Arguing Agile

AA237 - 23 Business Models Everyone Should Know, Part 1 of 2

• Brian Orlando • Season 1 • Episode 237

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12 proven business models that separate successful products from failures!

Product Manager Brian Orlando & Enterprise Business Agility Consultant Om Patel examine 12 real-world business models with real examples of the companies that employ them!

Based on "The Art of Profitability" by Adrian Slywotzky (2002), this part-1-of-2 podcast covers:
• Customer Solution Model (Palantir, SAP, Salesforce)
• Product Pyramid (Apple, Tesla, GM)
• Multi-Component Pricing (Uber, Coca-Cola)
• Switchboard Platforms (Uber, Airbnb, eBay)
• Time & Materials (Consulting firms)
• Blockbuster Model (Pharma, Netflix)
• Profit Multiplier (Microsoft, Disney)
• Entrepreneurial Model
• Specialist Model (Mayo Clinic, Agile Coaches)
• Installed Base (Printers, Razors, K-Cups)
• De Facto Standard (Windows, Adobe PDF)
• Brand Model (Apple, Nike, BMW)

Perfect for product managers, agile coaches, startup founders, and business leaders trying to understand which revenue model fits their product strategy. 💬 Which business model does your company use? Let us know in the comments!

🎯 ...and look out for part 2 - coming soon!

#ProductManagement #BusinessModels #AgileCoaching

The Art of Profitability by Adrian Slywotzky (2002), The Phoenix Project by Gene Kim/Kevin Behr/George Spafford (2013), Palantir, Salesforce, SAP, IBM, Deloitte, PWC, Apple iPhone SE, Tesla Model 3/S/X, General Motors (Chevrolet/Cadillac), Uber, Coca-Cola, Airbnb, eBay, Stripe, PayPal, Amazon, McKinsey, Netflix (Stranger Things, House of Cards, Daredevil, Narcos, Black Mirror), Microsoft Windows, Disney, Google Android, Yeti, Claude AI, Gemini AI, OpenAI, Gillette, HP, Lexmark, Keurig K-Cups, Mayo Clinic, Johns Hopkins, Adobe PDF, Linux, MacOS, PlayStation, Kleenex, BMW, Mercedes, Nike, Adidas, Agile Alliance, PMI, Grab (Asia ride-sharing), Moffitt Cancer Center, Anderson Clinic, Gulf and Western

business models, product management, agile coaching, revenue models, product strategy, startup business models, SaaS business models, subscription business model, platform business model, customer solution model, product pyramid, profit multiplier, entrepreneurial business model, business model canvas, product manager training, agile product development, business strategy, monetization strategy, pricing strategy, Adrian Slywotzky, art of profitability, arguing agile podcast, product leadership, business model innovation, recurring revenue, marketplace business model, consulting business model, brand strategy, competitive advantage

Brian:

om this is gonna be a little bit different podcast than our normal arguing format. We're breaking the format. I read a book recently called The Art of Profitability by Adrian Slywotzk y Say that three times fast! So this is gonna be a pseudo book review. And I hope nobody gets hurt.

Om:

Alright, well, at the end of the podcast we could say nobody got hurt in the making of this podcast.

Brian:

I mean, I hope so. the art of profitability. This, this was recommended to me by someone who is sick of airport business books. And they said that this was actually good because it's done in the way that the Phoenix project is done. So, so there's a story. Yeah.

Om:

It's this book though. It's not a new book.

Brian:

No, this is, it's from 2002.

Om:

It's even older than the Phoenix Project. I would think it is.

Brian:

let's go to the internet

Speaker 3:

here.

Om:

Internet to the Rescue, the Phoenix Project.

Brian:

By Jean Kim, Kevin Bear, and George Spofford SP 2013.

Om:

Yeah. So this predates it by quite a ways. Over a decade.

Brian:

Yeah. Well, this book is all about business models. So if you've ever been screamed at of we need a new Business model,

Om:

well, our business model is not right.

Brian:

Oh, or whatever. This is for you. If you didn't get your MBA from a prestigious university, then let us fill in some of the gaps. Let us fill in what you slept through. So we're gonna go through the business models and we're gonna help y'all understand the pros and cons of each business model. Om: Let's go. you wanna know the business model that makes customers so dependent on you, that they cannot afford to leave, they can never get out? I wanna hear about it because I am tired of being treated just like any other vendor. Constantly competing on price alone because the customer doesn't know any difference between any of our services. Like every time I have to win a deal I'm losing them next year because the prices come down and down and down or, or it's so cheap that the competition is stiff and, I'm solving a real world business problem, but the customers are treating all of my products and everyone else's, like their paperclips.

Om:

This model is what we're calling the customer solution business model,

Brian:

and the customer solutions model, you'll recognize from our podcast on the forward deployed software engineer via our favorite company out there, Palantir Pal. so if you stop selling products and start selling entire solutions to business problems you become so embedded in their operation that replacing you that it's prohibitive. It's, it's, it's just cost prohibitive. It's, it's, I'm not gonna say it's impossible, but there's so much you need to throw away to get to that point. So you see this with giants in the field, what you think of as giants in the field right now, we already mentioned our favorite(evil) business, Palantir, but also Giants like Salesforce and people do rip out Salesforce, right? But I'd also throw I Salt Bay in some other ones out there like SAP, right? Companies that have SAP they're married, they're never getting out. They're like, it is not even worth it to, to lose the kids in divorce. Yeah. They're just not getting out.

Om:

Then the rest, some smart companies they get you by having to call on them for the divorce. Like you can't get out of there. World unless you get them to help you, which means you have to pay them. So the cost of leaving them just went even higher.

Brian:

So, strengths of this business model, let's hit the strengths of this business model

Om:

the biggest strength is really I guess the high switching costs that prevents your customers from leaving you. Right.

Brian:

Makes sense.'cause we were just talking about the high switching costs like that. Yeah, yeah. I work with a bunch of IBM teams and PWC teams and Deloitte teams. When I was a contractor that part of my career where I was a contractor and'Cause I was in electric delivery and natural gas. And in that industry,, they don't do software development. They hire software development vendors to come in, implement their, some customized solutions And customize it and tailor it to their needs via customer solutions. Palantir does the same thing. Palantir goes out on the internet and claims hey guy. Hey buddy. We're not evil. We just have a platform and we just send our forward deployed software engineers on site, and they help the data. That's a technical term by the way. They help mung the data onto our platform, and sometimes our platform needs to be extended and those features help other customers or whatever. But once you've had somebody on site for a year and a half, learned to integrate your data, learned about all your data and your business flows, built data models that maybe you've never even built yourself and brought your data into this other system, how are you gonna separate from? So you're gonna throw away all your relationships with all these people. You're gonna throw away the business critical processes that you've built around this software. You are gonna throw all that out. Yes, it's possible. Come on.

Om:

But it's gonna be painful. Come on. A painful divorce. Look, you're gonna lose the main knowledge too, that you, your own company may not even have anymore. Because you've got contractors in the house for a long, long time. Learning about your business, integrating it with some other solutions. Third party perhaps your own people may not even know that stuff. So how are you going to get yourself out of that job?

Brian:

Yeah. Another advantage like, I mean, high switching costs, like right there, you can basically upcharge charge whatever you want forever. Massive price increases year over year, because again throw us out. I dare you.

Om:

Yeah. Premium pricing. So that's like another one of those discussion points here.

Brian:

You know, from the perspective of the company running with the customer solution business model like a bank of recurring revenue that you can plan on, your financial folks in-house are probably pretty happy.

Om:

So this is like any services company like IBM, global Services, any of these big companies that are basically leading with services and signing up large contracts, multi-year contracts. They have a predictable recurring revenue stream. For the foreseeable future.

Brian:

One of the reasons they have that predictable recurring revenue stream is kind of what I said earlier, is you have this team, like the old, the Deloitte teams used to be like ENG engagement teams and PWC has advisory teams. Once you have those relationships, you have that team lead or whatever you can call up, or the Deloitte had project managers. I'm not sure what other people have, but you have that person you can call up when you have a problem. They just solve it for you. You have a depth of relationship that, again, it's from the perspective of this is your business model. This is a strength to you. You know, it goes back to our first point of high surgeon costs you're not easily gonna get out of this relationship. You gotta move and change towns and change your address and change phone numbers at that point but there are weaknesses to this business model. And you're not gonna get away without us talking about the weaknesses.

Om:

weaknesses, yeah.

Brian:

Number one. Do you know the number one?

Om:

I don't know the number one. I would say that there's not a whole lot of players in here. If you're trying to get to market quickly you're not gonna be able to do that.

Brian:

Long sales cycle. Long sales cycle is not what I had as number one, but long sales cycle is a hundred percent true you, you've gotta prove your, I mean, these people are spending multimillion dollars. Absolutely there's no like$20,000 throwaway part-time contractor or whatever you're, you're, you're like the, again, the Deloitte teams that I work with and the IBM teams that I work with, I mean, they, they sent a minimum of a half dozen people onsite For months to learn your business, learn your processes, learn your business, right. Learn the players, learn who the people are, all the stuff on the product side of the house, and also all the stuff on the people side of the house. They had to learn both those things and that's what they're paid to do. And that takes time too and it takes a lot of money. A long sales cycle to to, to spin that stuff up. And a lot of that might break companies just, just in and of that in and of itself. But no, the number one thing that I was gonna point out was this does not scale easily

Om:

Yeah, it does not, I mean, just because the duration involved here, you said, months, sometimes it's much, much longer. Just even in the old traditional publishing business, I remember going into clients and spending months with them. At the end of the day, when you are parting company with them, there's so much nervousness around, you're leaving but I've been here 18 months. You should know all this stuff. I've done multiple rounds of training they're nervous because they know where the expertise is. And they're so scared of losing that.

