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

Episode Transcript
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Brian (00:00):
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 calledThe Art of Profitability by
Adrian Slywotzk y Say that threetimes fast! So this is gonna
be a pseudo book review.
And I hope nobody gets hurt.

Om (00:15):
Alright, well, at the end of the
podcast we could say nobody gothurt in the making
of this podcast.

Brian (00:20):
I mean, I hope so.
the art of profitability.
This, this was recommended to meby someone who is
sick of airport business books.
And they said thatthis was actually
good because it'sdone in the way that the Phoenix
project is done.
So, so there's a story.
Yeah.

Om (00:39):
It's this book though.
It's not a new book.

Brian (00:41):
No, this is, it's from 2002.

Om (00:43):
It's even older than the Phoenix Project.
I would think it is.

Brian (00:47):
let's go to the internet

Speaker 3 (00:47):
here.

Om (00:48):
Internet to the Rescue, the Phoenix Project.

Brian (00:50):
By Jean Kim, Kevin Bear, and George
Spofford SP 2013.

Om (00:56):
Yeah.
So this predates it byquite a ways.
Over a decade.

Brian (01:00):
Yeah.
Well, this book is all aboutbusiness models.
So if you've everbeen screamed at
of we need a new Business model,

Om (01:07):
well, our business model is not right.

Brian (01:08):
Oh, or whatever.
This is for you.
If you didn't get your MBA froma prestigious university, then
let us fill in some of the gaps.
Let us fill in what youslept through.
So we're gonna go through thebusiness models and we're gonna
help y'all understandthe pros and cons of each
business model.

Om (01:24):
Let's go.
you wanna know the businessmodel that makes customers so
dependent on you, that theycannot afford to leave, they can
never get out?
I wanna hear about itbecause I am tired of being
treated just likeany other vendor.
Constantly competing on pricealone because the customer
doesn't know any differencebetween any of our services.
Like every time Ihave to win a deal

(01:45):
I'm losing themnext year because
the prices comedown and down and
down or, or it'sso cheap that the competition is
stiff and, I'm solving a realworld business problem, but
the customers are treating allof my products and everyone
else's, like their paperclips.
This model is what we're calling the customer solution
business model,

Brian (02:02):
and the customer solutions model, you'll
recognize fromour podcast on the
forward deployedsoftware engineer
via our favoritecompany out there, Palantir Pal.
so if you stop selling productsand start selling
entire solutions to businessproblems you become so embedded
in their operationthat replacing you that it's
prohibitive.
It's, it's, it's just costprohibitive.

(02:24):
It's, it's, I'm not gonna sayit's impossible, but there's so
much you need tothrow away to get to that point.
So you see thiswith giants in the
field, what youthink of as giants in the field
right now, we already mentionedour favorite(evil) business,
Palantir, but also Giants likeSalesforce and people do rip out
Salesforce, right?
But I'd also throw I Salt Bayin some other ones out there

(02:45):
like SAP, right?
Companies that have SAP they'remarried, they're
never getting out.
They're like, itis not even worth
it to, to lose thekids in divorce.
Yeah.
They're just not getting out.

Om (02:55):
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 tohelp you, which means you have
to pay them.
So the cost of leaving them justwent even higher.

Brian (03:09):
So, strengths of this business model, let's hit the
strengths of this business model

Om (03:13):
the biggest strength is really
I guess the high switching coststhat prevents your customers
from leaving you.
Right.

Brian (03:19):
Makes sense.
'cause we werejust talking about
the high switchingcosts like that.
Yeah, yeah.
I work with a bunch of IBM teamsand PWC teams and
Deloitte teams.
When I was a contractor thatpart of my career where I was a
contractor and'Cause I was inelectric delivery
and natural gas.
And in that industry,, theydon't do software development.
They hire software developmentvendors to come in, implement
their, some customized solutionsAnd customize it and tailor it

(03:42):
to their needs via customersolutions.
Palantir does the same thing.
Palantir goes out on theinternet and claims hey guy.
Hey buddy.
We're not evil.
We just have a platform and wejust send our forward deployed
software engineerson site, and they help the data.
That's a technicalterm by the way.
They help mung the data ontoour platform, and sometimes
our platform needs to beextended and those features help
other customers or whatever.

(04:03):
But once you've had somebodyon site for a year and a
half, learned to integrate yourdata, learned about all your
data and your business flows,built data models
that maybe you'venever even built yourself and
brought your data into thisother system, how are you gonna
separate from?
So you're gonna throw away allyour relationships with all
these people.
You're gonna throwaway the business
critical processes that you'vebuilt around this software.

(04:25):
You are gonna throw allthat out.
Yes, it's possible.
Come on.

Om (04:28):
But it's gonna be painful.
Come on.
A painful divorce.
Look, you're gonna lose the mainknowledge too,
that you, your owncompany may not
even have anymore.
Because you've got contractorsin the house for
a long, long time.
Learning about your business,integrating it with some
other solutions.
Third party perhaps yourown people may not even know
that stuff.
So how are you going to getyourself out of that job?

Brian (04:48):
Yeah.
Another advantage like, I mean,high switching costs, like right
there, you canbasically upcharge
charge whateveryou want forever.
Massive price increases yearover year, because again
throw us out.
I dare you.

Om (05:00):
Yeah.
Premium pricing.
So that's like another one ofthose discussion points here.

Brian (05:05):
You know, from the perspective of the company
running with thecustomer solution business model
like a bank of recurring revenuethat you can plan
on, your financialfolks in-house are probably
pretty happy.

