Paul Revere made his famous midnight ride to warn the countryside of an attack by the British. He asked his friend, who was to be in the North Church tower, to light one lantern if the attack was by land, two if by sea. Seeing the first light flicker in the belfry, he leaped astride his horse and whirled to take one more look. A second flame! The attack would be by sea and Revere set out at a thundering gallop to take his place in history.
I wish we had someone in a tower who could look and listen for the shuffle of British feet manning the boats on shore. We are not so fortunate, though. We know only that our nemesis--an economic meltdown--is lingering in the dark, waiting to attack like our oppressors of that time. Whether it comes by land or by sea, we do not know.
In a sense, all of us are looking toward that tower. Like the Americans of Revere's era, we have endured the harassment and insults of arrogant and incompetent tyrants. We know the big attack is coming, but from where? Deflation? Inflation? A major depression?
Our leaders think that injecting trillions and trillions of dollars of paper money into our economy will keep the enemy at bay. It may, for a while. In the end, though, the bill will come due and the unholy legions will come calling. When it does, where will you be? Asleep in bed armed only with a sheet of paper money or in a financial fortress built of solid knowledge and sound discipline?
Wake up, my friends. Midnight is upon us.
Thursday, March 19, 2009
Tuesday, March 10, 2009
Business Models
Business Models
Remember those plastic models kids used to put together? I put together a few. My favorites were fighter jets. When the model was finished, I had a replica of something much too big to keep in my room. Even though it was small, I could imagine the fighter jet in all its wonder, down to the finest detail. It was neat, being able to have a small and manageable version of something so large and powerful.
Models have a more serious use as well. Aeronautical engineers make small versions of jets before they build the real thing. They want to put it to the test and make modifications after seeing its performance in a wind tunnel and under various forms of stress. Only after examining the model's performance closely do they risk the time, money, and lives to build a real jet.
Business models are like that. They help us see ahead of time what a business is likely to look like when it opens and after it has run for a certain period of time. Just as no model jet can reproduce every possible event in the life of a real jet, a business model cannot tell us everything that will happen when the real business is up and running, but it sure can help us tell whether it will fly.
Just as all airplanes have certain things in common, so all businesses have certain things in common. ALL businesses operate on the concept of value-added. A business takes something in, say raw materials, makes it more valuable, and then sells it for more than was paid for it. When the selling price per unit exceeds the total of the cost of the raw material and the cost of adding value, the business makes a profit.
Raw “materials” do not actually have to be “material.” An author takes his/her knowledge and transforms it into a book. One might say that the author takes paper or digital media and adds value by adding words. Words are free, at least so far, so the author creates something out of nothing. Remember that next time someone tells you it takes money to make money. Advertising firms take a product or service and increase the perception of its value in the eyes of the consumer. What a wonderful concept! Creativity pays. Hotel owners and managers increase our comfort and convenience by using a building a certain way.
Try this exercise. Look at each business you see today and ask yourself what the basic business model is. How do they create value by transforming something “raw” into something refined and useful? Notice which businesses do a good job of this and which ones need improvement. Think about how you would do things differently. Write down some ideas for improving the business models of businesses you know nothing about. Then, tell me what you learn!
Remember those plastic models kids used to put together? I put together a few. My favorites were fighter jets. When the model was finished, I had a replica of something much too big to keep in my room. Even though it was small, I could imagine the fighter jet in all its wonder, down to the finest detail. It was neat, being able to have a small and manageable version of something so large and powerful.
Models have a more serious use as well. Aeronautical engineers make small versions of jets before they build the real thing. They want to put it to the test and make modifications after seeing its performance in a wind tunnel and under various forms of stress. Only after examining the model's performance closely do they risk the time, money, and lives to build a real jet.
Business models are like that. They help us see ahead of time what a business is likely to look like when it opens and after it has run for a certain period of time. Just as no model jet can reproduce every possible event in the life of a real jet, a business model cannot tell us everything that will happen when the real business is up and running, but it sure can help us tell whether it will fly.
Just as all airplanes have certain things in common, so all businesses have certain things in common. ALL businesses operate on the concept of value-added. A business takes something in, say raw materials, makes it more valuable, and then sells it for more than was paid for it. When the selling price per unit exceeds the total of the cost of the raw material and the cost of adding value, the business makes a profit.
Raw “materials” do not actually have to be “material.” An author takes his/her knowledge and transforms it into a book. One might say that the author takes paper or digital media and adds value by adding words. Words are free, at least so far, so the author creates something out of nothing. Remember that next time someone tells you it takes money to make money. Advertising firms take a product or service and increase the perception of its value in the eyes of the consumer. What a wonderful concept! Creativity pays. Hotel owners and managers increase our comfort and convenience by using a building a certain way.
Try this exercise. Look at each business you see today and ask yourself what the basic business model is. How do they create value by transforming something “raw” into something refined and useful? Notice which businesses do a good job of this and which ones need improvement. Think about how you would do things differently. Write down some ideas for improving the business models of businesses you know nothing about. Then, tell me what you learn!
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