Thursday, May 14, 2009

Strategic Planning - Better Business Models, part 2

Business models work because they work for customers – and coincidentally, for your company. Self-deception here can lead companies to optimistically adopt a business model that fails because it was designed for the supplying company rather than for the customer. Time and again, I see business models that are broken not because the starting point for their design is what the supplier wants – rather than what the customer wants. One of the key reasons that specialty and commodity strategies are more often successful when they are distinct from each other is that the concept of specialty and commodity limits suppliers to ONE facet of their own desires – and then subjects the business model to a wide range of the customer’s desires.

The quintessential example of failure on this point is one of the oldest ways to create a scam – sell someone on the idea that they can get lots of money, quickly, without special skills or hard work. Sometimes these scams are simple (the Nigerian 401 scam), while sometimes they are grand and complex (Bernie Madoff and Enron come to mind). The fundamental nature of free market capitalism – that it is an engine of creative destruction – means that ANY business model that requires little work, skill, risk or time will be destroyed as quickly as competitors figure it out. Incidentally, if you think through the implications of each of these advantages (little work, little skill, little risk and little time), it becomes quite clear that business models built on top of genuine strategic competency are the only ones that have a long-term chance of success.

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