Business Models Versus Strategy Part 2
If You Need to Think About Business Models, You Don’t Have a Strategy in the First Place.
by Idris Mootee
Silicon Valley is probably the only place in the world where people puts lots of money into companies (technologies) before figuring how does it make money. And that’s where the term “business model” came from. I heard recently that someone is stupid enough to think about developing an application to design business models for use in iPad. That’s really a joke, if business is that simple. I believe it will come with many templates, if you need to use them to design your business model, it is like using Microsoft PowerPoint with built-in templates to create your presentations. Bad idea.
For those who are still confused about business model, let me provide you with more clarifications. Are business models and business strategy really just the same thing? Business models were first popularized when there were a lot of technologies investments in the early 90’s with no idea of how to create value or how to make money. So it is essentially a company with a half-baked strategy, meaning they have a customer value proposition, but don’t know who they are selling to and who they are competing with, attracted lots of users but cannot charge them for the services and so have no idea of how to make money. Or another way to look at it, they have either assets (content), audiences (eyeballs) or members (communities) and need to figure out a way to monetize them. I think monetization strategy is a better word than business models.
If you need to look for a business model, it means you don’t have a sound strategy in the first place. It is like firing a missile first and then go looking for a target, but your fuel is limited. If you are Facebook, then it is a different story, that’s really an exception. You have almost unlimited fuel circling the earth.
Business model should have a narrow focus on how the company can make money and put emphasis on pricing strategy, strategic partnerships and channel choice. All of these decisions are around top line impact with a goal to optimize revenue or sometimes survive an early phase of a business. It is a creative design of how a company makes money through a variety of revenue streams. Business strategy deals with much broader and deeper issues including competitive differentiation, capital structure, cost structure and asset utilization, etc.
I hope this helps to clarify this. A key takeaway for you, don’t rely on business model design to save your business, look at the overall business strategy. That’s should be the main focus. Business models are just another hyped up thing. A case in point – the media business is facing daunting challenge and many believe that it’s unquestionably the business model is not working. One example is struggling to find how to generate revenues online that are comparable to what their traditional businesses yield or how new digital realms generate the revenue it will take to support high quality journalism. This is not a business model problem, it is a strategy problem. Media needs new strategic thinking, not playing around with its business models.
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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.
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Great article,
I think when it comes to developing a business idea and eventually a business model, it becomes practicality vs. dreams. If you are only creating a business for the practical (money) implications it will certainly fail as it will lack the passion and humanity that draws customers and investors. And if you are creating a business based on a dream idea, it may lack practical functionality.
This blog reminds me of a great quote from Jimmy Buffet who said “The key to happiness and success is to do what you love then find a way to get paid for it”.
Baldrige may be the answer
After a number of years in working with clients, for-profit, not-for-profit, healthcare, and education and becoming a senior examiner for the National Baldrige Award Criteria for Performance Excellence, writing a book entitled The Executive Guide for Understanding the Baldrige Criteria, I am convinced that an organization that is truly moving forward or trying to change a negative culture needs to use this model. The Baldrige Criteria is simply the best to use and the over 200 questions drive excellence into the organization. It also allows organizations to measure their success against known competitors and industry best in class. Just a thought!
An “idea” is not a “product” and it is definitely not a “business”.
Or, as I discussed in my blog you need to “nail it before you scale it” http://nosmokeandmirrors.wordpress.com/2009/08/08/mentor-moment-10-nail-it-before-you-scale-it/
Mark Allen Roberts
The word “strategy” has many meanings. There are high level strategies (as Porter pointed out), and then there are detailed strategies to accomplish those higher-level strategies. You are correct in that you have to have a good idea of the high level strategy that you are after, but you have to be willing to change your mind if you are better suited to a different one.
That is why it is correct to consider the choices of high-level strategy AT THE SAME TIME as you consider the business model. For a NEW business, you can go in the order you indicate, but in the case of existing businesses, there are real advantages to leveraging existing relationships, resources, and income streams. Of course, a company can adopt a new strategy and business model while maintaining an existing model in parallel, but there is likely to be channel conflict and that has to be carefully considered.
While a high-level strategy is necessary, it is not sufficient to garner the confidence that investors need to maintain support for a company struggling to cope with dramatic shifts in a competitive landscape on the scale that the media companies face.