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Gustin Partners | October 02, 2015 |

Evolved and Evolving Business Models

By Thornton May
Futurist, Senior Advisor with GP, Executive Director & Dean - IT Leadership Academy

ALL organizations have evolved and evolving business models. Religion and education are two of the oldest “businesses” in human history. Neither profession is particularly known for being change-ready or change-savvy. Despite this both have evolved their business models over time.

“Business Model” is a value neutral term. There are “good business models and there are “bad” business models. There are “traditional” business models and there are “disruptive” business models.

It is important to not confuse a business model with business modeling. Business modeling is the managerial equivalent of the scientific method—you start with a hypothesis, which you then test in action and revise when necessary. Business modeling took off with the advent of the personal computer and Visi-Calc. Before the spreadsheet, business planning usually meant producing a single, base-case forecast.

It is important to not confuse business model with strategy. A business model is what you do. A strategy is how you do it better than competitors.

So, What is a Business Model?
A business model is a story that explains how an organization works – who is the customer, what value is delivered to that customer, and how you make money. Business models help executives think rigorously about their businesses.

Effective business models track to a specific customer need [e.g., the Netflix business model emerged from Reed Hastings need NEVER to pay a late fee for movie video rental ever again].

With business models, Game Theory [i.e., how the various players in the game react] matters. HOW you do business impacts and will provoke a reaction by competitors, suppliers and customers.

With business models, timing matters. In the 1990s, Silicon Graphics invested hundreds of millions of dollars around a business model featuring interactive television. The former technology high-flier was unable to find real customers who were as enchanted by the technology as the engineers who invented it.

Business models have to be believable. Do they pass the “narrative test” [i.e., does the story make sense].

Business models are incredibly important and yet there is a surprising amount of ambiguity around who and via what mechanism decisions regarding business models are made.

Complex organizations may need more than one business model. Organizations today conduct business in an increasing number of environments that change more rapidly over time. So – you may need more than one business model and you will have to be willing to change it when it ceases to be relevant.

The big value question is when, by whom and via what mechanism are these “should we change business models” questions dealt with?

In August of 2015 Geoffrey Moore [author of Crossing the Chasm and Escape Velocity] asked Aston Martin CEO Andy Palmer to describe that iconic brand’s business model. Palmer responded, “102 years of losing money.” This may be why the company has gone bankrupt seven times. In the last ten years the company has sic “manufactured” only 70,000 cars. Only half sold outside the United Kingdom. The company operates using a luxury goods business model.

The company has decided not to change its business model. It will adjust its strategy. Using analytics the company is focusing on new markets segments – females and less-tall, non-British, affluent males.

Regarding brand promise, CEO Palmer explained, “Aston Martin is not about demonstrating your midlife crisis. It’s a statement of maturity.  It’s when you are inwardly satisfied with yourself.  [You tell yourself] I’m buying a piece of handcrafted British heritage.”

CEO Palmer placed the essentially hand-crafted auto in context of Uber and Tesla observing that Aston Martin is the “antidote for the Apple watch.  We are analog.  We are like fine Swiss watches.  But I think there is a place for a fine Swiss watch on one hand and an Apple watch on the other.”

Business models are truly fascinating things, aren’t they?


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