8/29/01
All
of this shouts that successful businesses understand business models. WHY
ARE GOOD BUSINESS MODELS IMPORTANT? A
business without a business model is like a ship at sea without maps or
compass. It might accidentally come safely to shore, but it's just
as likely to flounder on a rock, sink in a storm, or wander aimlessly
until it runs out of supplies. Like
ships, businesses need to know where they're going and how to get there.
That's the business model. A
good business model takes everything important into account:
If
you think everyone does this and I'm being cranky, join me on my analyst
rounds. Just in the last week I spoke (so far and it's only
Tuesday) to five firms (two of which aren't really companies yet).
Only one of them could be said to have a proper business model and they
came to it after five or six years doing something else (related) which
they could see wasn't going to be very interesting (read:
profitable). The two groups I spoke with who aren't firms yet,
just ideas (but talking seriously about funding) have all the usual
problems: can't figure out who their "real" customer is;
don't understand how buying decisions are made or funded in the relevant
markets; think there's no competition because they believe something
would have to be identical to their idea to be competitive. And
you wonder why analysts get a reputation for being negative? It's
because we hate to see good ideas wasted for lack of careful thinking,
good plans, and thoughtful follow-through. SETTING
PRIORITIES In
many start-up companies (and in many more mature companies, too), we can
observe a denial of priorities. Sometimes it's based on simple
ignorance of their existence; other times it seems to be more a willful
insistence that what one knows and understands must be of prime
importance and the other stuff -- whatever it is -- must not matter very
much. This could lead to a company with no real product and lots
of beautifully executed marketing hype (we can all remember of few of
those). But in high tech companies it's much more likely to be a
case of too much emphasis on technology and little or no attention paid
to:
In
order for a business model to work, there must be a sense of where the
money is coming from, what it will be spent on, and where and when
revenues and profits will be achieved. Setting priorities means
getting these in the right order and in the right relative
magnitudes. It means understanding that you can't spend money you
don't have, you can't get to revenues without working capital, and
revenues without profits aren't interesting for very long. The
last sentence, of course, was believed to be permanently suspended
during the Internet Bubble. Setting
priorities means:
This
is hard stuff. When things are going slowly it's very hard not to
take on customers opportunistically even if they don't fit your focus
and will take you away from your plans -- but you should. It's
even harder to have the discipline to control spending to the plan when
you see competitors throwing money about madly and you have some in the
bank -- but you'll be happy you did when you make it to the next
milestone and they're falling apart. ARE
BUSINESS MODELS ONLY FOR START-UPS? Don't think that business models are only for the
beginnings of companies. Good, well managed companies are
constantly refining their business models to reflect the realities of
economic cycles, changing markets and competition, and new
technologies. This allows them to understand which products and
programs should be in sunset planning phases and which should be on the
path upward, urged forward with the resources milked from elderly cash
cows. High
technology businesses are not kind. They demand innovation, fast
thinking, and rapid action and reaction. We like to say that you
have a choice -- eat your children, those aging products that are no
longer competitive, and use them to grow the next generation -- or watch
the next generation of competitors eat them for you. You
can smell the challenges to big successful companies all around us.
Look at how much companies like IBM, Sun, HP, Compaq, and Microsoft have
had to change their business models in order to survive and thrive.
Some clearly have done this better than others. There is no rest
point, no comforting plateau where companies can rest. Just the
next step up -- or down -- but if you are willing to work on the
business model and live by it you get to choose. HOMEWORK
ASSIGNMENT Do you know where your company's business model is
kept? What's in it? Is it up to date? Do you follow
it? If not, what are you going to do about it? We are in the
midst of an enormous change. The old world of buying all of our
own information systems hardware and software and managing it within our
own companies may be drawing to a close. The Internet has enabled
new ways of providing access to information and processing and we are
rushing to see how we -- vendors and users -- will take advantage of
this. Old business models will not work here. Lots of hard
thinking -- much of it out of the box and specific to individual
companies and market segments will be required. I know you're
already at work. ========================================== Darryl: There
is a fair amount of agreement that Microsoft has not pioneered much new
technology, but rather purchased, integrated, and refined technology in
the marketplace. It is also, as you have so correctly stated, a
real marketing channel powerhouse. Analysts
are fond of saying that we have lots of proof that the best technology
isn't what wins. But if superior marketing is the critical
element, then we must be looking for a better marketeer or a clear break
in marketing methodology (we thought that was the Internet) that favors
someone else. Amy Wohl ========================================== Amy: The
better mousetrap is not marketing -- it's business models Often
new technology models provide a means to an end for new business models.
BizTone was not about technology - it was just
a necessary step for us in order to get to Software as a
Service............ applications that can simply be used rather
than downloaded. Microsoft
is still trying to figure out how to download its apps, and rent them,
so it is creating intrusive technology that checks every time you use
their apps. And
who wants to download 645MB just to write a letter anyway. Software
as a Service as a technology model, allows users to gain access to
applications (without downloading) that allow them to perform business
or personal productivity functions, i.e.: a service (you don’t
download the switch operating system when you want to make a phone
call), which becomes ipso-facto a new business model, which opens up new
marketing channels, and ways of competing that cannot be dealt with by
traditional vendors ............. we could have won, we should
have ! - we had gutless VC's. I
am off next week to buy a dive resort in the south pacific - and retire
from this crazy business ........... to sit on the beach and drink
mai tai's while the sun sets across the ocean. bye =========================================== I
hope you enjoyed this issue of Amy D. Wohl's Opinions. I urge you to forward this newsletter to your friends and
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Sincerely, Amy
D. Wohl =========================================== ========================================== EMAIL: Send a blank message to amywohls-opinions-subscribe@wohl.biglist.com WWW: Visit our Website and fill out the quick form found at http://www.wohl.com/signup.htm ========================================== Sincerely, Amy D. Wohl
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