Om (05:17):
So this is like any services company like IBM,
global Services,any of these big
companies that arebasically leading with services
and signing up large contracts,multi-year contracts.
They have a predictablerecurring revenue stream.
For the foreseeable future.

Brian (05:33):
One of the reasons they have
that predictablerecurring revenue stream is kind
of what I said earlier, is youhave this team,
like the old, the Deloitte teamsused to be like ENG engagement
teams and PWC hasadvisory teams.
Once you have thoserelationships, you have that
team lead or whatever youcan call up, or the Deloitte had
project managers.
I'm not sure whatother people have,
but you have that person you cancall up when you have a problem.

(05:54):
They just solve it for you.
You have a depth of relationshipthat, again, it's from the
perspective of this is yourbusiness model.
This is a strength to you.
You know, it goesback to our first point of high
surgeon costs you're not easilygonna get out of
this relationship.
You gotta move and change townsand change your
address and change phone numbersat that point but there are
weaknesses to thisbusiness model.

(06:15):
And you're not gonna get awaywithout us talking about
the weaknesses.

Om (06:18):
weaknesses, yeah.

Brian (06:19):
Number one.
Do you know the number one?

Om (06:21):
I don't know the number one.
I would say that there's not awhole lot of players in here.
If you're tryingto get to market quickly you're
not gonna be able to do that.

Brian (06:27):
Long sales cycle.
Long sales cycleis not what I had as number one,
but long salescycle is a hundred percent true
you, you've gotta prove your, Imean, 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 workwith and the IBM
teams that I work with, I mean,they, they sent a minimum of a

(06:48):
half dozen peopleonsite For months to learn your
business, learn your processes,learn your business, right.
Learn the players, learn who thepeople are, all the stuff on the
product side of the house, andalso all the stuff on the people
side of the house.
They had to learn both thosethings and that's what they're
paid to do.
And that takes time too andit takes a lot of money.
A long sales cycleto to, to spin that stuff up.

(07:09):
And a lot of that mightbreak companies just, just in
and of that in and of itself.
But no, the numberone thing that I was gonna point
out was this doesnot scale easily

Om (07:19):
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 traditionalpublishing business, I
remember going into clientsand spending months with them.
At the end of the day, whenyou are parting company with
them, there's somuch nervousness around, you're
leaving but I've been here18 months.
You should know all this stuff.

(07:40):
I've done multiplerounds of training
they're nervous because theyknow where the expertise is.
And they're so scared oflosing that.

Brian (07:46):
Theoretically you should be able to
bring your forward deployed teammembers on, have them stay there
for a period of time, and thenyou should be able to slowly
roll off members of the team asthe solution gets up and running
and is stable you know andthere's the contractual
obligations and whatnot.
But theoretically,you do the full court press at
the beginning of the contractfor the first couple months or
whatever, and thenone or two people

(08:08):
fly back and theyshow up Monday, Tuesday, and
they're gone therest of the week they get like
one or two peoplecan maintain the whole solution.
That's, that's what they hope.
They hope one or two peoplemaintain the solution.
Still bill the whole contract.
That you were billing with awhole team and now the money
starts rolling in.
So again, long salescycle doesn't scale easily.
You gotta go geta whole team to, to go out and

(08:31):
deploy this thing.
Because you gottahire a whole team,
you have very highdelivery costs and then all that
aside, if we put all that asideboy, somehow the relationship
sours and one of these contractsdoes not renew.
That's a lot of investment.

Om (08:46):
Away.
That happens often whenthere's a change in ownership
or change in structure, likesomebody gets in
the m and a world, for example,that's when it happens and yeah,
I mean, over theentire industry,
I guess billions are wasted inthis way, but at
a company level, depending onthe size of the
company, it couldbe a lot of money.
It could be millions, thatthis is basically the cost of

(09:08):
switching that is actually paidat this point.
Because the new leadership thatcomes in has new ideas and
often these are radical ideas.
So instead of having partnersthat we rely on to help us.
We're gonna do homegrown workwe'll start with a clean slate.
Well, okay.
But now you're building thewhole house from the ground up,

(09:28):
including digging the footings.
It is gonna be veryexpensive right.
And that's what happens.

Brian (09:33):
So that's, the customer solutions business model.
So there's a lotof hype generated
by Palantir for the benefit ofPalantir and that like the
customer solution, it the spinis what it is.
I love that we'restarting with the
customer solutionbusiness model, because again,
this was the big blue businessmodel, right?
IBM rolled out way back, maybethe sixties, seventies, sixties.

(09:53):
You needed the servicesof their big computers, AKA,
the mainframes,and you had to go
to the IBM folksor have them come
in house to say,Hey, go run these
numbers through the computer,go punch these
cards or whatever.
Like this businessmodel's old, I mean, it's old,
and the fact that people thinkthat it's new, on one hand,
it concerns me.
On the other hand, it'sabout becoming irreplaceable

(10:15):
by solving the entire problemnot just selling a
product or selling a service orwhatever it's kind
of doing both.
And, if your company's willingto pay the cost, it's a great
business model.
It's a great business model.
It was a great business modelin the sixties and seventies.
If you have questions aboutthe customer solutions business
model or Palantir go ahead andhit us up in the comments.
We're, we're happy to be hereto answer all of your business

(10:37):
model questions,and to do stunts.
We're ready to move on to theproduct pyramid, business model.
Yeah.
Let's move on to the next model.
so om, do you wanna know thebusiness model that lets you
compete at every pricepoint and still make a killing?

Om (10:50):
Ooh, every single price point.

