This week I was working with a customer looking at on-demand business models as part of my 5 step business model design process. Specifically, we were looking at home-services, like plumbing and electrical work, in a non-US market.
The process went like this. We started off with ten competitors. In each case, it was pretty simple to say how they made their money. Company A makes money by matching buyers and sellers and charging a commission on every sale.
What was far harder was to understand how they actually did this. Often it meant trawling through every page of their website, looking at glass door or jobs sites to see who they were hiring and what people did inside the company, and dozens and dozens of reviews.
Anatomy and Business Model Design
One analogy that kept coming to mind. I can map out the skeletal structure pretty quickly. A skeleton doesn’t tell you what an animal looks like. Elephant skeletons give you no idea if you don’t know what an elephant looks like, of their super long trunk. (side note: This is why it is so difficult to figure out what dinosaurs look like). As we do more and more research we can figure out the muscle structure which then gives a lot more insight on how they move, which in turn tells us how they can act.
As you pull the information on a company that you know nothing about you can start seeing the business model in two ways.
Two Types of Business Model: Disjointed & Integrated
On one side there are business models where all the components seem pretty cool and smart. They are all individual structures. There is a block labelled customer service, for example. It’s not clear how ‘customer service’ fits into the larger story. Everything makes sense, up to a point…then it just doesn’t all fit together.
If you didn’t get that, don’t worry. I’ll now explain the other type of business model and you’ll see the difference.
The other type of business model lets you see how everything relates to everything else. A success in one area means that another area will deliver better, which creates a better value proposition, which then delivers happier customers, which leads to more orders.
For example. One of the startups that we looked at has received series D funding from some well known Silicon Valley names. They’d started off with a social mission. This was so strong that when I first started researching them that I thought that they could have gone a non-profit route.
This social mission was focused on empowering and uplifting their workers. This had a huge impact on customer relationships and key activities. This translated into a better quality of workers and more loyal workers (with none of the retention and disintermediation problems that many platforms face) and that delivered a far better value proposition to the end-users who paid about 2X what they would have paid off the platform.
Business Models That Accelerate
Everything in the business model has a logic that makes the core driving components of the business model move faster and faster.
Most of the time as we get faster air resistance increases and it makes it harder to go faster, or even maintain the same speed. I have a wheel on my triathlon bike (A Zipp Sub 9) which actually makes you go faster as you go faster. Aerodynamic drag is overcome.
What was clear as we worked through 10 very similar business models in the same industry was that some had this ‘accelerant’ characteristic. Unsurprisingly they were the ones who were achieving market dominance.
Right now I can only describe this in qualitative terms. It’s like porn, in the words of Supreme Court Justice Stewart “I know it when I see it“. What I’d like to do is figure out a way to quickly identify and measure whether a business model is greater than the sum of its parts. Or is a model simply a pile of disjointed parts.
There’s a big difference to carers, valuation and customer satisfaction right there. Stay tuned and let me know your thoughts.
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