one billion dollars a year from providing capital to entrepreneurial start-ups in your country. Let me outline the questions this approach creates about its ideal origins:

1. Why do start-up entrepreneurs come to this bank rather than somewhere else?

2. Where does the bank get the capital to fund the start-ups?

3. Why don't the bank's competitors steal all of this lucrative business?

4. Why doesn't the bank need more than one employee?

5. Why will regulators allow this kind of capital provision?

6. How can the risk of loss be reduced to very low levels?

I encourage you to answer these questions as an exercise for developing your thinking about business models.

What is the key cost-reducing point about reducing management time to develop the minimum business model? You can apply zero-based analysis to create 2,000 percent cost-reduction solutions that will expand your profits after implementation through reducing the amount of time you spend managing your enterprise and by revising your business model to meet just the minimum best practice while providing the minimum core offering to help you and your stakeholders to reduce costs by more than 96 percent or increase social benefits by more than twenty times of what you will be spending.

Author's Bio: 

Donald Mitchell is the author of Business Basics which provides 52 lessons in how to create a new enterprise that will have 400 times more profit and 8,000 times more cash flow and value. To learn more, you can read excerpts from the book at: http://www.amazon.com/Business-Basics-Customers-Investments-Stakeholders...