Brian (10:52):
Are you losing customers to cheaper competitors?
Are you watchingbudget conscious
buyers walk away because yourpremium product is outta reach?
And are you frustratedbecause you know that different
customers havedifferent budgets, but for some
reason your business modeltreats them all the same.
And if you're worried aboutthose things what if I told you

(11:14):
there's a way you can serveevery customer segment by
creating a tieredproduct strategy?

Om (11:20):
AKA horses for courses?

Brian (11:22):
With the the pyramid Business Model.
Your low end products serveto block off low end competitors
so that you cansell your premium product with a
massive margin without thosedifferent levels creeping in.

Om (11:37):
So can you think of companies
like that, that use, that model?

Brian (11:40):
Oh, I can think of a big one right now that probably
everyone knows which is appledo you remember when Apple came
out with the se and they, applehated that phone.
I don't know ifyou remember this.
I remember that the Apple hatedthat phone.
There's no copy paste on that.
They, they tried to kill the seand I think that was the one,

Om (11:53):
right.

Brian (11:54):
No.
The SE was an iPhonesix or seven.
inside the guts of a five.
So basically, people love thesize of the five.

' Speaker 4 (12:03):
Sure.
Like there are people thatare not seven foot
tall or whatever that need,

Om (12:07):
you don't need a tablet in your hand.

Brian (12:08):
But Apple wanted to sell the plus series of phones, the
big phones that they charge anextra whatever, a hundred, $200
or whatever for.
Yeah.
That's what they wanna selltheir premium product and
they hated those SE phones, butpeople loved it.
And like, which is funny becausethat was the reason they came
out with that second generationSE, is because there was such a
demand for it thatpeople loved that
size form factor.

(12:29):
And then Apple essentiallyrelented and came out with it.
Anyway, there's otherexamples here.
The Tesla Model three, model Sand the Model X different
tiers of pricinghotels that have
different tiers.
Oh yeah airlines that havedifferent classes well, back in
the day now kindof, everything's kind of
This is solving every tier ofproduct and using them to block

(12:50):
and tackle so that people don'tovertake your.
Mid to high tier with their lowtier offering.

Om (12:58):
Tesla you mentioned.
But I think it goes back tobefore Tesla the traditional car
companies, the big three, right?
They had a Yes.
Family of products.
Yes.
Something for everyone gM was

Brian (13:10):
Exactly, they had Chevy and at the top
tier was Cadillac.
That's right.
And that's, that's in the that'sin the art of profitability.
That's in the book that thiscame out of.
So let's let's getstraight 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 (13:26):
you're also protecting your market.
Yes.
From external Yes.
Entries, right

Brian (13:31):
you're covering the market.
You're capturing customersacross, willing to pay segments
wherever they are.
you're basicallymeeting 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 (13:42):
that's like a, which is their path to better
and better things within yourown ecosystem.

Brian (13:46):
That's like a, meet them where
they are, yeah.
It's like, oh, well the customercan't pay more than 10,000,
so I'm gonna design a $10,000automobile.

Om (13:52):
And when they have the wherewithal, they
can go up to the$15,000 model inour own family of products.

Brian (13:58):
Right.
So that's brilliant.
I mean, because if you don'tmeet the customer
where they are attheir 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 interestingpodcast.
It's not reallyin our swim lane, but that would
be an interesting history lessonto learn.
There's governmentsubsidies at play
as well In this, and tariffs anda whole bunch of other stuff.

(14:21):
But if you really were to stepback and look at it to say,
well, what market are we tryingto serve you?
Like, what is your goal?
You know, and ifthe whole company
is based on thatgoal, again, like
a GM has differentcompanies that are, their
goals are to service specificmarket segment.
Mm-hmm.
I mean that modernA GMI don't know, they only sell
150,000 trucks or whatever.

(14:42):
So I don't know whatthey're doing.

Om (14:43):
yeah.
Got with their what's down byother companies.

Brian (14:45):
Com, the competitive defense of this,
we know that thereare customers, and
we think that thisis the total, the
total addressable market dividedin 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 othercompetitor doesn't
start from the bottom of thepyramid and then

(15:05):
work their way up.
Well, we start atthe top and work
our way down, andwe never really get all the way
down because it's just notworth our time.
So this model, Ithink you already hit one of the
other strengths ofthis model, which is the natural
upsell path here customersobviously as they
buy their entry level car andas they progress in life and
make more money, they eventuallyend up buying the Cadillac.

Om (15:27):
Yeah.
And you can lure them, I guess,by offering them loyalty
discounts and what have you soyeah, that's one other strategy.
The other one is this idea ofoperating at each of the layers
of the, each of the strata.
You win more than once, right?
You win at the lower level whereyou're generating
volume and revenue yeah.

(15:48):
And then also atthe higher level.
Yeah.
Where the volume's low, but themargins are higher

Brian (15:53):
and there,

Om (15:53):
so this is a win-win.

Brian (15:54):
There's another one in this category that
I don't know how to financiallyexplain it, but there becomes
a halo effect.
If we're using Chevy andCadillac, for example I drive
a Cadillac.
I mean, maybe itdoesn't say very
much now, but in the sixties itwas a huge thing.

Om (16:10):
Isn't this why mainstream car
companies came outwith their premium brands like
premium marks?

Brian (16:17):
Toyota.
Toyota and Lexus is a, anothergood example of

Om (16:19):
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 becausePolestar is just
purely electric, but the pricepremium would suggest otherwise.
It's not just a, combustionversus electric thing it's also
this whole brand halo thing.
You like a Volvo safe as houses.
Guess what?
All star is luxury and stillsafe as houses.

