Understanding the Fragility of Business Models and Strategies
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Chapter 1: The Risk of Business Models
Every favorite app might become irrelevant in a few years, and there’s a valid reason for this phenomenon.
In 2018, while I was working on a graphic for a publication, the electricity went out in my remote hometown, leaving me in silence. With no distractions and only the sounds of my mouse clicks and keyboard strokes to accompany me, I attempted to continue my work in Photoshop. To my dismay, I encountered a message stating that it couldn't authenticate without an internet connection, forcing me to quit the program.
Unlike Photoshop, I had access to other tools like Minecraft, which allowed me to play in offline mode, storing my authentication locally. Similarly, I enjoy using StackEdit for writing, as it provides offline functionality, enabling me to work uninterrupted even when the internet fails.
However, Photoshop, which I had subscribed to for $34.99 a month, was unresponsive. Despite my investment, I found myself unable to use it, leading me to eventually uninstall it and request a refund for the months I hadn’t utilized the service. My experience exemplifies how the software-as-a-service (SaaS) model can fail when it restricts user access without a stable internet connection.
A Closer Look at Business Models
In the realm of business, it's not uncommon to borrow strategies from successful companies and apply them elsewhere. This approach can be a gamble but, when executed well, it can yield significant results. The essence of business lies in mastering tools and processes that facilitate success.
Humans have been utilizing tools for centuries, with a unique ability to learn and adapt their usage. This adaptability has historically given humans a competitive edge over other species, as we have developed processes to refine our methods and achieve our goals. In business, models serve as these processes, which are continuously optimized based on observations of what works.
The Downfall of Giants
We’ve witnessed instances where companies adopt another’s business model only to falter. Take Snapchat, for example. Initially, many predicted its demise when Instagram integrated similar features. To thrive in a competitive landscape, businesses must not only innovate but also build a robust ecosystem around their products.
Consider the rise and fall of Vine. It offered users a simple way to view short videos, yet it failed to adapt when Instagram incorporated video features into its platform. Vine’s lack of resources to compete effectively led to its decline, illustrating how fragile business models can be if not supported by a broader strategy.
The Importance of Ecosystem Building
Vine allowed users to create and upload videos, measuring engagement through loop counts. However, it fell short in providing a comprehensive user experience, unlike Instagram, which had already established messaging, likes, and user interactions. Instagram's ability to swiftly add new functionalities enabled it to capture Vine’s audience.
The rapid evolution of technology means that staying ahead is critical. For example, after Instagram integrated stories from Snapchat, it further solidified its position in the market. This adaptability is essential for survival in an ever-evolving tech landscape.
Why Business Models Fail
Historical context sheds light on the dynamics of business models. In 1926, Ford Motor Company introduced the 40-hour workweek, resulting in a notable increase in productivity. However, modern challenges, including screen time and social media distractions, have led to calls for reduced hours.
The business landscape has transformed significantly, and models that once thrived may now be outdated. The underlying issue often lies in the flawed composition of business models—the assumption that a component from one model will seamlessly integrate into another, akin to placing car wheels on a canoe.
To illustrate this, consider:
This video discusses the pitfalls of business strategies and highlights why many fail.
Additionally, the following video provides insights on how to avoid potential business failures in the current climate:
By understanding these dynamics, businesses can better prepare themselves to adapt and thrive in a competitive environment.