Brian:

Theoretically you should be able to bring your forward deployed team members on, have them stay there for a period of time, and then you should be able to slowly roll off members of the team as the solution gets up and running and is stable you know and there's the contractual obligations and whatnot. But theoretically, you do the full court press at the beginning of the contract for the first couple months or whatever, and then one or two people fly back and they show up Monday, Tuesday, and they're gone the rest of the week they get like one or two people can maintain the whole solution. That's, that's what they hope. They hope one or two people maintain the solution. Still bill the whole contract. That you were billing with a whole team and now the money starts rolling in. So again, long sales cycle doesn't scale easily. You gotta go get a whole team to, to go out and deploy this thing. Because you gotta hire a whole team, you have very high delivery costs and then all that aside, if we put all that aside boy, somehow the relationship sours and one of these contracts does not renew. That's a lot of investment.

Om:

Away. That happens often when there's a change in ownership or change in structure, like somebody gets in the m and a world, for example, that's when it happens and yeah, I mean, over the entire industry, I guess billions are wasted in this way, but at a company level, depending on the size of the company, it could be a lot of money. It could be millions, that this is basically the cost of switching that is actually paid at this point. Because the new leadership that comes in has new ideas and often these are radical ideas. So instead of having partners that we rely on to help us. We're gonna do homegrown work we'll start with a clean slate. Well, okay. But now you're building the whole house from the ground up, including digging the footings. It is gonna be very expensive right. And that's what happens.

Brian:

So that's, the customer solutions business model. So there's a lot of hype generated by Palantir for the benefit of Palantir and that like the customer solution, it the spin is what it is. I love that we're starting with the customer solution business model, because again, this was the big blue business model, right? IBM rolled out way back, maybe the sixties, seventies, sixties. You needed the services of their big computers, AKA, the mainframes, and you had to go to the IBM folks or have them come in house to say, Hey, go run these numbers through the computer, go punch these cards or whatever. Like this business model's old, I mean, it's old, and the fact that people think that it's new, on one hand, it concerns me. On the other hand, it's about becoming irreplaceable by solving the entire problem not just selling a product or selling a service or whatever it's kind of doing both. And, if your company's willing to pay the cost, it's a great business model. It's a great business model. It was a great business model in the sixties and seventies. If you have questions about the customer solutions business model or Palantir go ahead and hit us up in the comments. We're, we're happy to be here to answer all of your business model questions, and to do stunts. We're ready to move on to the product pyramid, business model. Yeah. Let's move on to the next model. so om, do you wanna know the business model that lets you compete at every price point and still make a killing?

Om:

Ooh, every single price point.

Brian:

Are you losing customers to cheaper competitors? Are you watching budget conscious buyers walk away because your premium product is outta reach? And are you frustrated because you know that different customers have different budgets, but for some reason your business model treats them all the same. And if you're worried about those things what if I told you there's a way you can serve every customer segment by creating a tiered product strategy?

Om:

AKA horses for courses?

Brian:

With the the pyramid Business Model. Your low end products serve to block off low end competitors so that you can sell your premium product with a massive margin without those different levels creeping in.

Om:

So can you think of companies like that, that use, that model?

Brian:

Oh, I can think of a big one right now that probably everyone knows which is apple do you remember when Apple came out with the se and they, apple hated that phone. I don't know if you remember this. I remember that the Apple hated that phone. There's no copy paste on that. They, they tried to kill the se and I think that was the one,

Om:

right.

Brian:

No. The SE was an iPhone six or seven. inside the guts of a five. So basically, people love the size of the five.' Speaker 4: Sure. Like there are people that are not seven foot tall or whatever that need,

Om:

you don't need a tablet in your hand.

Brian:

But Apple wanted to sell the plus series of phones, the big phones that they charge an extra whatever, a hundred, $200 or whatever for. Yeah. That's what they wanna sell their premium product and they hated those SE phones, but people loved it. And like, which is funny because that was the reason they came out with that second generation SE, is because there was such a demand for it that people loved that size form factor. And then Apple essentially relented and came out with it. Anyway, there's other examples here. The Tesla Model three, model S and the Model X different tiers of pricing hotels that have different tiers. Oh yeah airlines that have different classes well, back in the day now kind of, everything's kind of This is solving every tier of product and using them to block and tackle so that people don't overtake your. Mid to high tier with their low tier offering.

Om:

Tesla you mentioned. But I think it goes back to before Tesla the traditional car companies, the big three, right? They had a Yes. Family of products. Yes. Something for everyone gM was

Brian:

Exactly, they had Chevy and at the top tier was Cadillac. That's right. And that's, that's in the that's in the art of profitability. That's in the book that this came out of. So let's let's get straight into the strengths here. the strengths of this model, obviously we already started talking about 'em. They're massive. If you can get this right, they're massive.

Om:

you're also protecting your market. Yes. From external Yes. Entries, right

Brian:

you're covering the market. You're capturing customers across, willing to pay segments wherever they are. you're basically meeting customers where they, they're, oh, we don't, ooh, it's meeting customers where they're, it's like a different, and then

Om:

that's like a, which is their path to better and better things within your own ecosystem.

Brian:

That's like a, meet them where they are, yeah. It's like, oh, well the customer can't pay more than 10,000, so I'm gonna design a $10,000 automobile.

Om:

And when they have the wherewithal, they can go up to the$15,000 model in our own family of products.

Brian:

Right. So that's brilliant. I mean, because if you don't meet the customer where they are at their price point, somebody will Your competitor's going to Yeah. And there's like, the American auto industry is like, they learn this the hard way. They certainly did. that would be an interesting podcast. It's not really in our swim lane, but that would be an interesting history lesson to learn. There's government subsidies at play as well In this, and tariffs and a whole bunch of other stuff. But if you really were to step back and look at it to say, well, what market are we trying to serve you? Like, what is your goal? You know, and if the whole company is based on that goal, again, like a GM has different companies that are, their goals are to service specific market segment. Mm-hmm. I mean that modern A GMI don't know, they only sell 150,000 trucks or whatever. So I don't know what they're doing.

Om:

yeah. Got with their what's down by other companies.

Brian:

Com, the competitive defense of this, we know that there are customers, and we think that this is the total, the total addressable market divided in this way. We should. Go and put some money over here, even if we only make slim margins, we should have something so that some other competitor doesn't start from the bottom of the pyramid and then work their way up. Well, we start at the top and work our way down, and we never really get all the way down because it's just not worth our time. So this model, I think you already hit one of the other strengths of this model, which is the natural upsell path here customers obviously as they buy their entry level car and as they progress in life and make more money, they eventually end up buying the Cadillac.

Om:

Yeah. And you can lure them, I guess, by offering them loyalty discounts and what have you so yeah, that's one other strategy. The other one is this idea of operating at each of the layers of the, each of the strata. You win more than once, right? You win at the lower level where you're generating volume and revenue yeah. And then also at the higher level. Yeah. Where the volume's low, but the margins are higher

Brian:

and there,

Om:

so this is a win-win.

Brian:

There's another one in this category that I don't know how to financially explain it, but there becomes a halo effect. If we're using Chevy and Cadillac, for example I drive a Cadillac. I mean, maybe it doesn't say very much now, but in the sixties it was a huge thing.

Om:

Isn't this why mainstream car companies came out with their premium brands like premium marks?

Brian:

Toyota. Toyota and Lexus is a, another good example of

Om:

Yeah. And they all did that right? Infinity from Nissan, right? Yeah. even Volvo did that. Now they have Polestar. Although they say that's because Polestar is just purely electric, but the price premium would suggest otherwise. It's not just a, combustion versus electric thing it's also this whole brand halo thing. You like a Volvo safe as houses. Guess what? All star is luxury and still safe as houses. Yeah.

Brian:

Another example would be the people with the really expensive Yeti coolers. Mm-hmm they're really expensive ones like that. Because you can go out and buy like a$20 Yeti drink cup or whatever, and it's pretty good. I mean, they're pretty good. I've got one. Sure. But like, I would never buy the $80

Om:

mug or whatever.

Brian:

Yeah. That's too much for me. But like it elevates the whole brand there's a perception thing that leads to the elevation of the rest of the whatever is in the pyramid below it, because your premium products are perceived as that good. You know, if you're gonna go buy a $400 metal cooler, that is pretty amazing. It keeps your stuff cool all day you throw it on a boat or whatever, or you throw it in the sand of the beach full of ice, you come back to it six hours later and it's still completely packed with ice there's no water in the bottom of it. It is still a hundred percent still the same temperature. Yeah, that's impressive. That elevates the whole brand. And like in software products, I don't see that anywhere.

Om:

Yeah. I'm trying to think of an example in the software world. I just keep coming back to the companies that only have one layer of the Strat, like SAP for example, right? Although you could say that their modules could be Referenced here. But yeah, software doesn't really have a parallel like that.

Brian:

Well I mean, it's not all roses in this category.

Om:

roses.

Brian:

Are some weaknesses here, and the weaknesses are just as significant as the strengths home. So let's start with you know, what are you gonna pick for your number one? I have a idea of a number one weakness here.

Om:

The number one, people just wanting to stay at the lower levels because they're already in your in your

Brian:

so home, are you saying that people wanna buy an apple, so they're gonna go buy the lower price se instead of like the latest whatever, 17, depending on

Om:

their spending power.

Brian:

yeah. Jump on okay. Okay. Yeah, I was gonna say there's two different paths down what you're saying right now. Yeah. There's the cannibalization risk. Which is we put out this premium product, like we, we put out the like if we're gonna go back to Cadillac, for example, like AI products are great for this because like, I wanna sign up for the a hundred dollars version of Cloud Max because I use cloud code, I use the web version, whatever. I pay a hundred dollars, I get five x the usage, I probably would use four out of the five x of the usage, or I paid 20 bucks for Claude and 20 bucks for Gemini. I can pretty much scrape between the two of them. I'm telling you right now, I would've been in Google if Claude had some sort of like mid-tier offering, but they don't. So I have cannibalized their a hundred dollars offering by going with a a $20 competitor offering and their $20 entry offering, and I can get by, I can live with that. The other side that I thought you were talking about was the complexity of Apple has so many phones and so many different types. I have no idea what to buy

Om:

that that's also a risk. It's just not involving another product, another brand. Where people are gonna go, why am I gonna spend extra for. Whatever pro when I can get pretty much all of those features, including these bionic processors or whatever it is. Yeah in a lower model and just save them save the money.