(16:41):
Yeah.

Brian (16:42):
Another example would be the people with the really
expensive Yeti coolers.
Mm-hmm they're really expensiveones like that.
Because you can goout and buy like a
$20 Yeti drink cupor whatever, and
it's pretty good.
I mean, they're pretty good.
I've got one.
Sure.
But like, I wouldnever buy the $80

Om (16:58):
mug or whatever.

Brian (16:58):
Yeah.
That's too much for me.
But like it elevates the wholebrand there's a perception thing
that leads to the elevation ofthe rest of the whatever is in
the pyramid belowit, because your
premium products are perceivedas that good.
You know, if you're gonna gobuy a $400 metal cooler, that is
pretty amazing.
It keeps your stuff cool all dayyou throw it on a

(17:19):
boat or whatever,or you throw it
in the sand of thebeach full of ice,
you come back toit six hours later
and it's still completely packedwith ice there's no water in the
bottom of it.
It is still a hundred percentstill the same temperature.
Yeah, that's impressive.
That elevates the whole brand.
And like in software products,I don't see that anywhere.

Om (17:37):
Yeah.
I'm trying to think of anexample in the software world.
I just keep coming back tothe companies that only have
one layer of the Strat,like SAP for example, right?
Although you couldsay that their modules could be
Referenced here.
But yeah, softwaredoesn't really have a parallel
like that.

Brian (17:52):
Well I mean, it's not all roses in this category.

Om (17:55):
roses.

Brian (17:55):
Are some weaknesses here, and the weaknesses are just as
significant as thestrengths home.
So let's start with you know,what are you gonna pick for
your number one?
I have a idea of a number oneweakness here.

Om (18:04):
The number one, people just wanting to stay at the lower
levels because they're alreadyin your in your

Brian (18:12):
so home, are you saying that people wanna buy an apple,
so they're gonnago buy the lower
price se instead of like thelatest whatever,
17, depending on

Om (18:22):
their spending power.

Brian (18:23):
yeah.
Jump on okay.
Okay.
Yeah, I was gonnasay there's two different paths
down what you'resaying right now.
Yeah.
There's the cannibalizationrisk.
Which is we put out this premiumproduct, like we, we put out
the like if we're gonna go backto Cadillac, for
example, like AIproducts are great
for this because like, I wannasign up for the
a hundred dollarsversion of Cloud Max because I

(18:43):
use cloud code, I use the webversion, whatever.
I pay a hundred dollars, I getfive x the usage,
I probably would use four out ofthe five x of the usage, or
I paid 20 bucksfor Claude and 20
bucks for Gemini.
I can pretty much scrape betweenthe two of them.
I'm telling you right now, Iwould've been in
Google if Claude had some sortof like mid-tier offering, but

(19:07):
they don't.
So I have cannibalizedtheir a hundred dollars offering
by going with a a $20 competitoroffering and their $20 entry
offering, and Ican get by, I can
live with that.
The other side that I thoughtyou were talking about was the
complexity of Apple has so manyphones and so many
different types.
I have no idea what to buy

Om (19:25):
that that's also a risk.
It's just not involvinganother product, another brand.
Where people are gonna go,why am I gonna spend extra for.
Whatever pro when I can getpretty much all
of those features,including these
bionic processorsor whatever it is.
Yeah in a lower model and justsave them save the money.

Brian (19:42):
It's got three cameras.
Yeah.
How many cameras?
You can take threepictures at once.
It's got 3 million megapixels

Om (19:48):
I don't know.

Brian (19:49):
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 animationof just AI coming
outta my fingers.

Om (19:58):
that's a good one.
You used it a lot actually.

Brian (19:59):
We talked about cannibalization we talked about
complexity like brand confusion,pyramid is three tiers,
traditionally two or threetiers, like many more than that.
And you have brand confusion youcan't customers
have no idea what you stand for.
You're like Sam Alman nobodyknows what you stand for.
that's this tier.
And then

Om (20:19):
And you gotta protect your turf right?

Brian (20:20):
Yeah.
And that becomes the stress ofthis business model, right?
you've got your base tierprofitability,
the people runningyour base tier, like the people
running like Chevrolet, likeyour margins are razor thin.
Like I would expect that's asuper stressful
business to be in.

Om (20:36):
It's also adding a risk because most of your money comes
from your premium tiers, right?
So you've gotta protectthat as well.

Brian (20:42):
Well, I would just think that like the,
the people running the businessdon'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 needyou to get all the
way off my back.
Yeah.
And if the people that under, ifthe people that run the business
are just tryingto, like the, the
PE folks are justtrying to squeeze
that rag for everydrop they can get.

(21:03):
That's not gonnawork here right.
So you know, the other side ofthis is like, the
concentration ofa margin is like
if, if like in thetier model where like Chevy's at
the bottom and Idon't know what's in the middle.
I guess the GM products are inthe middle, and
then the Cadillac is at the top.
Like if, 80% of the profit.
Comes from 20% of the premiumcustomers.

(21:24):
Well, that's notgonna work, right?
That you know that now you'vegot a real, your pyramid's
real risky.
your pyramid's kind of gonnatopple over and
that's a problem.
Pyramids shouldn't do that.
So the product pyramid, businessmodel is all about serving every
customer segmentwhile protecting your margins
and having a premium offering.

Om (21:44):
Yeah, all things to all people.

Brian (21:46):
So if you have questions about this business model
or if you have other businessesthat fit this model and that
we didn't talk about, go aheadand hit the hit.
Let us know.
Let us know in the comments.
the next category! Hey, Om!, Doyou wanna know what business
model charges different pricesfor the same exact
product and gets away with it?

