Friday 4 June 2010

Business Models ...

Business models are an under-appreciated part of being a start-up (and a larger company too !) Far too little time is spent on coming up with the appropriate business model. Often, I find that people revert to "its the way its always done" mindset (which has a place in a maturing industry). The other common mindset is to struggle to do everything yourself and outsource only what absolutely cannot be done in house. Business models are very important at the start-up stage as a number of decisions made then get embedded into the company's processes and culture and become hard to reverse later.

To give an example, many product ideas in the IT space need to decide who their market is (retail, corporate, government, size of target customer, etc), how to approach the market (direct or through systems integrators, or distributors / wholesale / retail, or SaaS), how to develop (in-house, outsourced, mixed), etc. Poor choice of business model can rapidly lead to disaster even with a good product. On the other hand, its great to watch Facebook and Apple navigate the complexities of their business model to ensure that they are open but maintain control over critical pieces of the value chain, and work to reinforce those particular strengths. Think Facebook Connect or Share; think iTunes as the gatekeeper to get music and apps onto the iPod/iPad/iPhone/iTouch or programming apps for the iPhone is possible only on the Mac !

Some of the best books I've read on business models include Co-Opetition, Wikinomics and the Innovator's Dilemma & Solution series. The Dhandho Investor I put in the same category though it deals with a particular type of situation, which is running a business on low capital and low risk.

Some interesting websites on the subject are The Business Model DatabaseBusiness Model Designer and Business Innovation Factory. And this is Wikipedia on Business models.

I don't see too many courses though on designing business models. It seems to be buried in the strategy courses in business schools. This should change.

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