Brian:

It's got three cameras. Yeah. How many cameras? You can take three pictures at once. It's got 3 million megapixels

Om:

I don't know.

Brian:

it's got software that helps you. Yeah, it's got AI now. It's just intelligence, salt Bay ai, all over everything. I wish I could make an animation of just AI coming outta my fingers.

Om:

that's a good one. You used it a lot actually.

Brian:

We talked about cannibalization we talked about complexity like brand confusion, pyramid is three tiers, traditionally two or three tiers, like many more than that. And you have brand confusion you can't customers have no idea what you stand for. You're like Sam Alman nobody knows what you stand for. that's this tier. And then

Om:

And you gotta protect your turf right?

Brian:

Yeah. And that becomes the stress of this business model, right? you've got your base tier profitability, the people running your base tier, like the people running like Chevrolet, like your margins are razor thin. Like I would expect that's a super stressful business to be in.

Om:

It's also adding a risk because most of your money comes from your premium tiers, right? So you've gotta protect that as well.

Brian:

Well, I would just think that like the, the people running the business don't really understand the business they're in, of like, well, that's your entry level tier, it's supposed to be razor thin. Right? I'm gonna need you to get all the way off my back. Yeah. And if the people that under, if the people that run the business are just trying to, like the, the PE folks are just trying to squeeze that rag for every drop they can get. That's not gonna work here right. So you know, the other side of this is like, the concentration of a margin is like if, if like in the tier model where like Chevy's at the bottom and I don't know what's in the middle. I guess the GM products are in the middle, and then the Cadillac is at the top. Like if, 80% of the profit. Comes from 20% of the premium customers. Well, that's not gonna work, right? That you know that now you've got a real, your pyramid's real risky. your pyramid's kind of gonna topple over and that's a problem. Pyramids shouldn't do that. So the product pyramid, business model is all about serving every customer segment while protecting your margins and having a premium offering.

Om:

Yeah, all things to all people.

Brian:

So if you have questions about this business model or if you have other businesses that fit this model and that we didn't talk about, go ahead and hit the hit. Let us know. Let us know in the comments. the next category! Hey, Om!, Do you wanna know what business model charges different prices for the same exact product and gets away with it?

Om:

Ooh, think of examples like that.

Brian:

I Coke, I'm looking at you Coke right now. Are you leaving money on the table because you're charging everyone the same price? Are you watching premium customers who would pay more get the same deal as the budget shoppers? So this one size fits all, kind of like I already mentioned, Coca-Cola. at the ballpark. Coke costs more than if you just go to buy coke at the grocery store in 12 pack or whatever, 10 pack or whatever comes in now. Mm-hmm if you could sell the same product at different price points based on the context or the distribution channel that's multi-component business model right there.

Om:

Can you think of another example like that?

Brian:

Same product. It's what annoys me the most about the Uber product to when cars are in demand. The price goes up.

Om:

Yeah. And it goes up a lot depending on the time of day.

Brian:

Uber X, Uber comfort, Uber, uber, black I can't say Uber anymore. That's what I learned today on the podcast. Strengths. Let's talk about strengths of this business model. Do you have any favorites?

Om:

I guess, the pricing, the differential pricing. You know, like you talked about Coke, so people know that Stadium Coke costs more. Yes whereas buying Coke from a a vending machine at Walmart used to be 50 cents. Now it's like a dollar. It's still cheaper than buying retail elsewhere.

Brian:

So the context based pricing power Yes. Is yeah. I mean that's unmatched. I mean, what, what do you, you got no choice also you get into town, it's midnight, you're at the airport and there's like two cars on the road whatcha you gonna do? You're gonna pay more. That's what you're gonna do. Right? Yikes.

Om:

And that's like, dovetailing into the other strength, which is, hey, you can afford to discriminate on price without changing your product.

Brian:

Yeah they're kind of one and the same, but Yeah. I, I, I, I understand. And also I'm scared I, I hate it. Thank you the other nice thing about this business model is boy, it's super simple. Like all you gotta do is wait. That's it for all you gotta do is wait I mean, you don't need to change a single thing. The Coke formula doesn't change at all. It's just like, they offer it in the stadium, they offer it at the grocery store, and you pay more when you're at the movie theater. you pay whatever, you pay the cost of a, a half of a 12 pack for a single drink at the movie theater because you happen to be at the movie theater, right? Yeah. Right, right.

Om:

Yeah. I mean, that applies to all concessions at a movie theater.

Brian:

boy this is a, I I feel like I need to take a shower.'em, that's what I'm saying now it's like there are weaknesses to this business model, I'm sure it's not all roses, it's not all upside. I'll tell you right now, I get outraged when I have to pay extra for a $20 Uber ride that I know is a $20 Uber ride, like from my house to the airport should cost 20 bucks. And when I see that like $45, $65 or whatever, yeah. I'm out. I quit your app and I use, I cycle through three dozen other apps. Before I'll come back and buy that ride or, or I'll just hot foot it. I'll just start walking. I'll start walking. Listen, I'll go to the bar and I'll wait until the rates come down. I'm so aggravated I will not pay those rates like that. That's the risk here. the funny thing about that risk is that you don't see that risk. there's not a monetary value that you immediately see to that risk. That's your reputation. That's aggravation with your business model. It's customer aggravation is what it's,

Om:

and that's never good.'cause like you said, you don't see it. It's hard to measure, but it has real impact.

Brian:

Yes. That's the arbitrage vulnerability. It's so like, your customers are gaming the system now and their drivers game the system as well. They wait to see what the rates are until they go up and they're like, oh, sign me, and I'm driving now.

Om:

Sure, sure. Yeah. There are so many frustration points here with this particular example, right? If you ever had an Uber cancel on you, I've had twice on the same ride,

Brian:

actually. You know I, I don't remember what airport. I think it was Baltimore Airport, BWI, I flew in and I had like two or three Uber rides. Accept the ride and then cancel. But it was like, accept the ride and then cancel after whatever the, there's like a, this was early Uber, I don't remember, but it was like there was a certain period of time Yeah. That the rider could cancel the ride before they got hit with a fine, but the driver didn't have, so what the drivers would do is they accept a ride, they're nowhere near the airport. They accept a ride, or maybe they, get another one and Yeah. And then they would just wait until you cancel. You get hit with a fee. You know what I mean? they're not progressing towards you, and all they have to do is they have to wait at the airport, two hours, three hours. They get a couple cancellations, they get the minimum fee from the cancellation. And yeah it doesn't sound, it's legal to me. it's almost, well, first of all, how many people are gonna dispute it? And is Uber's process robust enough to handle all the disputes? Number one. But that's not the point. The point of this is it's a weakness of the business model because both the customers, me going to the bar, waiting for the rates to come down, and the drivers just committing fraud, basically. Yeah. We're all gaming the system now, right? Because the system's bad. It's not a great system. the system's set up for a company. To prey on those surge prices and all that kind of stuff. Some product person came up with this stuff to think that they can make money by exploiting well, there's not a lot of cars in the area. We can charge a premium. The wait, I mean, you're gonna wait regardless.

Om:

this is kind dovetailing into this whole dynamic pricing, right? Yes. That surge pricing as, as it was called.

Brian:

And, and then, and then like luckily for like Uber and all these luckily the government is non-functional, so like, because otherwise there would be regulatory pressure there would be regulatory pressure to say this stuff that you're employing, looks predatory. Why don't you step into my government regulatory office and suspend all of your AP and ar the government could really hurt them.

Om:

they could. But that assumes we have regulation around that. Which we don't, right? But sadly,

Brian:

but there's plenty of other countries.

Om:

In other countries. Yeah. Absolutely. I actually experienced the Uber equivalent mm-hmm. Over in Asia. And it is such a refreshing experience, to say the least. Normally are the prices. Cheap, and I'm not talking about converting to USD. Local prices are really cheap. I've never had to wait more than two minutes for a ride from a company called Grab it's similar to Uber. You know, and then they kind of take it beyond what we do here, which if you're a single rider and the weather's nice mind riding a motorcycle. They have grab motorcycles and these things are incredibly quick to arrive. Mm-hmm. Of course they weave through traffic as well. I mean, there's so many benefits. Oh yeah. Then they do come with a a passenger helmet. Nice. This is, these are all layered positive net positive customer experiences that really breed loyalty. Right? Yeah. Flip side of that here with this model trust is fragile and once people get TE teed off, they're gonna move to elsewhere you have other players in the market now so that's the, the

Brian:

risk. So this is the multi-component business model. It's all about charging what the context can bear for the same product in different situations. That's, that's this business model. Yeah. So if you have other businesses that use this model that we haven't talked about, let us know in the comments. Absolutely. We're gonna move on to the next business model. And I'm gonna ask you do you wanna know the business model that makes money every time two people do business without you actually doing the work? Ooh, this sounds lucrative to me. So if you're struggling to connect buyers and sellers, if you're stuck doing work while others capture value and you're watching platforms like Uber, Airbnb make billions while you manually are brokering deals this is your category. There's a better way to facilitate transactions and they start building a marketplace. And I know it feels impossible, but what if you became the hub connecting buyers and sellers? I feel like I'm talking about every FinTech product in the world right now. Pretty much that you take a cut of every transaction you're Stripe at this point, or I guess PayPal so like you connect drivers to riders and then people make money. Although Uber is a bad example because their cut is like huge. 90%.

Om:

Yeah. But if you could do this once you've built the platform, the infrastructure, it can scale infinitely.

Brian:

It's the switchboard business model. It can scale infinitely. And, the strengths of this platform, the strengths of this platform is the network effects, again, the network effect of Uber. Is basically what made that whole app

Speaker 6:

right.

Brian:

You know, the value increases exponentially with participant growth. So the more riders that you have, the more that the drivers earn, the more drivers that you have, the easier it is for the riders. You get a ride and so on and so forth. And it should feed each other.

Om:

That's Yeah. Yeah, yeah. That's also the same thing as Airbnb. Really the more hosts you have Right. The easier it is for our guests to find places. Correct. Yeah. Same, same sort of thing. I like this model because it's essentially based on transactions,

Speaker 5:

right?