Om (22:04):
Ooh, think of examples like that.

Brian (22:06):
I Coke, I'm looking at you
Coke right now.
Are you leavingmoney on the table
because you're charging everyonethe same price?
Are you watchingpremium customers who would pay
more get the same deal as thebudget shoppers?
So this one size fits all,kind of like I
already mentioned, Coca-Cola.
at the ballpark.
Coke costs more than if you justgo to buy coke at the grocery

(22:28):
store in 12 pack or whatever, 10pack or whatever comes in now.
Mm-hmm if you could sell thesame product at different price
points based on the context orthe distribution channel that's
multi-component business modelright there.

Om (22:42):
Can you think of another example like that?

Brian (22:44):
Same product.
It's what annoysme the most about
the Uber product to when carsare in demand.
The price goes up.

Om (22:51):
Yeah.
And it goes up alot depending on
the time of day.

Brian (22:55):
Uber X, Uber comfort, Uber, uber, black I can't
say Uber anymore.
That's what I learned todayon the podcast.
Strengths.
Let's talk aboutstrengths of this
business model.
Do you have any favorites?

Om (23:05):
I guess, the pricing, the differential pricing.
You know, like you talked aboutCoke, so people
know that StadiumCoke costs more.
Yes whereas buying Coke from a avending machine at Walmart used
to be 50 cents.
Now it's like a dollar.
It's still cheaper than buyingretail elsewhere.

Brian (23:23):
So the context based pricing power Yes.
Is yeah.
I mean that's unmatched.
I mean, what, what do you, yougot no choice also you get
into town, it's midnight, you'reat the airport and there's like
two cars on the road whatchayou gonna do?
You're gonna pay more.
That's what you're gonna do.
Right?
Yikes.

Om (23:38):
And that's like, dovetailing into the other strength, which
is, hey, you can afford todiscriminate on price without
changing your product.

Brian (23:45):
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 nicething about this business model
is boy, it's super simple.
Like all you gotta do is wait.
That's it for all you gottado is wait I mean, you don't
need to change a single thing.
The Coke formula doesn'tchange at all.
It's just like, they offer it inthe stadium, they

(24:06):
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 atthe movie theater
because you happento be at the movie
theater, right?
Yeah.
Right, right.

Om (24:20):
Yeah.
I mean, that applies to allconcessions at a movie theater.

Brian (24:23):
boy this is a, I I feel like I need to take a shower.
'em, that's what I'm saying nowit's like there are weaknesses
to this business model, I'm sureit's not all roses, it's
not all upside.
I'll tell you right now, I getoutraged when I
have to pay extra for a $20 Uberride that I know is a $20 Uber
ride, like from my house to theairport should cost 20 bucks.

(24:44):
And when I seethat like $45, $65
or whatever, yeah.
I'm out.
I quit your appand I use, I cycle through three
dozen other apps.
Before I'll comeback and buy that
ride or, or I'lljust hot foot it.
I'll just start walking.
I'll start walking.
Listen, I'll go tothe bar and I'll wait until the
rates come down.
I'm so aggravated I will not paythose rates like that.

(25:04):
That's the risk here.
the funny thing about that riskis that you don't see that risk.
there's not a monetaryvalue that you immediately see
to that risk.
That's your reputation.
That's aggravation with yourbusiness model.
It's customer aggravationis what it's,

Om (25:18):
and that's never good.
'cause like you said, youdon't see it.
It's hard to measure, but ithas real impact.

Brian (25:22):
Yes.
That's the arbitragevulnerability.
It's so like, your customers aregaming the system now and their
drivers game the system as well.
They wait to seewhat the rates are
until they go upand they're like,
oh, sign me, andI'm driving now.

Om (25:34):
Sure, sure.
Yeah.
There are so many frustrationpoints here with this particular
example, right?
If you ever had an Uber cancelon you, I've had twice on
the same ride,

Brian (25:45):
actually.
You know I, I don't rememberwhat airport.
I think it wasBaltimore Airport,
BWI, I flew in andI had like two or
three Uber rides.
Accept the ride and then cancel.
But it was like, accept the rideand then cancel after whatever
the, there's likea, this was early Uber, I don't
remember, but itwas like there was
a certain period of time Yeah.
That the rider could cancel theride before they got hit with a

(26:09):
fine, but the driver didn'thave, so what the drivers
would do is they accept a ride,they're nowhere
near the airport.
They accept a ride, or maybethey, get another one and Yeah.
And then they would just waituntil you cancel.
You get hit with a fee.
You know what I mean?
they're not progressingtowards you, and all they have
to do is they have to waitat the airport, two hours,
three hours.
They get a couple cancellations,they get the minimum fee from

(26:32):
the cancellation.
And yeah it doesn't sound,it's legal to me.
it's almost, well,first of all, how
many people aregonna dispute it?
And is Uber's process robustenough to handle
all the disputes?
Number one.
But that's not the point.
The point of thisis it's a weakness
of the businessmodel because both
the customers, me going to thebar, waiting for the rates
to come down, and the driversjust committing

(26:54):
fraud, basically.
Yeah.
We're all gaming the systemnow, right?
Because the system's bad.
It's not a great system.
the system's setup for a company.
To prey on those surge pricesand all that kind of stuff.
Some product person came upwith this stuff
to think that theycan make money by exploiting
well, there's not a lot ofcars in the area.
We can charge a premium.

(27:15):
The wait, I mean, you're gonnawait regardless.

Om (27:18):
this is kind dovetailing into
this whole dynamicpricing, right?
Yes.
That surge pricing as, asit was called.

