O to O, to O

Mary Jane loves to bake, especially cupcakes, in flavors such as red velvet, apple-carrot, banoffee, and Brazo de Mercedes. The secret ingredient in the cupcakes, however, is not in the flavors, but that they are baked by “three generations” all at once. Her mother, from where she got her “baking” genes, and her daughter who was exposed to baking at a tender age — both make cupcake-baking with her a family affair.

MJ would supply it as gifts to friends, especially during Christmas. And on occasions, she would join bazaars where she would feature her cupcakes that are specially baked by the “three generations”. She has not ventured into putting up a real store, or even converted the cupcake passion into a real business, because she does not yet have the capital to put into that. She also does not want to quit her day job for the cupcakes she so loves to bake because it’s too much of a risk to let go of her steady income.

If she went into business, in the sector of Micro, Small and Medium Enterprises (MSME), she would be a Micro. Fortunately for MJ, there are very good business models now worthy of adopting for MSMEs. What would be perfect for MJ is a business model called “O to O” – Online to Offline.

The catchy “O to O” moniker was shared by a minister in the recent meeting between the private sector and APEC ministers in Iloilo last week where the APEC trained its eyes on using innovation to accelerate growth and access to regional/ global markets for MSMEs. (We had the privilege of facilitating these roundtable discussions as PwC is APEC CEO Summit’s Knowledge Partner.) The particular focus of APEC on SMEs, eventually adjusted to MSMEs on initiatives of the Philippines to include M (for Micro) in the equation, is understandable. The number of SME entities in Association of Southeast Asian Nations (ASEAN) economies account for 99 percent of total entities. According to the ASEAN website, SMEs employ 50-85 percent of the labor force in ASEAN, and account for 30-53 percent of ASEAN economies’ GDP (based on different country reports).Putting efforts on MSMEs is a good bet.

One of the key barriers of an MSME is access to capital and financing. Without it, the business idea may not translate to commercialization.

Perhaps the problem can be better understood if we look at a common scenario for some start-up businesses. Take the case of one trying to engage in retail. Without much capital, the entrepreneur would want to spend her meager resources to inventory, not on capex nor even rent. But that entrepreneur would still be compelled to have an office address to register the business and to indicate that in her invoice, and that is also where the BIR will visit to conduct an examination, among others. What also necessitates getting an office is that many residential subdivisions do not allow the homeowners to use their residential property as a business establishment.

In an O to O model, the initial need for capex or start-up costs can be avoided or greatly minimized. MJ’s cupcakes, for instance, can initially be sold online, and that online presence can create branding or brand equity. The main thing about going online is that it’s not only about your coming up with a great website and leveraging on technology. It has to be about the product. Thus, the things you initially do not spend for putting up a physical store, etc. must translate into investing in the quality of the product. Otherwise, social media, which can be your best friend, will also be your worst enemy. If negative reviews are elicited, without tenacity, your M(icro) or S(mall) business can fail. But, if good reviews come, and return orders happen, you may build the resources to actually put up an actual store where you can offer people not only with your (online-tested) products, but also this time, the experience.

In the meantime, you can reduce your office requirements to renting a less costly small business address at a secondary commercial spot, or use your house as your initial office if this is allowed in the area where you live. Online is therefore an approach to prepare for offline, or the brick and mortar business.

Customer behavior drives business models. And many customers still need an actual store to visit, compare items with other stores, and go back again (in short, window-shopping) not only for decision-making, but to unwind. They eventually buy.

A recent PwC study based on a global retail consumer survey, while buying online using mobile devices are now happening, the ability to “see, feel, and try” the merchandise is still an “often” exclusive feature of the physical store. The operative word is “often”, because new business models have combined the expediency of online transacting with the actual store experience.

For example , Zalora’s pop-up store model allows customers to go to their stores to try on clothes, but they need to transact and pay online using the Zalora app. South Korea’s Tesco is probably the first to set up virtual grocery stores in locations like subway and metro stations where commuters can do their grocery while waiting for their train. Walls are plastered to resemble supermarket aisles and shelves, but you cannot grab the product and pay for them there. There is a QR code that the shopper scans with a smartphone camera. The shopper pays for this selected merchandise using his phone, and the groceries are delivered to his home — no need to carry groceries or look for a grocery store outside of the shopper’s normal routine. Even TV shopping adapted: EZ Shopping, for instance, now has an online shop and has a number of outlets where buyers can pick up what was ordered online or over telephone.

So what you have now is an Omni channel. For MJ and her “three generations” of cupcakes, being a Micro has an innovative route from Online presence, to Offline operations, and ultimately having and Omni presence. Yes, this approach may not be an innovation because MJ may just be picking it up and tweaking it as innovations for her little business. But an innovation does not have to be revolutionary, they can be in small intensities, and they can still be helpful innovations nonetheless. A Micro entrepreneur now has the tools available in a loose ecosystem. The only other thing is that the most important ingredient to success is not in the tools but the determination to succeed. This for me is the biggest thing in being Micro.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the tax committee of the Management Association of the Philippines (MAP). Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.