Om:

Yeah. and so you're not hiring more and more people to add units transactions, you're basically at a certain point and you just keep earning.

Brian:

Right? So the transaction based scaling is the strength of this model? Yeah, I mean that, I would say, if I'm gonna pick a number one, so Ichi Bond, if I'm gonna pick Ichi Bond it's the transaction based scaling of this model. The, the revenue grows without a proportional cost increase. So you, you keep running the same system. Maybe you have like. Some more transactions require a little more networking or database power, whatever. But I mean that's like you're going from like a $250 a month database to a$500 a month data. Peanuts at that point. Like you're not hiring more people with each transaction. It is like the customer solutions model that we said at the beginning of the podcast. for everyone referencing the customer solution model that Palantir is using, you're like, you have to go out and hire a whole bunch of,

Om:

you need FD out there,

Brian:

hire a whole engagement team. You have to hire a whole team of people right, with the skillset you need and then go deploy them. This one, you literally do nothing.

Om:

You do nothing and you get high margins at scale. The higher you scale, the higher your margins are.

Brian:

High margins at scale, transaction fees are nearly pure profit after the platform is built and whatever costs to run the platform. If you're on AWS after that cost is paid, a hundred percent is margin at that point.

Om:

Yeah. And this allows you to capture whole bunch of data about your customers and infer insights and knowledge from that, that your competitors have no chance of getting

Brian:

right. Yeah. And your competitors are not, maybe they can capture some of that data with some kind of like initial offering or MVP or whatever that just to try to capture, but the mass of data that you have they're not gonna catch up to that you'll be so far ahead the product that your competitors are developing, that they're not even gonna try to catch you. They're gonna try to segment the market and try to segment a piece of what you're doing. Well, you're picking up people and delivering across town or whatever, but you're not picking up meals or whatever from this place. So they're not gonna go off your main offering, so you'll be pretty safe in your business model so these are great strengths, but on the arguing Agile podcast, we're gonna point out the weaknesses as well. So the weaknesses with the switchboard type business model. Okay. Winner takes most dynamics. you have to achieve dominance. You have to be the top dog. Yeah. You gotta be the top dog because second place is like you, you're gonna be losing money just to stay in the game at this point. And honestly, like a lot of these Silicon Valley companies that are doing Uber and whatnot, like I don't even, I don't know if Uber is profitable. I wonder if they are. Sorry. We may be returning from some editing here where I Googled when did Uber become profitable and Google reports Uber became profitable in 2023 reporting its first full year profit since going public in 2019. So again, that lends itself to what we're saying in this category of the trade-off here is, I mean, the winner takes most if you're not on top of and conquering this category, like it's gonna be tough to pull ahead even if you're the industry leader. You didn't dominate yeah, like Uber. How mean, how long has Uber been around as a company? Longer than 2019. Sure. For certain, right? Yeah, but that they weren't even profitable until 2023 profitable, let alone like dominating or whatever. Yeah, yeah. With this kind of like, hey, you can, I mean this business model like the, the switchboard business model, like it's good, but once a bunch of people move in.

Om:

Yeah, it is tricky. I mean, to start off with, it's tricky like when you're launching because you have this cold start problem where you need to connect both sides. Well, the other thing to navigate,

Brian:

the other problem is if you're connecting both sides, like with the Uber problem, you need drivers to onboard to the platform. That's right. And riders like there's no good having, well, we've got

Om:

all drivers in the world

Brian:

like, that's no good. And also like I don't, I don't know how deep to go into Uber,'cause we, we beat it up enough in this category, but one, one big regulatory action against you. Boom. And you're, you're smoked in that whole country. I mean the uk they put up a lot of flack to Uber in the early days. I don't, I don't know like when it died down or how, how the situation went down.'Cause they had the black cab services and stuff like that. But yeah, regulatory action can really like impede your whole business model. Mm-hmm. And this is like, I think of people starting businesses the last thing they think about is like, Ooh, licensing and how are we gonna operate with. You know, checking governmental boxes and regulatory regulatory boxes.

Om:

Well, new models, you don't even have that at first so it kind of catches you completely by surprise when it happens. Right. And then the other thing is that you are, you're extracting profits at the expense of suppliers, right. And providers. Yeah. So that kinda leaves a bad taste in their mouth, which gives you some rep damage. You know, in the early stages at least, unless it's done well. I'm trying to think of an example, non Uber example where it's done well and I'm not coming up with anything.

Brian:

The Amazon, I think would be a good example of the switchboard model they put themselves between the supplier and the buyer. You know, the buyer could just go straight to the supplier and buy it straight from them. But Amazon has put themselves in the middle. Maybe that's not the cleanest example, but the switchboard business model, it's about becoming an essential hub that captures the value from every transaction flowing through your network. And I'm sure the audience can think about other,

Om:

eBay might be another example where maybe yeah. Where you could have intermedi this intermediation, people can go directly to the seller.'cause you can contact them that's true. That's true.

Brian:

But if you can think of other switchboard style business model companies, let us know in the comments.

Om:

Absolutely.

Brian:

hit it. Let's hit it. Do you wanna know the business model that turns your expertise into a money printing machine if we knew how to do that, I feel we'd be printing money

Om:

on our yachts. That's right. Well this is where I think professional services sort of model comes into the picture. Consulting companies, perhaps. that are just billing by the hour for their expertise.

Brian:

Well, this is a tough category because if you're struggling to price services that you're not sure what to charge for, or you want to price your services into a new market I think about agile coaching specifically. Like if you went to an HR firm or a legal firm or something well away from software development that didn't quite know what does business agility mean to my organization? do you charge the normal software rate? Do you charge a different rate? Do you charge lawyer rates? Like what rate do you charge that, if you're working your butt off and you're not getting the revenue that you deserve for the time you're putting in and the skills you have, you're not capturing value, but if you build for every hour of your expertise and you've got junior staff doing the work and senior staff capturing the margin, your knowledge that you put in should be the predictable revenue stream. This is the old plumbers, like a new witch pipe to bang on, kind of like, you know. Yeah. Which wire to cut. It's a time business model. So you, this is the consulting business model, also the time business model. The giants, the big four accounting firms, the McKinsey's of the world, like this is their business model. I'm just gonna jump in 'cause this should be a quick category. The strengths of this model is predictable revenue. X number of hours, X number of money should be straight. You know, we have contracts. time, materials, contracts there's government services, also a lot of government services run this way. Should be straightforward.

Om:

Yeah. and you can charge what you like because you know the people are paying for your expertise so you can charge accordingly. You have specialized knowledge that people need.

Brian:

And this, this is a lot of, when we were talking earlier in the podcast, we were talking about the customer solutions model where teams were traveling. It's, you would get maybe inside of those contracts, they would also use time or maybe alternately they would use time where than outcomes. They use time and material where it's scalable through leverage on those contracts. Because those contracts like the solutions teams they bring with them, it's like two senior folks and like four junior folks. So the junior folks are doing all the work. The senior folks are directing, capturing the margin, basically. Yeah. and trying to multiply their efforts by having junior staff that work directly for them while they're there onsite. And, this could work at any, most businesses work like this. You have a senior manager who is an expert in the domain area, the foreman type model. And they have juniors working for them.

Om:

Yeah. I mean, one of the strengths of this model is your revenue stream is pretty much assured because as inflation goes up, your rates go up, right? Yes. So. People will pay the going rate, so to speak. Right.

Brian:

And as long as you can keep demonstrating your expertise, then you should be able to keep demanding those high rates. And that, that's both the strength and a weakness of this model.

Om:

Yeah. Yeah. it segues into a weakness because you constantly have to be on guard to keep up.

Brian:

Yeah. Well the, and the other issue with this model, the other problem with this old time and materials model, I will tell you now, as far as the models we've talked about so far. This is my least favorite one, because the pressure of utilization, this is like in the consultancy, you can't have people on the bench. That's right. You've got, everyone's gotta have a hundred percent, 120%,

Om:

a hundred percent on paper, percent in practice, a hundred

Brian:

percent on paper, 120% in actuality. Mm-hmm. Utilization, which is like the, like the risk right there is you're gonna burn people out. You're gonna burn 'em out and not, you're not only gonna burn 'em out. Enjoying the work that they do.

Om:

yeah, exactly. and it's really hard for these people that are trapped in this model because not only are they pressured to bill every hour, they also have to, keep their skills up. So when do they do that? When do they do the upskilling? Right. They have to do that in their own time, right? After spending 120% of their time, right?

Brian:

Yeah, because all their time's billable.'cause , when the work stops or when you stop billing for hours, like that's when the value stops. So this is not like when you were like, well we gotta, we gotta train our folks and we gotta do whatever none of that's getting done in this part, right? Like, that's, that's the worst, the worst of this model is it's all the weaknesses. None of that's getting done. And again, if you want to capture more revenue, they, there you have to scale linear or linearly. Is that Linearly is a word. Yeah. Is that a word? Yeah you're not gonna get more hours without hiring more people. More people, right. That's it so, so that's your constraint right there. You have to hire cheap bill out, full rate I, this is straight up the McKinsey model. It's like bill out, full rate, junior, senior, doesn't matter to the customer. You're billing full rate, maximum hours as many junior people, people as you can pack on the program. Yeah. That's that. Again, the time business model is all about systematically capturing value for every hour of expense. You deliver. I was gonna say incur, but deliver it is got strengths and weaknesses. Yeah.

Om:

You really have no experience. You're passing it on. I mean, other than just straight out salary, et cetera. You have no real experience. You don't have inventory, you don't have factories so, so this is a great model if that's what you're into. But that's right from the perspective of somebody who's worked in this model, I'm telling you it's not that enjoyable. The novelty wears out very quickly.

Brian:

Well, let's move on to a model that is enjoyable. So do you wanna know the business model where one massive hit funds a hundred failures and still makes you rich?

Om:

Ooh, I like the sound of this.