Brian (27:24):
And, and then, and then like luckily for like Uber and
all these luckilythe government is
non-functional, so like, becauseotherwise there would
be regulatory pressurethere would be regulatory
pressure to say this stuff thatyou're employing,
looks predatory.
Why don't you stepinto my government
regulatory officeand suspend all of
your AP and ar thegovernment could
really hurt them.

Om (27:44):
they could.
But that assumeswe have regulation around that.
Which we don't, right?
But sadly,

Brian (27:48):
but there's plenty of other countries.

Om (27:50):
In other countries.
Yeah.
Absolutely.
I actually experienced theUber equivalent mm-hmm.
Over in Asia.
And it is such a refreshingexperience, to say the least.
Normally are the prices.
Cheap, and I'm not talking aboutconverting to USD.
Local prices are really cheap.
I've never had towait more than two
minutes for a ridefrom a company called Grab it's

(28:11):
similar to Uber.
You know, and then they kindof take it beyond
what we do here, which if you'rea single rider and the weather's
nice mind riding a motorcycle.
They have grab motorcycles andthese things are incredibly
quick to arrive.
Mm-hmm.
Of course they weave throughtraffic as well.
I mean, there'sso many benefits.
Oh yeah.
Then they do come with a apassenger helmet.

(28:32):
Nice.
This is, these are all layeredpositive net positive customer
experiences that reallybreed loyalty.
Right?
Yeah.
Flip side of that here with thismodel trust is fragile and once
people get TE teed off, they'regonna move to elsewhere you have
other players inthe market now so
that's the, the

Brian (28:51):
risk.
So this is the multi-componentbusiness model.
It's all about charging whatthe context can bear for the
same product in differentsituations.
That's, that's thisbusiness model.
Yeah.
So if you have other businessesthat use this model that we
haven't talkedabout, let us know
in the comments.
Absolutely.
We're gonna move on to the nextbusiness model.
And I'm gonna askyou do you wanna
know the businessmodel that makes

(29:12):
money every time two people dobusiness without you actually
doing the work?
Ooh, this soundslucrative to me.
So if you're struggling toconnect buyers and sellers, if
you're stuck doingwork while others
capture value andyou're watching platforms like
Uber, Airbnb make billions whileyou manually are brokering
deals this is your category.

(29:33):
There's a betterway to facilitate transactions
and they start building amarketplace.
And I know it feels impossible,but what if you became the hub
connecting buyers and sellers?
I feel like I'm talking aboutevery FinTech product in the
world right now.
Pretty much thatyou take a cut of
every transactionyou're Stripe at
this point, or I guess PayPal solike you connect
drivers to ridersand then people make money.

(29:53):
Although Uber is a bad examplebecause their cut is like huge.
90%.

Om (29:58):
Yeah.
But if you could do this onceyou've built the platform, the
infrastructure, it can scaleinfinitely.

Brian (30:05):
It's the switchboard business model.
It can scale infinitely.
And, the strengthsof this platform, the strengths
of this platform is the networkeffects, again, the network
effect of Uber.
Is basically what madethat whole app

Speaker 6 (30:19):
right.

Brian (30:19):
You know, the value increases exponentially
with participant growth.
So the more ridersthat 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 onand so forth.
And it should feed each other.

Om (30:36):
That's Yeah.
Yeah, yeah.
That's also the same thingas Airbnb.
Really the more hosts youhave Right.
The easier it is for our gueststo find places.
Correct.
Yeah.
Same, same sort of thing.
I like this model because it'sessentially based
on transactions,

Speaker 5 (30:52):
right?

Om (30:53):
Yeah.
and so you're not hiring moreand more people to add units
transactions, you're basicallyat a certain point and you
just keep earning.

Brian (31:02):
Right?
So the transaction based scalingis the strength of this model?
Yeah, I mean that,I would say, if I'm gonna pick
a number one, so Ichi Bond, ifI'm gonna pick Ichi Bond it's
the transaction based scalingof this model.
The, the revenue grows withouta proportional cost increase.
So you, you keep runningthe same system.
Maybe you have like.
Some more transactionsrequire a little more networking

(31:24):
or database power, whatever.
But I mean that's like you'regoing from like a $250 a month
database to a$500 a month data.
Peanuts at that point.
Like you're not hiring morepeople with each transaction.
It is like thecustomer solutions
model that we saidat the beginning of the podcast.
for everyone referencingthe customer solution model
that Palantir is using, you'relike, you have to
go out and hirea whole bunch of,

Om (31:43):
you need FD out there,

Brian (31:45):
hire a whole engagement team.
You have to hire a whole team ofpeople right, with the skillset
you need and thengo deploy them.
This one, you literallydo nothing.

Om (31:54):
You do nothing and you get high
margins at scale.
The higher you scale, the higheryour margins are.

Brian (31:58):
High margins at scale, transaction fees are nearly pure
profit after theplatform is built and whatever
costs to run the platform.
If you're on AWS after that costis paid, a hundred
percent is margin at that point.

Om (32:14):
Yeah.
And this allows you to capturewhole bunch of data about your
customers and infer insightsand knowledge from that, that
your competitors have no chanceof getting

Brian (32:23):
right.
Yeah.
And your competitors arenot, maybe they can capture some
of that data with some kindof like initial offering or MVP
or whatever that just to try tocapture, but the
mass of data thatyou have they're not gonna catch
up to that you'llbe 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 themarket and try to

(32:44):
segment a piece ofwhat you're doing.
Well, you're picking up peopleand delivering across town
or whatever, but you're notpicking up meals or whatever
from this place.
So they're not gonna go off yourmain offering, so
you'll be pretty safe in yourbusiness model so
these are greatstrengths, but on
the arguing Agile podcast, we'regonna point out the weaknesses
as well.
So the weaknesses with theswitchboard type business model.

