Business Models

What’s a business model for? As a business strategist I use models day in and day out. They are the tools of my job in the same way that a carpenter uses an adze and saw or a farmer uses a plough and drill.

Let’s play with that analogy a bit. Can a farmer plough the field and sow the seeds without machinery? Sure he can. He can get rid of the tractor and replace it with a hoe and a basket for the seeds. In some places where the soil is thin or rocky that may actually be a more productive approach; not usually though. Can he do without any tools at all? Again it’s possible. Circumstances, where it will work, are more limited. You probably need to find a fertile river valley recently flooded, without too many birds and then scatter the seeds by hand. Primitive.

Trying to be a carpenter without tools….. I am sure there are some very talented people out there who can do amazing things with wood and their bare hands, but they are probably not carpenters.

So a business model is a strategist’s tool. Often people hear the word strategist and they throw their hands up like “Wooooh, How many degrees do you need to do to call yourself that?” Really though a strategist is anyone who thinks about how something is to be done. It’s about where the ship should be heading (to jump from land to sea) not making sure that the ship is moving. And so just like a sailor or a captain, the strategist needs tools to navigate successfully.

In some cases, tools are common sense. In many other cases tools have been derived from lots and lots of data. In almost all cases we aren’t taught ways of making great decisions at school or university. And that is another definition of what a business model is. It’s a way of helping you to simplify masses of information and use it to make better decisions

Pragmatism and Business Models

The pragmatic strategist, often working fast on a variety of small projects or startups, does not have the luxury of using large complicated frameworks.  One of Leander’s projects for this year is to work out how to take the mass of startup models that he has in his toolbox and build them into a coherent system. The problem that he faces is the huge variety of problems that need to be solved quickly.

Someone once described being in a startup as being like a car driving fast on a potholed road. Sure you know that there are lots of potholes ahead – but all you care about is the pothole right in front of you now. If you don’t miss it, you’ll break your axle and never get that next few hundred metres down the road.

So unlike Shell with its famous 5 year plans startup models have to be usable out the box and quickly. If you can’t explain it, use it and understand the results in a few hours the time cost of the model is too large for most startups. If someone needs specialist training the time cost is too large. If the model is proprietary information or buried deep inside and inaccessible book the time cost is too high.

Any model that we use has to deliver results quickly and in a super digestible form that makes it clear what we need to do next.

One of the biggest benefits of the Business Model Canvas is that once you have done it you pretty much have your pitch structured and mentally prepared in your head.

• These are my customers
• This is their problem
• This is how I will reach them
• And interact with them
• Using these resources
• etc…..

Idealism is not the Enemy. Really

On the other hand, there is a case for idealism. We do get engrossed in the details and too often cannot see anything but details. I once worked for a COO who in the 8 months that I worked for her kept on saying ‘I’ve got to be more strategic’ and I think I had over 20,000 WhatsApp messages from her as she delved down into the details and we didn’t make the hard calls about which ways trade-offs should play out.

So flying up in the air and looking at the idealised company and how it should work and where we should go is important. Whether we use Porter or SWOT or Lean Canvas or anything else stepping away and taking an idealised approach on how to get to our vision from where we are now is very powerful. Of course, it will get trashed as we start getting blasted with WhatsApp messages again but the idealist has the deeper understanding that acts as a bulwark against the thousands of small decisions and tradeoffs that she has to make every day

Business Models Give Results

For a startup, it all comes down to results. Once a long time ago I worked for a very large multinational and spent months designing and polishing a business continuity plan. It was for an event that never happened, and I guess that if it has been maintained it would still work. Probably. The point is that we used a bunch of models but the net impact of all the work was a cost to the company. Sure it mitigated against a risk that never materialised.

In contrast, a startup needs results quickly. If we spend the time ‘playing’ with this business model what is the opportunity cost? There are always more tasks to do than seconds in the day. Will this model or tool mean that tomorrows tasks deliver more value? Next months’ tasks deliver more value when I complete them. In many ways, this is the inverse of the accountants’ net present value. Instead of worrying about the future value of money we are worrying about the future value of our time.

A business model by this understanding offers a map and a shortcut. It is a heuristic, it can be used wrong, it can be executed wrongly, but by and large, it saves us time and makes us more money tomorrow than we lost today.

Understanding Comes Faster with A Business Model

It does that through understanding.  Almost everything we do is a level of abstraction. Our brains abstract the information that comes through our minds into comprehensible constructs. When we use maps we strip away vast amounts of information in order to produce something that is quickly and easily understandable. The way that we use business models is to structure our understanding of the business problem so that we have a level of simplicity that gives clarity.

Some may say oversimplification. I think not. Oversimplification does exist but one of the consequences of that is to trigger debate and greater group understanding if it is not agreeable to all. It’s probably less of a danger than under simplification but there is a huge tendency among people for their minds to skate over the detail. So we reduce complexity until the model is at the point where we can understand all the components of the model without our minds skating or skipping a bit.

It is surely no accident that most of the best models have 4,5 or 6 components. Others may have a few more but once you get beyond a dozen models start to creak under their own weight and collapse.

Business Models Give the Benefit of Systematisation

So what is a business model for. It’s like a stepping stone. Each gives you enough intellectual stability to stand safely, whether the water is rough or smooth and step confidently forward to the next in pursuit of your vision.

Strategy models bring some system, some order, to moving forward in a chaotic environment where you have too much or too little information.

Worth the price