Brian:

So, are you playing it safe with products because you're terrified of failure? Are you watching competitors launch massive hits while you're stuck with incremental improvements? Are you paralyzed because failure's expensive, but without big bets? You're completely stuck. But I'm gonna tell you what. If you launched massive products, knowing that most of them would fail, but one of them will be a winner and generate returns and cover all those failures. Well, that that is the blockbuster, the

Om:

blockbuster business model.

Brian:

Blockbuster not, not Blockbuster, the company.

Om:

no, no. Not, not the company

Brian:

i'll tell you right away with this category, most people that are listening to this now you're wrong, like this is like almost purely pharmaceutical companies right now. Definitely. So, yeah. And, and, and, and Net to a Netflix original series original Netflix series was it Stranger Things house of Cards and Daredevil and Narcos and Black Mirror. I mean, Netflix took some risks earlier. Everyone forgot about, right? Yeah. Because it was like, it becomes especially with movies and things like that, it becomes part of the zeitgeist. It becomes part of the pop culture or whatever. But they took a risk with those things. They be big with those things. And people subscribed to watch those series. Sure the blockbuster, I mean the drug companies are the ones known the most for this big giant swings. Where are we at? Blockbuster model. Blockbuster. So

Om:

some of the strengths,

Brian:

oh yeah.

Om:

Yeah. I mean, you can have many bets that fail, but the one that doesn't will pay for all the other ones. Right. That's the idea. The winners must pay for the losers. I mean, but you gotta have a winner though.

Brian:

Money's

Om:

pharmaceutical companies are, a model we can talk about here. They bet very widely. And you know, they do occasionally or quite frequently. land on the winner. So they're not losing money, first of all, that's one of the strengths of this model. the other thing is you have a certain window of opportunity during which you can capitalize, right? Because you've done this research, you know about that particular segment and nobody else is doing this. So if you can make that work, you have a leg up on the competition

Brian:

and depending on the country you're in, you have intellectual property that is gonna be your IP for years, depending on the industry I don't know how pharmaceutical, I've never worked in pharma, so I don't know, but there's IP. There's the outside outsized returns from your big hits, your big bets, your big wins. And you have some exclusivity until the market catches up to you but also your portfolio you have the potential to put a little bit of money in a whole bunch of things. Because if one thing hits big and you make a bunch of money on that, you turn around, you reinvest that money. I mean, this is like pre 1975 America where you had mega companies when they made money, they put money back into smaller companies that they would take ownership of portfolio. And you had a bunch of like Gulf and Western? Old companies like that, they would own a movie studio and be like, what the heck is Gulf and Western even do? You put money into a bunch of smaller bets, but from your perspective, having billions of dollars in the seventies, like everything's a smaller bet. So one of those is gonna explode. I mean, they're, they're all staffed by people that are trying to do the best that they can. So what are we doing here? We, we believing that people are doing the best they can. Or are we not I mean, their strengths all up and down here about, you've got a wide portfolio, you're putting money in, you've got IP that you're buying, even if it doesn't make money, now you've got an IP you can leverage in the future. You're getting outside returns from all your hits. Even if you're investing across the board, your hits are covering your laws. The blockbuster business model that I'm describing now is basically the Silicon Valley business model that I'm describing.

Om:

To a large degree. It really is.

Brian:

So if we're bailing out the banks, there are some failures that we have to talk about in this category. Ohm and boy, I'm gonna talk about number one, 80 to 90% of these projects, like they fail,

Om:

right? Yeah, exactly. The failure rates are high, but are they really consider this failure rates. So knowing that helps weather the storm a little.

Brian:

Are you saying knowings have to battle

Om:

knowings more than half the battle in this particular model? Right. You shouldn't be surprised when over 60, 70, 80% of your bets Don't come to fruition because you're waiting for that one or two, which will pay for everything.

Brian:

You know, the harder part for people to choke this one down, is the massive upfront. Investment cost.

Om:

Oh, the development. Investment, yes. This is true in r and d money. I mean, it's significantly large to cause concern about, predictability on net present value, all of those financial ratios. Yeah. You do those and you know that a lot of those are gonna fail so you're right about trying to, especially if you are trying to finance, if you're trying to obtain finance for your company, This can be very difficult to do.

Brian:

And then the one we don't talk about, which is, I'm gonna put it in the weakness category here, timing, and by timing what I really mean him is luck.

Om:

Oh boy.

Brian:

Yeah. I mean, the funny thing is as a product manager I have been in the seat of developing the right product that does the right thing, the wrong time, and being so ahead of the market that nobody's, like everyone says, this is the coolest thing I've ever seen. Nobody's willing to pay for it. Until you go through it personally, like I, as a team that developed a solution, that kind of thing. It is insane there was machine learning before all these foundation models came along, right? Definitely. That worked on those like machine learning algorithms or whatnot. They must be saying the same thing right now. It's like, this is bananas why is everyone freaking out now? We were doing this 10 years ago, 12 years ago, whatever.

Speaker 6:

Yeah.

Om:

Yeah. That, that's very, very true. Timing, timing risk is a significant disadvantage here because to your point about luck, you really can't call it, right? I mean, it is what it is. Yeah. And then the other one I would say is because of the fact that the failure rate's so high because of the fact that you don't have any sense of certainty on the timing, et cetera, right? Yeah. A lot of organizations tend not to make those bets or not make as many of them, right? Right. Yeah. So they become risk averse which then kind of spirals down into, well, if you're only making a few bets and most of those don't pan out, what happens next? I would say you don't have enough to come through to cover them all. All the failures.

Brian:

This is a really interesting business model because the blockbuster business model is all about making big bets, accepting high risk, high failure rates, and then letting the winners pay for everything, and then just keeping going with the cycle. And I would say that the majority of modern businesses, they're not okay with this risk at all they're not interested in, I'm interested to hear from anyone who works in pharma or maybe in cutting edge government research. You mean the PE people that like, if the research doesn't pan out, it's okay because everybody investing in research already knew. I don't know if anyone from Silicon Valley listens to this podcast that they're in the same kind of business. I'm really interested in hearing if anybody's engaged in this business, like what it takes to succeed in this business. Because the majority of people that I work with, they could not deal with this level of risk.

Om:

Yeah, I agree. There's just not the stomach for it. It's again, especially if you are financing for your business, how do you obtain money?

Brian:

we're gonna pivot now to the profit multiplier model.

Om:

Profit multiplier. That's right.

Brian:

Well, if you wanna hear about something that sounds great, I'm gonna tell you about a business model that takes one great product and sells it over and over without rebuilding it. Are you ready? Sure. Let's go. Are you tired from building a custom solution and customizing your solution for every single customer that you go to? Are you tired of starting over from scratch with every customer because you cannot reuse components inside of your applications? Are you leaving money on the table because you can't sell it once? Then move on? What if you built it once and sold it many times in different markets or to different customers and your initial investment, what if that could be multiplied across an unlimited amount of opportunities? That's the profit multiplier model.

Om:

Wow, that sounds really enticing. Sign me up. Well, wait a minute. Slow down,

Brian:

slow down. Because I, I'm also gonna call this the the licensing model, right? Okay. Also known as the like the software license butts and seats model. So you might not like, this might not be as alluring when we get into it and when we dig into it. So you see this with when Disney or video games or whatever, license characters across movies or merchandise, that kind of thing, right? you see it with Microsoft selling Windows licenses the strengths of this model, like they're very strong. The strengths of this model. Yeah. The competing number ones for me are number one rapid scaling, which is like, Hey, we download my Windows software, install it. Like I, I don't spend

Om:

anything. And especially now you're not shipping CDs. That's

Brian:

On the other side of that is the investment leverages you invest once, but the revenue gets captured multiple times. so the economics, they don't even, they're not even real anymore. Yeah. They're just bananas economics and the returns, every market that you enter, every market, every parallel that you go to your returns just multiply over and over and over again

Om:

without you having to do anything. Nothing, nothing.

Brian:

Microsoft for government, Microsoft for education, Microsoft for fun and profit, whatever. Yeah. It doesn't, doesn't matter. Microsoft for theme parks doesn't matter rebrand a little bit and then boom, you, yeah. So it's, it's a, once you sell in one market, it strengthens the brand in every other market. Right? Oh, well, Microsoft dominates education, technology. Mm-hmm now people in government are like, well, why, why are we not using if feeds on itself? Same. Yes. It feeds on itself. So this is a brand compounding effect is happening. So this is a, it is a strong business model. Profit multiplier.

Om:

Profit multiplier. Yeah. I mean, another strength is you basically, you've got one product or product family, and you can attack various markets, which is the one, right, you're not tailoring or making bespoke solutions

Brian:

is the SAP folks where they had their natural gas product and they had their electricity delivery product and they have their FinTech product and they have their whatever that doing your own stunts product. Weaknesses in this business model, like I, so the weaknesses, I started off pointing out something and then I backed way off of expanding on it early in the podcast, which is Disney licensing characters or stories or properties to other people, to studios. Like when you go watch a movie and like 15 names pop up brought to you by X, y, z, that's what it took to like there's licensing involved, like they bought the characters of the story or whatever from Disney and now they're making it on their own dime and they're using the Disney license. The main issue, the weakness of this category is quality control. Because once you are selling the license to be like, Hey buddy, you can use my thing a one time fee of this, x percentage of the profits of whatever. But now a bunch of people are putting out stuff with your characters, your story, your software wrapping Android in whatever, right. And putting out crummy releases. People are not gonna look at the oh, this one gaming studio or this one hardware manufacturer or whatever. They're gonna look back at you right. And be like, oh, Google's Android sucks.

Om:

Yeah. So it's always the huge risk of tarnishing your brand.

Brian:

Yeah. And also like the brand dilution is a part of this. Sure. It's the opposite of what we were talking about earlier. Premium brands, right. This is the opposite of that. Yeah, definitely you have, almost no control.'cause you're just licensing out to be like, Hey buddy, do my, I don't know why I'm doing this. Hey buddy, do my stuff for me and I'll just kick back and collect the licensing.

Om:

Yeah. I in the, so getting away from Disney for a sec, going back to the Microsoft one. The danger here is if they slip up on the quality side once, because it's all over the map right. Suddenly you've got this coming at you from multiple directions. Yeah. and that's, that's a risk as well. So you don't have isolation.