(33:07):
Okay.
Winner takes most dynamics.
you have to achieve dominance.
You have to be the top dog.
Yeah.
You gotta be the top dog becausesecond place is like you, you're
gonna be losing money just tostay in the game at this point.
And honestly, likea lot of these Silicon Valley
companies that are doing Uberand whatnot, like
I don't even, Idon't know if Uber
is profitable.
I wonder if they are.

(33:27):
Sorry.
We may be returning fromsome editing here
where I Googled when did Uberbecome profitable
and Google reports Uber becameprofitable in 2023 reporting its
first full yearprofit since going
public in 2019.
So again, that lends itself towhat we're saying
in this categoryof the trade-off

(33:50):
here is, I mean,the winner takes most if you're
not on top of and conqueringthis category, like it's gonna
be tough to pull ahead evenif you're the industry leader.
You didn't dominate yeah,like Uber.
How mean, how long has Uberbeen around as a company?
Longer than 2019.
Sure.
For certain, right?
Yeah, but that they weren't evenprofitable until

(34:10):
2023 profitable, let alone likedominating or whatever.
Yeah, yeah.
With this kind of like, hey,you can, I mean this business
model like the, the switchboardbusiness model, like it's good,
but once a bunchof people move in.

Om (34:25):
Yeah, it is tricky.
I mean, to start off with, it'stricky like when
you're launchingbecause you have this cold start
problem where youneed to connect both sides.
Well, the otherthing to navigate,

Brian (34:34):
the other problem is if you're connecting
both sides, like with the Uberproblem, you need
drivers to onboardto the platform.
That's right.
And riders like there'sno good having, well, we've got

Om (34:43):
all drivers in the world

Brian (34:44):
like, that's no good.
And also like I don't, I don'tknow how deep to go into Uber,
'cause we, we beatit up enough in this category,
but one, one bigregulatory action against you.
Boom.
And you're, you'resmoked in that whole country.
I mean the uk theyput up a lot of flack to Uber in
the early days.
I don't, I don'tknow like when it
died down or how,how the situation went down.

(35:06):
'Cause they had the black cabservices and stuff like that.
But yeah, regulatory actioncan really like
impede your wholebusiness model.
Mm-hmm.
And this is like, I think ofpeople starting businesses the
last thing they think aboutis like, Ooh, licensing and
how are we gonna operate with.
You know, checkinggovernmental boxes
and regulatory regulatory boxes.

Om (35:26):
Well, new models, you don't even have that at first so it
kind of catches you completelyby surprise when it happens.
Right.
And then the other thing is thatyou are, you're
extracting profitsat the expense of
suppliers, right.
And providers.
Yeah.
So that kinda leaves a bad tastein their mouth, which gives you
some rep damage.
You know, in the early stages atleast, unless it's done well.

(35:47):
I'm trying to think of anexample, non Uber example where
it's done welland I'm not coming
up with anything.

Brian (35:52):
The Amazon, I think would be
a good example ofthe switchboard model they put
themselves between the supplierand the buyer.
You know, the buyer could justgo straight to the supplier and
buy it straight from them.
But Amazon has put themselvesin the middle.
Maybe that's not the cleanestexample, but the switchboard
business model, it's aboutbecoming an essential hub
that captures the value fromevery transaction

(36:13):
flowing through your network.
And I'm sure the audience canthink about other,

Om (36:17):
eBay might be another example
where maybe yeah.
Where you could haveintermedi this intermediation,
people can go directly tothe seller.
'cause you can contact themthat's true.
That's true.

Brian (36:26):
But if you can think of other switchboard style business
model companies, let us know inthe comments.

Om (36:31):
Absolutely.

Brian (36:32):
hit it.
Let's hit it.
Do you wanna knowthe business model
that turns your expertise intoa money printing
machine if we knewhow to do that, I feel we'd be
printing money

Om (36:41):
on our yachts.
That's right.
Well this is where I thinkprofessional services sort
of model comes into the picture.
Consulting companies, perhaps.
that are just billing by thehour for their expertise.

Brian (36:52):
Well, this is a tough category because if you're
struggling to price servicesthat you're not sure what to
charge for, or you want to priceyour services into a new market
I think about agile coachingspecifically.
Like if you wentto an HR firm or a legal firm or
something wellaway from software
development thatdidn't quite know
what does businessagility mean to my organization?

(37:12):
do you charge the normalsoftware rate?
Do you charge a different rate?
Do you charge lawyer rates?
Like what rate doyou charge that,
if you're workingyour butt off and
you're not gettingthe revenue that you deserve for
the time you're putting in andthe skills you have, you're not
capturing value, but if you build
for every hour ofyour expertise and

(37:33):
you've got juniorstaff doing the work and senior
staff capturing the margin, yourknowledge that you
put in should be the predictablerevenue stream.
This is the old plumbers, like anew 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 consultingbusiness model, also the time
business model.

(37:54):
The giants, the big fouraccounting firms,
the McKinsey's ofthe world, like this is their
business model.
I'm just gonna jump in 'causethis should be a quick category.
The strengths of this modelis predictable revenue.
X number of hours, X numberof money should be straight.
You know, we have contracts.
time, materials,contracts there's government
services, also alot of government services run
this way.

(38:14):
Should be straightforward.

