This is a lighthearted concept introduction and the first in a series of pieces looking at business models in the modern economy and what they mean to potential Non-9-to-5′ers. If you are an expert economist, probably best to look away now.
If you don’t know what a ‘business model’ is, join the club – nobody really does. It’s a concept that entrepreneurs and bank managers toss around casually but when it comes to the crunch, good definitions are hard to come by. That is, unless you’re a business studies professor, in which case you might say something like: “an architecture for the product, service, and information flows, a description of the benefits for the business actors involved, and a description of the sources of revenue” Got that? No? Here’s an easier way to think of it: it’s the answer to the question “How the hell are you going to make money out of that?”. Listen up.
- Hey Bob, I’ve got a brilliant idea.
- Oh yeah?
- Yeah, I’m going to set up a car rental agency and undercut everyone else. I’m thinking of charging £25 a day.
- That sounds like it’d be less than cost. How the hell are you going to make money out of that?
- Well, you see, I’m going buy loads of brand new vehicles all the time and make people sign a contract with tiny print that says they’ll have to pay £500 for every scratch on the car when they return it. Then I’ll sell the cars for a bit less than I bought them for, leaving me with a fat profit.
- Nice.
Of course, this entirely fictitious conversation is in no way related to any practices going on in the vehicle renting industry in the UK and has nothing to do with the fact that you can rent a van for £30 a day whereas in Spain it costs £100. Seriously.
So, a business model is best thought of as how an organisation makes money doing what it does. It sometimes helps to think of businesses that look impossible on the surface and dig deeper for examples of clever or innovative business models. Or illegal ones. A knitting materials shop that is still in business today is clearly a front for something sinister.
Now the example I’ve given is clearly highly contrived, and in the old days, the question “How the hell are you going to make money out of that?” was easy to answer. “I’m going to sell it”, was the about the only option. Most industries ticked along nicely under the assumption they would always be able to make piles of money just selling the product or service they were making or supplying. Then the internet came along and ripped up the rule book, and the conversations now go:
- Hey Bob, I’ve got a brilliant idea.
- Oh yeah?
- You know those lovely wicker baskets I make? Well, I’ve decided to make it into a business.
- Good for you. How much are you going to sell them for?
- No, caveman, I’m going to give them away for free.
- How the hell are you going to make money out of that then?
- Well, I’m going to weave clues to websites into the fabric of the baskets and set up an online treasure hunt with prizes of holidays to Lanzarote. Then, I’m going to sell timeshare companies rights to 30 minute sales pitches to the winners once they arrive.”
- Oh.
In short, people are finding ingenious ways to make money out of virtually anything, including, in many cases, giving it away for free. Now, I don’t know this for sure, but my feeling is that if walked into Harvard Business School or a board meeting twenty or even ten years ago and propounded this as a vision of the future, they would have sent you away for treatment. Of course, this movement is causing old school businesses to rethink the way they make money as consumers change their habits and their willingness to part with cash in the same way as before. The public face of this is often the music and film industries first trying to sue everyone, and then having to adapt to the market with innovative value propositions, like iTunes or song downloads included with GSM airtime bundles. Other businesses, and their models, will just wilt and die. Blockbuster had stores all over Spain once – now they’re gone.
The point to take away from this is that you don’t need a shop to make money. Even if what you’re selling seems wholly traditional and mundane, with just a a bit of imagination and an observant look around your sector, you can probably come up with a crazy (perhaps even profitable) way of selling it. Just think outside the box a bit.
To get your creative juices flowing, I’ll let you in on an idea I had for[my own company but will almost certainly never do. A note to competitors: if you’re reading, please have a go at this and tell me how you get on.
Right, we sell speciality food, OK? How about we sell that food at cost price (we could even scan and upload purchase invoices to show that we were being honest). This essentially amounts to what creators of knowledge are doing when giving away their product for free. “How the hell are you going to make money out of that then?”, I hear you ask. Well, as standard we’ll do 3-5 day delivery and premium number telephone support. Then we’ll offer yearly ‘Preferred Customer’ subscriptions for £100 which entitle the holder to unlimited 24 hour deliveries and unlimited freephone telephone support.
Novel and 10-years-ago-lock-you-away-in-an-institution business plans are not just for porn hawkers and bloggers, they are for the whole business community – particularly Non-9-to-5′ers who feel that ‘old’ business is inaccessible. Well, here’s your invitation. Try something new. Experiment with novel business models. Then, when people ask “How the hell do you make any money out of that?”, just keep the secret to yourself and lie – tell them you don’t.