Brian:

And we haven't even talked about the complexity of managing the brand as it creeps how many people do you have now in the home office right? To manage your lizards and wizards as everyone prints, lizards, and wizards products I mean, how many people are you gonna employ to do that? Five, 10? Like how many? Yeah. They'd be like, well, I've got a hundred licensees and I've still still got one brand manager and now everyone's going wild. It's Liz's and Wizards gone Wild. That's what I'm, well, this is, so the profit multiplier, like this business model, it's about building once, or I guess owning once. Creating once, right? Yeah. And then deploying everywhere to capture exponential returns. And, other than Liz and Wizards and Microsoft and the examples that we pointed out, if you have another example of this please go ahead and let's know in the comments. Absolutely. So you knew we weren't gonna get outta this podcast without Brian having to struggle to say entrepreneurial,

Om:

entrepreneurial business model, right? Yes.

Brian:

It's the one that individuals. throw the business on their back and they get going to forge into new areas, it's a business model to reward you for taking insane risks that everyone else is too scared to take or forge new paths You're embracing uncertainty and uncalculable risks. I don't know if that's really true uncalculable, but definitely risks of doing it all yourself, starting it all yourself. You're quitting your day job and doing all your own stunts. I mean, listen, even Jeff Bezos, at one point, Jeffrey Bezos was at one point a startup founder.

Om:

Absolutely, yes

Brian:

had, he just had a little loan from his parents of a million dollars, whatever he had. I don't know what he had $300,000 in 1992 or whatever. Yeah, I don't remember what it was. That's what it was. But the strengths of this model. Our massive like everyone understands, like the entrepreneur slash founder, like the Silicon Valley people are on LinkedIn all the time talking about the strengths of this model, which is you do one thing, you do it great, you do it better than ever. You serve your customers better than other people, especially better than the larger businesses can do it. You know, maybe you segment the market or piece of what they were doing. the upside potential becomes huge for you who were working a job before and now you're doing it on your own. This is the entrepreneurial business model.

Om:

I think one of the other strengths, just segueing from that is the satisfaction you gain, right? Right. Because, 'cause these kinds of models are purely fueled by passion, right? Right. So the satisfaction you actually wanna get up every day and go to work because this is your baby.

Brian:

And, this is how you will destroy a much larger company is that you really enjoy what you're doing and you're really good at it and companies will partner with you. Rather than going with much larger firms that are employing these folks that are like, oh, I need like one senior person and five junior people. But I build the rates of senior people.

Om:

you gotta get approvals to do everything. Yes. The bureaucracy, these are big organizations, are so, so you admired

Brian:

with you as the entrepreneur, as the founder, you have full control. You make all the decisions, you capture all the rewards. Nobody tells you what to do. You're responsible for all your risk level, your own stunts, whatever you wanna do. You're the evil knievel of your own parade. That's so, I, I don't know why I keep harping on this doing your own stunts thing. It's, it's, it's become a theme at this point But like I said, you potentially could segment a market. And that's something that doesn't really get talked about a lot in this entrepreneurial category is you may segment a smaller part of something that a larger competitor has captured, but you may segment a smaller part to be like, oh, this specific pain point no vendor does very well, right? So I'm gonna do this and just take it off to the side and just do that piece. And you just concentrate on that and just smash it so you're

Om:

not competing, you're inventing

Brian:

or you may take something that's like the competitors they, they've got it, but it's like slow and laborious and you make it fast and efficient.

Om:

Yeah. I mean, owning your own entrepreneurial business in this model allows faster wealth accumulation, right? Because you, it sure does. You are, you're going to automatically,'cause you're by yourself anyway. I mean, what do you, what are you gonna get

Brian:

two, 2% year over year with your current employer? Like, what are you gonna get? You're over here getting a million dollars for stuff that you would've got 2% year over year before. So it's, it's not even comparable. However, there are trade-offs. There are always, there are weaknesses. Let's talk about some weaknesses, which is the most new ventures, most new startups fail within the first five years.

Om:

The odds are stacked against you.

Brian:

I want to talk about this, I want to take this one offline and have a whole different podcast. Yes, indeed. Just about that statement, which is absolutely true. The majority of new businesses fail within the first five years. There are some asterisk that go along with that, but I'm gonna save that. I'm not digging into that one now. Nuances will be in a different practice. I'm saving that one for another one. Obviously the one that stops most people financial insecurity, right? especially in America you don't work, you don't eat Those are the rules in America. So that keeps a lot of people from doing this.

Om:

Right they're always on a roller coaster.

Brian:

yes. Obviously the extreme level of stress of now you run the business, and especially if you're the entrepreneur and you're at the point where your business is successful. I always, like in product management, I always tell people like success would be your greatest enemy because of the terrible way that you're running the business. And also, you're a terrible person. Sorry. That's, sorry. It, it, it, I'm sure it sounds like that, but the way I explain it is you're not controlling your business processes. It's not a system. It's just like us flailing to try to bring the income in. And success while it's success. Wild success would be our biggest enemy right now. We'd all be extremely stressed. Correct. We haven't thought through this.

Om:

Yes, yes. You'd be mentally exhausted. Yes. At no time at all.

Brian:

Yes. You'd be working every day, every night. Weekends you'd be 9, 9, 9, 9, 6 for life over here. That's right. And goes along with not having any kind of work life balance.

Om:

Oh. There is no work life balance.

Brian:

I'm gonna clip this and put it on LinkedIn for whatever, whatever the, whatever the nonsense, those stupid LinkedIn galleries that are like work life balance or quiet cracking or whatever. Quiet, quiet. Fracking. Cracking, cracking, fracking, quacking, those LinkedIn galleries that nobody asks for. Literally nobody asked for. It's only the people at LinkedIn that do the LinkedIn. It is actually videos. It's so wild that they just like force that stuff on us nobody cares about your quiet. Quacking quacking you ducks over here. So the entrepreneurial business model, like it's, it's all about calculated risks to capture outsized returns that as an employee, like you'll never see like that, that's just not possible as an employee.

Om:

And there are examples of people that have made it, but they pale in comparison With the ones that didn't. Yes

Brian:

yes. And, and, and I'm sure there are plenty of examples in the entrepreneurial category, small companies that turn into big companies, that kind of stuff that we didn't talk about. Like if you have examples or if you can think of something that, that, that hits you right in the fields, let us know in the comments because we have to move on, we do to the specialist business model. And Om, I want to ask you, do you know the business model that lets you charge a premium price by being the absolute best specific person for the job?

Om:

Best person for the job? I guess some of these specialist lawyers or doctors,

Brian:

oh, I was gonna say you're the enterprise business agility consultants. No, he doesn't pay, but it doesn't really pay any, he doesn't for the labor of love. Are you trying to be everything to everyone and winning nothing. Nothing. Are you competing with generalists and undercutting? What you are worth it's, it's exhausting to be super good at one thing and people not recognize the value. But what if you became the go-to expert in a very narrow niche where you became undeniably the best? What if customers sought you out and paid a premium because nobody else can do what you can do. Now, we would be talking about the specialist business model and right off the bat, , the Mayo Clinic, the John Hopkins of the world specialists that are known far and wide for being specialists. Now, I want to dig into the weaknesses right away.'cause the weakness, actually, you know what, we're gonna start with the weaknesses Alright. Of this model. Let's do that just for a change. First of all we started by saying like, well the customers, you're competing with a bunch of generalists that claim that they're the specialists. Right? And I, this is a great category. In disguise in the middle of the podcast that I hope people get to because agile coaches have found themselves in this category. Indeed. Which is, and we're going to, jump into the weaknesses, then we'll go back to the strengths. Okay. Because the weakness here is that you have difficulty proving that you're in this category,

Om:

especially because all the customers know is your price is high. So how do you get out from under this?

Brian:

And also, like you, you are the specialist. So if the niche declines your specialty, is that a real world or is it specialty? Specialty. Yeah. Specialty or specialty. I like specialty because it sounds fancy. If the niche declines, like your whole business is at risk at this point. That's right. What if you're a consultancy of agile coaches and suddenly the world is like, we don't believe agile coaches is a real thing. Suddenly, like LinkedIn runs one of those little like, video galleries of like, agile coaching is not a real thing. Like suddenly everyone's gonna see that and start thinking like, oh, maybe, maybe agile coaching is not a real thing.'cause LinkedIn randomly told me it's not a real thing now your whole business just fell apart because people, some random person on the internet who doesn't know anything about software development is questioning agile coaching as a niche. And I could do that with anything. In the current information economy where for anything that you say online, there is an equal opposing(Russian troll). There's an equal opposing opinion. Yeah. Online debating that. And then it's up to you to figure out what right is the truth or whatnot. Oh boy this is bananas. The dependency on the niche is bananas here. And the fact that you are the coach, you are the expert and you have to somehow prove with a bunch of people that don't do research.

Om:

Right. It's hard. Especially if you wanted to now say, okay, you know what? This pool is small. I want to get out of it. Right.

Brian:

Yeah.

Om:

To pivot.

Brian:

It's hard., Or you do like the Agile Alliance where you're like, well, we're gonna, we're gonna go join the PMI so maybe we can reach a broader ba basically the way I always saw, I know we did a whole podcast on that, right? The reason I bring this up is because the total addressable market, like the market size that's a real thing. So if you're limiting your total, total addressable market, or if you're saying the total addressable market is this, but like, these people don't believe in agile coaching anymore. Like, now your market just shrank the whole market just shrank. Or there's like this active information attack on the market. Yeah. Saying like, oh, agile coaches can't help you at all. It's product coaches that you need now some, like an active segmentation of the market, whether it's in good faith or not. Yeah. It really, this is a scary business model to be in it

Om:

is a scary business model depending on the industry

Brian:

I'm almost at the point where I don't believe it's gonna work. I would say out of all these weaknesses, which are dire, especially in the agile coaching realm, the weaknesses are scary until you get an agile coach that actually can perform and then they just. Blow your socks off.

