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Managing the Impossible with Business Modeling

Thu, Mar 12, 2009

Published (English)

Managing the Impossible with Business Modeling

 

Someone in Nepal is going to become listed in Fortune 500 soon in the coming decades.  This Nepalese tycoon will hit this list of the richest 500 people in the world and we will not have any inkling about it prior.  Then slowly he will rise to the top 100.  Inspired by the possibility of this giant, soon there will be many other Nepalese in this list.  Soon it will be common understanding that Nepalese have what it takes to command the riches of the world.  This prophecy may seem far-fetched but with the correct business model and life model it can be more than a fantasy. 

 

What is a model?  It is a set of concepts that explains how certain things occur and that predicts how they will behave if certain factors are manipulated.  If we get the model right, it means we could achieve miracles by manipulating certain parameters.  If we operate under a misguided model, all our efforts to get desired results will go in vain.  Billionaires of this world discovered a correct and accurate model; they exploited it to the fullest; like a good cow their model yielded plenty of cash.  A good model can thus also be called a cash-cow. 

 

The best illustration of business models can be made by a case study we shall call Bill Gates of Microsoft (Windows) Vs Steve Jobs of Apple (Ipod).  Analyzing these two entrepreneurs is like testing two genetically identically specimens under different situations such as different diets or medications.  Such scientific experimentations shed untainted insights into the objects under investigation.  For example, we want to find out whether a meat diet is better than a carbohydrates diet.  You could make a person first have a meat diet, test his vital signs.  Then you treat the same person with a carbohydrate diet, and again test his vitals.  But there is a problem with this method.  Many things would have changed during the time of the experiment itself and it would take very long.  The next best thing would be to give one person the meat diet and the other the carbohydrate diet, and take tests.  Almost good but these two persons are internally different so we could not say exactly which results are attributed to the diet and which ones to their varied genetics.  So to avoid all this we get twins that are genetically identical in the experiment that consisted of a day-long marathon.  The observation was that the meat eaters started to pant more than the rice eaters who won the race.  The conclusion thus was that carbohydrate diet is better than meat diet for physical work. 

 

In this case study of Gates Vs Jobs, we want to test two business models.  God completed this experiment for us, by the way.  However to make it interesting we will unfold it as though we orchestrated it.  One business model (A) is: “Hardware and software must be marketed by the same company.  These two are inseparable.  In this way we get income from both.  The company will thus have a monopoly because everyone wanting our ‘great software’ will have to buy our hardware too.” 

 

The other business model (B) we want to test is: “Software is a specialized business.  You can’t be the best in both software as well as hardware.  Everyone can make hardware.  Only a few can make great software.  The development of both must be separated both for the sake of quality and the quantum growth of the computer or information technology industry.  Software our company makes must be licensed to hardware companies.  We don’t want a monopoly in hardware and software, just software.  It will be cheaper to buy software from our company than starting from scratch.  As a result the same software will be used in a computer in America as well as in Nigeria.”

 

Gates and Jobs are almost genetically identical in terms of business acumen, futuristic inclinations and ambition.  99.9999% of the world still can’t figure out how to transform electrical inputs into a language that computers understand so that they can do our dirty work.  These two fellows knew the language of 0 and 1 (binary codes), decades ago.  It is said that Gates learnt his trade from Jobs. 

 

In this experiment like in the case of the twins above, Gates and Jobs were made to run Microsoft and Apple respectively.  Jobs was given model A to use and Gates model B.  At the beginning having an Apple computer was hot.  No body cared about Microsoft.  Then Gates sold the license of his DOS (Disk Operating System) to IBM who was the giant in hardware.  It became a rage.  IBM rose and Gates got a free ride.  According to his model, Gates sold the license of DOS to other competitors of IBM too.  According to his own model, Jobs refused to license out his Apple software to anyone else (it is true till date). 

 

The results of this experiment were that Apple lost popularity owing to its expensiveness and lack of design variety.  People wanted choice and variety when it came to hardware but as for software they wanted uniformity, one common language.  Gates thus won the jackpot.  He hit the market where it mattered. 

 

The conclusion of Gates Vs Jobs is that model B was a much better than model A.  Of course now Apple came back with Ipod in a storm. The success of Ipod is still based on model A.  Yet we can safely say that in the computer war, the concept that software development must be separated from hardware development was the one, that landed Gates his billions of royalty. 

 

What does it mean?

What this case study is trying to imply is that if one has a correct business model then he will become rich.  So if you want to become the next tycoon of Nepal it is high time that you start developing a super business model.  It could be as easy as that.  Again on the downside, if by chance like Jobs of Apple, you are confusing the incorrect model for the correct one, out of stubbornness, ignorance or plain attachment, you must jump off the boat before you sink along with it. 

 

Deciphering the business model of Nepalese tycoons

American business is well documented.  The same cannot be said about Nepalese businesses that work under a veil of mystery.  How to explain the tremendous fortunes of Binod Chaudhary, late Mohan Khetan,  late Mani Harsha Jyoti , late Hulas Chandra Golcha , BK Shrestha (Everest Bank), and the many people who are not in the limelight? 

 

Was it accidental: being in the right place at the right time?  Was it destiny: fruits of good karma in the past life?  Was it shrewdness: ability to outwit the law and the competition?  Was it hard work: not shutting off their brains ever?  Was it connections: strong relationship with the movers and shakers of Nepal?  Was it proper timing: ability to take the number one position?  What was it? 

 

But the problem doesn’t end in knowing what the cause was.  What we want is to investigate the business models of these ultra-rich (in terms of Nepalese context) followed, understand them, modify them (that is keep what works and throw what doesn’t) to suit the present scenarios and new industries, and finally use them to be hyper-rich ourselves.  Another approach would be to do a comparative analysis of their different business models, discover principles that are in common, then use the same governing principles to develop new models. 

