Blog

Fragile business models

Jonathan Gold

23 Mar 2014

Finding the right business model for your idea is crucial to your chances of success. Too few startups and entrepreneurs consider this in detail at the beginning and even fewer test it before spending time and money going down a dead-end.

Yes, I’m always told what the product is and how the customer is going to use it, why it’s different and why the world can’t survive without it and of course how it will make investors lots of money. Well, some say that others don’t appear to have a clue.

Thing is, all too often, the idea has been thought of in isolation from the real world, and what can happen with moving trends, economic changes and well the competition, existing or potential.

I’m not even here going to go on about the fact that all too often it’s clear the business founder hasn’t properly considered their financial model at the start, or how cash moves in and out of the business. This matters of course even if the business won’t be in revenue at the start (although I still don’t see why paying customers are a bit out of fashion) due to the use of a “freemium” model or that they are still building a prototype or testing.  Cash burn and how the business will eventually make money is as important as the product and customer acquisition/retention.  The “Twitter” and similar businesses are still the exception not the norm, even if it gets more publicity!

No, what I really wanted to leave you with is a push in the direction of Nassim Taleb and his book “Antifragile”. He has put into words something I have felt for a long time, although he applies the concept more widely than I have room for here. Read his book.

In short, what I like to see is an “Antifragile” business model; one that can survive and even flourish when bad things happen in the market and the economy. One simple example is a currency trader who may take a client fee for completing a transaction whether or not the currency has moved up or down. In fact he benefits from chaos the movement and resulting trading volume.

Now I’m not going to start suggesting models here but all too often I see businesses that base their existence on something that can go very wrong and they can’t survive and grow if something changes drastically; and such changes do happen. The other point Nassim makes very well in the book is that we shouldn’t fool ourselves that any period of stability or market/customer pattern that we may develop our business on will be there and not change.  Now I know many who will scoff and laugh here telling me they understand their market. I would say fine but read the book and then come back and tell me you’re so confident.


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