Om:

I think that's true of a lot of specialty segments here. So yeah, I agree. The biggest strength is they command a premium and they, not command, but demand and, and justifiably Right. Demand a premium right. Rather than generalists, because guess what? They are the expert so that's the biggest advantage here, I think. There are others they are in a niche, so the competition for them is limited because there are fewer people that are at that level think about the Mayo Clinic example how many specialists, doctors are they like the Anderson Clinic for example.

Brian:

Moffitt.

Om:

Moffitt Cancer Center. So all those doctors are specialists and there aren't, I mean, they are really top of the top.

Brian:

you know, there's another thing that I'm thinking about when you're describing this is the specialist will command a certain amount of customer loyalty when they are deployed on the job. So I think about all the software demos I've been in when there's been a trained Agile coach. Yeah, whatever role they're in as facilitator or scrum, it doesn't matter what role Scrum master is, what I'm thinking about, right? They're in a facilitation role, right? And having that person there, like it brings people into the discussion. it sets your brand apart from other brands because you've got a facilitator now that tries to draw the customer into the conversation and tries to connect people. Whereas when that person's gone that presence, that lack of presence is felt when that person's gone. Like if they're a contract or whatever, you know? And that customer loyalty I guess it's a strength, but also it's like, it's a squishy strength because like, companies don't, they don't put a value on that, it is tough 'cause there's a lot of like the, the reputation, like the success in a, in a niche, like it builds credibility in that niche.

Om:

Absolutely. You've gotta stay within it, right? Yeah. It's like going back to the medical providers. I know that there's a specific doctor that I went with and I was very happy. I'm gonna go back to them again,

Speaker 5:

right?

Om:

For a similar issue, or I'm certainly gonna recommend them to everybody who has a need for that kind of a service, right? So word of mouth loyalty. It does that is, although a strength, it can also quickly become a weakness, right? Yeah. Because all it takes is one dissatisfied customer to go tell 10 others, right? And so there is that, but if you're a specialist in this kind of segment, that is a risk that you're running with anyway.

Brian:

Another strength of this business model,, I would expect is you turn into success, you get known for it, and then your customers start recommending you to their peers and their people they work with and whatnot to be like, oh, get om and he'll help your team get into shape and get them delivering or get your product whipped into shape or whatever it is, right? whatever you're known for, right? And then they start recommending, and then your skills become so in demand that you've dominated this like, narrow niche of taking businesses that are at this level and then elevating to the next level, and then. You know, you're, you're constantly in demand. So that that's, that's where you would command a premium. The pricing premium we talked about in the strength of this category. You got a line of people and then you select from the front of that line who you that you can make a difference based on the people that you're talking to and whatnot. So this is a, the specialist business model. I mean, it's, it's scary. It's like, even though we just talked about like with your expertise, you can really accelerate yourself in this niche, it's still scary to me.

Om:

It's scary. There are threats from a lot of different angles. You know, overseas entrance into this market space. Yeah. That will undercut your premium rates that's one AI agents eventually Right. Will be able to assist the generalists in performing the roles that you're performing. Perhaps not to the same degree initially. But from the customer's perspective it's attractive because the, the price is right. Yeah. So there are, there are threats there for sure.

Brian:

Well, if you like this category and you think the price is right, let us know in the comments,

Om:

especially if your name's Bob Barker.

Brian:

That brings us to our next business model. Own the installed base business model. Do you wanna know the business model where you give away the printer, but then make a fortune selling the ink? Well, I'm about to tell you because if you're making all your money on the initial sale and then leaving the customer alone, that's an issue, right? If you're missing a massive recurring revenue opportunity because you're not selling anything to your existing customer base that's an issue. And then if you're exhausted because you're working really hard to acquire new customers because you can't make any money off of your existing customers, also a problem,

Om:

right? Absolutely.'cause the cost is high.

Brian:

So if I sold you an initial product for cheap or even at a loss and then made a massive profit for ongoing consumables and or services, would you be interested in that business model? Most definitely. Well, that's the installed base business model.

Om:

Yeah. You cited the example of printers. Pick up a printer for 80 bucks and then the cartridge is like $30 a pop.

Brian:

I feel this is what keeps Gillette and HP and Lex Mark. In business.

Om:

Absolutely. Yeah. And, and similarly the coffee cup model, right? Yes. The coffee pods rather. Yes. Curate K-cups. Yeah. K-cups. Yeah, exactly. So the install base,

Brian:

the strengths of this business model obviously the recurring revenue stream, the consumables the biggest one. Yeah. That generate a predictable ongoing income. Keep your finance folks happy. There's not a bunch of arguing about margin in these businesses because everyone's happy.

Om:

Everyone's happy. And if you're smart and you, you have products where the consumables are such that other people's consumables cannot be used in yours Right. Printed cartridges. They're all different shapes.

Brian:

I mean, the predictable cash flow is, what every business it's what plants crave. it's what businesses want. They want the predictive, Hey, this is the X amount that people bought K-cups or ink or whatever maybe it's not as much as you want, but over time it is predictable.

Om:

Right. Your profit per customer. I mean, it's, it's, it's a no brainer it's, and and also tho like

Brian:

those consumables we're talking about now blades for the Gillette razors or whatever. Or even to a point the, the credits for the AI vendor people shucking ai credits.

Om:

Well, credits there. Definitely.'cause you have no product as such, right? Right. It's just all pure profit.

Brian:

Well, that's a consumable here.

Om:

Consumable. But for the physical products that are consumables, I have to believe that the profit margin's up there in the 60, 70% at least,

Brian:

Well, it's, I mean, it can't be that easy. Running a business is never that easy. Never that easy. What are some weaknesses on, can you, can you tell me any weaknesses?

Om:

I think the obvious one here is that you're making the initial sale at a lower price. Yeah sometimes maybe even at a loss. With the promise of future returns, obviously. But just to get that base you might have very low margins and that means you lose money at first.

Brian:

Right. That could be okay though. I would imagine that if you could design the initial product where you're not, maybe you're breaking even, you're not even necessarily losing.

Om:

If they're consumables that can be cloned very easily. Mm-hmm. That's a risk. Mm-hmm. For you. Because people will buy the cheaper clones.

Brian:

Don't do business in China.

Om:

I know. everything is closed. Oh my goodness.

Brian:

I was trying not to do that on the podcast. But like, you can't have your cake and eat it too you can't farm off all your labor and farm off the consumable and think that you're not gonna do anything that's just not gonna work. And in this the third party competition can't be ignored. whether it's legitimate competition or whether you don't think it's fair because some different country with different laws. Copied your consumables right. And now is just gonna cut you outta the market like they can be undercut by anyone. I mean, somebody can undercut them with a company of like three people. Sure. That doesn't have to pay any overhead and now they're gonna cut you even if it's not something that you consider illegal,

Om:

absolutely possibly. Absolutely. So yeah, that's a risk, that's one of the, one of the weaknesses. The other major weakness might be,

Brian:

oh, oh, I've got the major weaknesses. Go ahead. It's the same as the one in the Uber category is I will not pay surge prices. I'll go to the, I will go to the bar, I'll go to the restaurant across the street from the airport, and I'll just sit there for three hours because I will not give you money. I refuse like the, I start resenting the company that I as a customer am locked into.

Om:

That's right. Customer resentment is big here. Yes yes. Because they figure out very quickly that the price of these cartridges in cartridges or razor car, whatever. Right. Prohibitively high in some cases in most cases. And they realize that they've just been locked in. Now you gotta buy a new printer. Yeah. So that's a risk.

Brian:

And then the only, thing to point out, which may not be relevant everywhere is it might take a, the initial investment or the initial loss or whatever you're doing, it might take a long time to pay that back. Hopefully not if you're, going to be in the consumable market in the low upfront, and we'll get our money back over time, market, hopefully you don't take too big of a loss on the initial,'cause you could lose your whole company there. So there's sort of a balance in this category of the installed base category.

Om:

Yeah. I agree with that.

Brian:

AI is a great one for this one. It's like, well, I signed up for the $15 plan for the $20 plan or whatever, and now you make me heat buying credits at some point it models change or whatever. And like,

Om:

you're gonna drop. Or,

Brian:

I complain all the time about the Opus model of like, I ran one query with Opus and I used 33% of my tokens for the whole week. At some point it's just like, it's untenable and I'm just gonna go get a different model. The install base business model, it's like, it's all about capturing ongoing value from customers after the initial sale through consumables and services. We didn't even talk about ink, no printer in,

Om:

we also, I don't know if this fits neatly into this category or even tangentially automobiles. Yeah, so you buy a car and then they make recurring revenue off of maintenance for a long, long period of time. You're pretty much locked in at that point. Yeah. What you gonna do? Buy another car? Right? Yeah.

Brian:

So what other installed base companies can you think of, let us know in the comments? Let's see. Do you wanna know the business model where you become the industry standard by which everyone else has to play.

Om:

Wow. This is a good one. You become the standard, right? So everyone thinks of your product, the standard bearer

Brian:

business model.

Om:

Let's think about some of the examples here of products like this.

Brian:

Well, I can think of, I mean, I can do the opposite example where your product is better than the standard bearer, but everyone goes back to that. There are some flavors of Linux that are far superior to the normal Windows operating system. More secure, better tools, Better compatibility, better drivers. They don't get any visibility.'cause they're not the quote standard. You know, why are they not on every business laptop, shipping from the factory? They're not the standard are you building great products? Are you building great products? But customers keep choosing substandard competitors because quote, that's what everyone uses. Or that's just what you get when you get X, Y, Z, PC or whatever. If you know your product is better and you're stuck competing behind your competitors that, that's this category of the defacto standard if, if you became the industry standard that everyone else has to come up to the bar of what if your product standard became non-negotiable? Like how do you get to that level? That's this category.

Om:

I agree. one of the products I think about in this category would be, for example Adobe's, PDF

Brian:

Well I thought you were gonna say Windows was like, pDF's a good one. Yeah,

Om:

because there's no other alternative for Windows. I mean, yeah. You mentioned Linux. How many people actually do that?