 

All the above personalities have one thing in common.  They started small. All of them started from trading.  Most of them were involved in trade between Nepal and Tibet.  Many others of their contemporaries too were in the same trade.  However, the above were different. 

 

At that time the business model of their friends who never rose to even one hundredth of our tycoon’s height must have been something like this: “Business is about buying cheap and selling at higher price.  I am a trader and that is all.  The profit is my income.  I must save it for my children.” 

 

On the other hand the model of the people who got rich later must have been something in the line of: “Business is like a plant.  The profits I make today will be the seeds for tomorrow.  I must be able to sow my seeds in fertile new businesses.  I must groom my children so that they will nurture the seeds I have sown.  Now I am a trader, tomorrow I will be whatever has a huge untapped market.  I don’t save for my children, they must earn their living from the fruits of the forests of businesses my profit seeds will have grown to.”

 

Are the models true?  Only the tycoons above and their mates will know the answer.  But if we extrapolate the models into the future up till half a century or more, they make logical sense: facts corroborate with theory. From simple traders, these people have their hands into practically every commodity businesses and industries of Nepal and their children are still taking care of their legacies.

 

Making your own business model

Coming into the 21st century, stung by the lure of riches flaunted on the many channels in cable TV, bombarded with multitudes of desires, with egos bloated with better healthcare, education and longer life, impressed by stories of nobody’s rising to great heights, electrified with passion, ambition and enhanced brainpower, we Nepalese want to become tycoons too. 

 

Of course it takes more than the correct business and life model to make it big.  But it starts there once the intense desire has been conceived in the heart. 

 

The fundamental block (figure 1) of wealth is a system that has an input, an output and a by-product. For example take a furniture factory.  Many people have got rich from this system.  The input is wood or timber and capital (for the machinery).  The output is furniture.  The by-product is the profit.  Take another example a school.  The input is students and capital (for the infrastructure).  The output is educated students who pass SLC.  The by-product is profits.  Take a restaurant.  The input is raw material and capital (for the layout).  The output is satisfied customers (whose stomach and minds are full).  The by-product is profits.  Every time in order to increase the profits, you must increase the rate of conversion from input to output by the system. 

 

Business (system)

Input

Output

By-product

 

 

 

 

 


Figure 1

 

 

 

Leader

Followers

Supplier

Client

Employee

Technology

Machines

Knowledge

Such a system consists of four sides (figure 2).  The first pair is the suppliers and the clients.  In the case of a bank, depositors are the suppliers and the creditors are the clients.  For a movie theatre, film producers are the suppliers and the moviegoers are the clients.   The second pair is the leader and the followers.  Every business in the beginning was nothing more than an idea.  Without followers the idea can’t grow into a business.  Without idea (leader) there can’t be a business.  Inside the rectangle of this system are the employees, machines, technology, and knowledge. 

 

 

 

 

 

 

Figure 2

 

Now that the business basics are clear, it is time to focus on your strengths, weaknesses, interests, inclinations and aversions.  There are many roads to fortune.  David Bekham got there by playing football and posing on ads.  Sarukh Khan got there by acting and posing in ads.  Micheal Jackson got there by singing and buying the copyright to the Beatles songs.  Richard Branson of Virgin got there by investing in soft drinks to airlines and resorts.  Donald Trump got there by buying and building real estates in New York.  Sidney Sheldon got there by writing best-sellers.  Andrew Carnegie got there by operating steel factories.  Warren Buffet got there by buying stocks.  Napoleon Hill got there by studying how rich people got rich and revealing the secrets to the world. 

 

Once you know what you want and what your limitations are, you are ready to make a business model.  It must answer at least the following questions:

  1. What is the input and output?
  2. How you are going to utilize the by-product (profit)?
  3. Who are your suppliers?
  4. Who are your clients?
  5. Are you a leader or a follower? 
  6. What will be roles of your followers? 
  7. What type of employees is needed? 
  8. What machines and technology is needed?
  9. Where to find the knowledge required? 
  10. How will this system grow? 

 

If you asked Bill Gates these questions he would probably answer as follows:

“In my model, the input is creativity and the output is software.  The suppliers are those who provide the CD’s and packing to store and sell our software.  Our clients are hardware manufactures although users are individuals.  We use our profits by re-investing them in research and development to prepare for the next technological leap like we did with the internet, although critics say we were late.  I am the leader and my follower’s role is to keep up with my pace and vision.  I need nerds (people with high Intelligent Quotient and low Emotional Quotient) as employees.  I need the best computers and packaging units. The knowledge that will keep me in number one position is in devoted staff that is why I like to pamper them. My business will grow by taking free-rides (that is licensing software to hardware companies).” 

 

If you asked a would-be Nepalese tycoon this is how he may respond:

“In my model, the input is raw materials and products from overseas and the output is finished products and value-added products. The suppliers are manufacturers inside Nepal and abroad.  Our clients are locals and foreign parties.  We use our profits to invest in any emerging businesses that may be a luxury item today but will become a basic need tomorrow.  I am a leader and my follower’s role is to take care of the operations while I keep a strategic and big picture view of the business.  I need hardworking and result-oriented employees.  I need affordable machineries and technology, just for the basics.  The knowledge to keep abreast of competition is in the developed nation: I must copy their successful models, modify and implement them here in Nepal before any body else does so. My business will grow by becoming the brand of choice and through my reputation as most reliable and promising partner.”

 

Never say, “Never”. You could be the next Nepalese billionaire in the Fortune 500 list.  Why not? 

 

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