Business model is one of the most important components in commerce and industry. The business model you pursue determines to a large extent if you would be successful or not, irrespective of how efficiently you execute your playbook. A wrong business model executed very well will result in failure, quicker!
Between demand and supply, where do you have greater leverage in modern markets and certain sectors? In industrial age businesses, winning was about controlling supply to reposition prices on the equilibrium plot. By controlling supply, it comes down to distribution which now affects two key variables in the marginal cost – transaction and distribution costs. Scaling was severely bounded to geography because of that distribution cost.
But today, the game has shifted from control of supply to control of demand for web-anchored consumer firms. And only companies with capabilities to control demand are going to win big. As shown in the table below, most of the greatest internet companies are simply controlling demand and that means controlling how supplies reach users and consumers.
But on the web, both components of marginal cost could largely “disappear” depending on the business model. If you plan to run an internet business, think about how you can control demand. You have already lost the power and capacity to control supply. Yes, anyone can use a credit card, irrespective of geography to buy anything online. The quantity you bring will not have material impact in the total pool in the market, for most products.
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Take another look at your business model and make sure it has NOT expired for your sector and your ecosystem.
In Consumer Web Business, Focus On Controlling Demand, NOT Supply
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Sometimes in trying to preserve a ‘legacy’ or obsolete knowledge, moribund business model is kept alive, with refurbishment and PR doing rounds, until it can no longer breathe, then a postmortem will follow.
As always, having a good product gives you a chance to have some share in the market, but it’s only knowing how to sell that helps to keep and grow your share of the market.