Brian:

Adobe. Listen, Adobe. Adobe is the best example here because I have not used Adobe. I, I think in 10 years I haven't used like, Adobe's actual product.'cause it's, you install Adobe, you get so much bloatware, so much garbage, and there's updates every day. and they can do that because they know that like, well every enterprise is gonna see PDF and think I need Adobe. And because they're everywhere they can take advantage of that. Ubiquitous nature to throw a bunch of garbage in there that you just can't avoid.'cause people just don't know any better. And I, I guess I'm in the weaknesses of this category the weakness right away that I'm gonna start is like the weakness of disruption, which is because you're the standard bearer windows goes through this too, right? Because like Apple gained a significant stronghold against Windows with the MacBooks and like the Mac laptops and whatnot. Because like Windows went through a period where they got bloated with a much garbage and then like Windows 10 and Windows 11 were an immediate response to that, where they peeled it back and made Windows 10 able to run on like lighter weight type of stuff. That was a response to Mac gaining foothold in the market and being a real player. Before Windows seven, nobody had Mac laptops it was like a niche thing, right?

Om:

corporate world,

Brian:

especially in the corporate world. And now , I mean, it might not be 50%, but like I feel in the places I worked, it's been about. Between 30 and 50% of people have MacBooks basically. And that was just unheard of a decade ago. Because of the risk of disruption here. It's like you put a bunch of bloatware on your stuff, you know what I mean? You put a bunch of stuff that's not elegant, doesn't lend itself to help the user and users migrate somewhere else. They go somewhere else. So the risk of disruption, the weaknesses category of being the standard bearer is everyone's coming after you. Yeah,

Om:

yeah, yeah. Let me go to the other side for a second. So you become a household name, right? if you're a defacto kind of business model and you lead with a product that everyone knows. I'll give you an example. Most people talk about tissues, Kleenexes. They say, hand me a Kleenex. because Kleenex became a household name over the years. So it becomes synonymous now with what we're talking about. but we refer to a brand name, Good and bad it is good because, that's what people know it's bad because there could be another product that comes along that's better now they're significantly facing like a uphill battle to try and break through. Right? Right.'cause everyone knows what Kleenex is and nobody knows what this other brand is. so from that strengths perspective they have mind share and, market power.

Brian:

They have, they have a massive amount of market power. Yeah. I mean at the point, like Kleenex for example, or Windows, right? Sure they, they set the rules. I mean, windows, you don't need to mess around with drivers they just figure out what drivers for the device you just plug in and you just plug your devices in and you let Jesus take the wheel at that point the Windows for example, or Kleenex, like self-reinforcing network effect, more people that have a Windows machine. Honestly, or if, if I'm gonna take my weakness and roll it into the strength category of the Mac, the more people that have the Mac, the more snazzy it looks to people, the more people want a Mac. And now, like that cycle Is just self-reinforcing, right? It's a strength and a weakness. Like it's a weakness because like, you gotta watch out for people cutting away small corners of your market and then self-reinforcing them until they're like, whoa, this person's cut away 25% of the market and nobody notices, nobody said anything that's a big problem. The pressure to innovate is definitely working against you when you are the standard bearer in this category because there, there's no pressure. On the standard bearer to innovate. Maybe you have people internally that are pushing you, but in my experience in corporate America and in software development, and I was a product manager at one point where we had a hardware component to the software we were developing. The innovation when you are the dominant player is not, I mean, you can push as hard as you can, but there is a point where your pushing does not get your company ahead. It just damages your own reputation because you start being seen as like a trouble starter kinda.

Om:

I can see that.

Brian:

And that's when you're in a company that is already ahead, that is the predominant player, they don't like people rocking the boat. Okay.

Om:

Well there's if you try to do that, even for all the right reasons, the pushback from up on high is don't rock the boat. That's right. It ain't broke. Don't fix it.

Brian:

That's don't rock the boat. I say like innovation pressure. The only other thing about being the standard bearer that could be a weakness in the category that we haven't talked about is backward compatibility.

Speaker 6:

Right?

Brian:

A PlayStation, for example. They hate backward compatibility. They despise the idea that when they come out with a next gen console, they have to support all the games that came in the past. And consumers it couldn't be more North Pole, south Pole. Consumers absolutely want every game they want, they've ever purchased, ever to run on every console, ever.

Om:

do. I mean, look, sometimes from the perspective of the vendors, it's deliberate and built in, right, because they wanna be able to sell new versions of old games mm-hmm. Or new games. I understand that, but from a consumer's perspective, it is frustrating.'cause now you have all these games piling up, what are you gonna do with it? Right

Brian:

I mean like I'm not keeping points in this category, but if I was like, all the points would go to the crowd that want all their games to be compatible listen, I agree with that. You could put emulators in to run every That's right. if somebody, if Tony Stark could build an emulator in a cave, you could put an emulator on your latest gen console. Okay. Absolutely. So the defacto business standard model, it's all about becoming the industry default that everyone has to follow. And we talk about a couple companies here. I'm sure there's a dozen companies that we forgot about. Yeah. So if, if there's anything that you guys have that you can think about, let us know in the comments. So I got one more and then we'll finish for today. Okay. Om, do you know of a business model where customers pay more just because of the logo on the product? Do you know any products like that? Where do I start? Are you competing purely on features and price? because customers see you as a commodity? Are you frustrated that competitors running similar products charge 50% more? That's right. I said fiddy% more just because of their logo and hey, are you doing great work? But customers don't care because they don't know anything about your brand that could be this category, the brand as a business model.

Om:

Yeah. So some of the products that come to mind here Nike comes to

Brian:

mind. I was, I was gonna start right away with Apple.

Om:

Well, apple too.

Brian:

So what if you could work your marketing people to help you? Into a place with your brand where it creates so much emotional connection, emotional damage? Ooh, no, no, no, no. Not an emotional damage. No, no, no connection, emotional connection with your customers that they pay a premium regardless of the functional benefits. What if your logo alone committed loyalty into premium? That is the brand business model. Okay. So you see this with Apple? Absolutely. We already talked about that. You mentioned Nike, their, their markups, their different brands, flavored waters, there's tons of examples. we're gonna jump straight into the strengths of the brand business model. Strong brands command 20 to 50% premium because the customer pays for perception. This is the BMW of marketing. Customers believe the BMW brand. It's worth X, y, Z dollars even though it's a maintenance nightmare, even though it's not more reliable than any other car. Even though they can buy a new Mercedes and get better interior or whatever doesn't matter, even though every other car's got more horsepower, doesn't matter.

Om:

Right, right. It's almost like a blind or cult following. Yes. So one of the biggest strengths is the product sells itself, honestly. Yes customer loyalty. is there in droves, I mean people are just gonna buy it premium pricing you already mentioned but you know, marketing efficiency, they don't have to try hard to sell it to you.

Brian:

Right, right. Well, it's a funny thing you just said, marketing, like the efficiency. Because one of the weaknesses of this model is it requires a sustained investment of marketing. Yeah. Over years. Same message, same brand over years. And most companies are. They're done they're out. They're not even going to attempt something like this, a consistent brand for over a decade or more. From the time you decide you wanna spend money to position yourself in the market. What we're talking about is marketing positioning right Now. Where's, where's Martin at? Like, I can't believe he doesn't watch a podcast because like, this is like straight down his lane. By the time you decide this is what we wanna be known as, you gotta start spending money, you gotta start targeting your audience. You gotta start designing those products, . And that takes a lot of time and you're not gonna turn that around in like six months you need you, you need to know you, you wanna do that years ahead of time,

Om:

be it in for the long term. Yeah, absolutely. I agree.

Brian:

Yeah. And then again you do it, you start producing good products or whatever, one bad product, one bad campaign, whatever. You're setting your whole self back, your whole brand back. these are the weaknesses of this. and then of course all that assumes that you don't have serious competition breaking in. I mean, the early two thousands, audiophile market was just jam packed with competitors. Terrible market to try to break into you know?'cause there was so many good competitors back in the day. It's been years, so I have no idea who's Alpine's still in it. I don't, I don't know who's still in it.

Om:

You know, Alpine's still around. I missed my my DVD player, b Blu-ray player brand from apo. they've extracted themselves out of the market'cause they just couldn't compete. Yeah, they came in as an entry level interestingly, and then they just very quickly went up to a premium price. And probably that was their undoing.

Brian:

If you go up to a premium price without a pyramid in place. That's right. Yes. That's exactly what happened with that. The problem is other people come in at different segments of the pyramid imagine if you have a super low end product and a super high end product and nothing in the middle and a competitor comes in in the middle and erodes your high and your low end product. You know,

Om:

you're hollowed now to the core. Yeah yes. Pretty much that's exactly what they do. I mean, it's easy for the competitor then go up or down Yes. In the pyramid, whereas you're always defending.

Brian:

that's, the main weakness, if I'm gonna pick one in the category here that we're talking about of the brand business model, is that the competitive pressure, like you're always defending, if you're saying like, my brand is the premier brand, my name is the best in the business. When you think about soccer, you only think about a couple brands in your head, whatever those brands are. I'm not gonna say 'em on the podcast. Whatever those brands are, I guarantee you they always have a budget to defend their position.

Om:

Oh yeah.

Brian:

In that market that you are thinking about right now soccer or football, whatever it is. And they're spending a lot of money to do that. So if you're not willing to be continually spending that money,

Om:

yeah. It's tough. I mean, one of the biggest challenges there is if you are willing, right? How do you measure brand value? That's always difficult measuring impact.

Brian:

I think if you're trying to build a brand. It's gonna stand the test of time, and you're constantly asking like, how much money do I have to like, what's the ROI or whatever. I think you're in the wrong business. Exactly. I think you have the wrong business model, and you probably want to explore one of the other business models that we've talked about. The brand business model, it's all about creating emotional connections, not non emotional damage, attachment, not emotional damage that justify premium pricing beyond these ROI functional benefits. Yeah. You know, what do I get if I put this many marketing dollars? That just doesn't work for BMW and Adidas and Nike and those guys. We've gone through about half of the business models at this point. Maybe we'll do a follow up and get the rest of the business models. Definitely do a follow up. So look for that and like the podcast if you enjoyed this review of business models and let us know other topics that you want us to dig into,

Om:

like, and subscribe.