Entries in business model (28)


Success factors for African entrepreneurs

The associate director for Africa at the World Economic Forum, Rueben Coulter, recently posted his thoughts on what successful entrepreneurs do differently from those who fail.

Coulter first observes that entrepreneurs in Africa face unique challenges because they most often exist in a broken system — where poor infrastructure, intermittent power, inaccessible markets, and high-interest loans create steep barriers to success.

The factor that he focuses on to address these challenges: partnerships.

Most entrepreneurs single-mindedly focus on solving a particular problem, however when you work in a broken system then it will require a diverse set of partners to respond."

And in order to build the kind of partnerships that will serve an entrepreneur well, Coulter recommends the following:

  1. Adopt a systems-thinking approach
  2. Build a diverse network
  3. Identify a trusted broker
  4. Invest time upfront in finding the right partners
  5. Innovate your business model
  6. Say ‘no’ 99% of the time

 He closes with a fitting African proverb that I enjoy: If you want to go fast, go alone; if you want to go far, go together.

-- Jay Jakub


Container Store -- ongoing case study of "conscious capitalism"?

Kip Tindell, the CEO of the Container Store, is featured in a Bloomberg Business article that looks at the tensions publicly-held businesses face between principles based on some form of mutuality and demands made by investors.

The Container Store's was launched in 1978, and was privately held (in partnership with a PE firm) until late 2013. It has operated from the beginning with a conscious capitalism business model that is summed up this way:

  1. Pay employees well and treat them with respect
  2. Consider suppliers and customers as family
  3. Have fun

However, by 2013 Tindell was was looking for ways to fund expansion to smaller markets, and to increase employee stock ownership options. He decided to take the company public.

In the lead up to the company's IPO, Tindell told his executives that he hoped to get along well with shareholders, and that he'd prefer long-term investors over short-term ones.  But on a public exchange, you can't pick who buys your shares.

If you retrieve your lure too fast you’ll never catch any fish. It’s stunning how slow you have to go. If you think you’re fishing slowly enough, fish half again slower, and you’ll catch many more.”

Since the IPO, Tindell has taken heat for not being aggressive enough on costs -- including employee salaries -- and not moving fast enough to shore up profit margins. He is standing on his principles for now, and hoping his shareholders will see the value in the long game.

Image source: Bloomberg Business

-- Clara Shen



Foundations as majority owners -- impact on performance 

When businesses are owned by charitable foundations, how does this affect corporate performance?

Starting with the statement that conventional economic theories predict such companies should be highly inefficient, Steen Thomsen from the Copenhagen Business School and Henry Hansmann from Yale Law School assess the relative performance of foundation-owned businesses vs. investor owned ones in this paper.

The model has some degree of viability, as charitable foundations are majority owners of a number of leading global companies, including the Tata Group, Robert Bosch, and Bertelsmann. Since their framework provides the boards of such companies an immunity to outside discipline, while removing compensation incentives, one might expect such companies to underperform their investor-owned peers. Yet earlier studies have found that foundation-owned businesses seem to perform as well as more conventional investor-owned companies.

Thomsen and Hansmann's research findings provide an additional level of insight to these findings:

We find that, overall, foundation-owned companies have similar accounting profitability, take less risk, and grow more slowly than listed investor-owned companies."

Overall then, the their analysis suggests that foundation-owned companies do not underperform -- and may even overperform -- their investor-owned peers in some areas (though more work is needed to bolster the later). The authors note two possible interpretations for the results:

  1. All ownership structures have inherent disadvantages; and
  2. The long-term outlook of foundation ownership provides compensating advantages.

These investigations are interesting, and can inform our own efforts to understand different business models and innovations.

-- Bruno Roche


Power of platform business models

Marshall van Alstyne (MIT) paints a compelling picture of the power of "platform business models" (like iTunes, Nike or Amazon), captured in this presentation from late 2013 (video, slides only). In my opinion, he gives an effective and powerful list of the factors fueling the business success of "platforms":

  • Direct connection to the consumers / users ...
  • ...and therefore an opportunity for data collection (data being the most fundamental asset and currency of the knowledge economy)
  • Network externalities (in simple terms: "more developers unwittingly attract more users, more users unwittingly attract more developers", this is why Google subsidized Android developers until they reached critical mass)
  • Radical consumer centricity
  • Openness to partnership with complementary services / players
  • A radical cultural shift from a product or service mentality to an "ecosystem" mindset, where companies often have to relinquish part of their total control over their products or services to profit from the ecosystem (Google does not control what applications are put in its store by developers, it just takes a cut of the profits)
  • Smart asymmetric pricing strategies based on a good understanding of multi-sided platform economics (e.g. a bar that offers free drinks for girls to attracts more girls and therefore more boys for whom the prices will be much higher).

The video is a bit long but I really recommend it for anyone interested in a thoughtful interpretation of why Apple and Amazon are such successes vs. companies that may have looked similar at some point but clearly did not achieve the same success.

Image source: Redactie Emerce

-- Yassine El Ouarzazi


The case for encouraging entrepreneurship in family businesses

If a business is committed to creating value, it must invest in new lines of business and cultivate broader expertise inside and outside the company, according to a Harvard Business School Working Knowledge paper by professor John A. Davis.

From perspective of the business, today's environment rewards agility: as certain lines of business wane, companies must be able to identify new opportunities (inside and outside of their current sectors) and pursue them in experimental, cost-effective ways.

Families that want to stay in business for another generation don't have a choice except to encourage entrepreneurship in and out of their company."

However, Davis argues that entrepreneurship is even more important for the family. Entrepreneurial families are more successful over many generations than others because they diversify their business interests, invest in future capabilities, and encourage family cohesiveness.

-- Bruno Roche