Om (38:16):
Yeah.
and you can charge what youlike because you know the people
are paying for your expertiseso you can charge accordingly.
You have specializedknowledge that people need.

Brian (38:25):
And this, this is a lot of, when we were talking earlier
in the podcast, we were talkingabout the customer
solutions model where teamswere traveling.
It's, you would get maybeinside of those contracts, they
would also use time or maybealternately they would
use time where than outcomes.
They use time and materialwhere it's scalable through
leverage on those contracts.

(38:45):
Because those contracts likethe solutions teams they bring
with them, it's like two seniorfolks and like
four junior folks.
So the junior folks are doingall the work.
The senior folks are directing,capturing the margin, basically.
Yeah.
and trying to multiply theirefforts by having
junior staff thatwork directly for
them while they're there onsite.

(39:05):
And, this could work at any,most businesses work like this.
You have a senior manager who isan expert in the domain area,
the foreman type model.
And they have juniors workingfor them.

Om (39:15):
Yeah.
I mean, one of the strengths ofthis model is your
revenue stream is pretty muchassured because
as inflation goes up, your ratesgo up, right?
Yes.
So.
People will pay the going rate,so to speak.
Right.

Brian (39:26):
And as long as you can keep
demonstrating yourexpertise, then
you should be ableto keep demanding
those high rates.
And that, that'sboth the strength and a weakness
of this model.

Om (39:35):
Yeah.
Yeah.
it segues into aweakness because you constantly
have to be on guard to keep up.

Brian (39:40):
Yeah.
Well the, and the other issuewith this model,
the other problem with this oldtime and materials model, I will
tell you now, asfar as the models we've talked
about so far.
This is my least favoriteone, because the pressure of
utilization, this is like in theconsultancy, you
can't have people on the bench.
That's right.
You've got, everyone's gottahave a hundred percent, 120%,

Om (40:00):
a hundred percent on paper, percent in practice,
a hundred

Brian (40:02):
percent on paper, 120% in actuality.
Mm-hmm.
Utilization, which is likethe, like the risk right there
is you're gonna burn people out.
You're gonna burn 'em outand not, you're not only gonna
burn 'em out.
Enjoying the work that they do.

Om (40:16):
yeah, exactly.
and it's really hard for thesepeople that are trapped in this
model because not only are theypressured to bill
every hour, theyalso 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 theirown time, right?
After spending 120% of theirtime, right?

Brian (40:32):
Yeah, because all their time's billable.
'cause , when the work stopsor when you stop
billing for hours,like that's when
the value stops.
So this is not like when youwere like, well we gotta, we
gotta train our folks and wegotta do whatever none of that's
getting done inthis part, right?
Like, that's, that's the worst,the worst of this
model is it's allthe weaknesses.
None of that's getting done.

(40:53):
And again, if you want tocapture more revenue, they,
there you have to scale linearor linearly.
Is that Linearly is a word.
Yeah.
Is that a word?
Yeah you're not gonna getmore hours without hiring
more people.
More people, right.
That's it so, so that's yourconstraint right there.
You have to hire cheap bill out,full rate I, this
is straight up theMcKinsey model.
It's like bill out, full rate,junior, senior, doesn't matter

(41:15):
to the customer.
You're billing full rate,maximum hours as many junior
people, people as you can packon the program.
Yeah.
That's that.
Again, the time business modelis all about systematically
capturing value for every hourof expense.
You deliver.
I was gonna say incur, butdeliver it is got strengths

(41:36):
and weaknesses.
Yeah.

Om (41:37):
You really have no experience.
You're passing it on.
I mean, other thanjust 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'swhat you're into.
But that's right from theperspective of somebody who's
worked in thismodel, I'm telling you it's not
that enjoyable.
The novelty wearsout very quickly.

Brian (41:55):
Well, let's move on to a model
that is enjoyable.
So do you wannaknow the business model where
one massive hit funds a hundredfailures and still
makes you rich?

Om (42:07):
Ooh, I like the sound of this.

Brian (42:09):
So, are you playing it safe with products because
you're terrified of failure?
Are you watchingcompetitors launch massive hits
while you're stuckwith incremental improvements?
Are you paralyzedbecause failure's expensive, but
without big bets?
You're completely stuck.
But I'm gonna tell you what.
If you launchedmassive products, knowing that

(42:29):
most of them would fail, butone of them will be a winner and
generate returns and cover allthose failures.
Well, that that is theblockbuster, the

Om (42:41):
blockbuster business model.

Brian (42:43):
Blockbuster not, not Blockbuster, the company.

Om (42:46):
no, no.
Not, not the company

Brian (42:47):
i'll tell you right away with this category, most
people that arelistening to this
now you're wrong,like this is like almost purely
pharmaceutical companiesright now.
Definitely.
So, yeah.
And, and, and, andNet to a Netflix original series
original Netflix series was itStranger Things house of Cards
and Daredevil and Narcos andBlack Mirror.

(43:10):
I mean, Netflix took somerisks earlier.
Everyone forgot about, right?
Yeah.
Because it was like, it becomesespecially with
movies and things like that, itbecomes part of the zeitgeist.
It becomes partof the pop culture or whatever.
But they took a risk withthose things.
They be big with those things.
And people subscribed to watchthose series.
Sure the blockbuster, Imean the drug companies are

(43:31):
the ones known the most for thisbig giant swings.
Where are we at?
Blockbuster model.
Blockbuster.
So

Om (43:37):
some of the strengths,

Brian (43:38):
oh yeah.

Om (43:38):
Yeah.
I mean, you can have many betsthat fail, but the
one that doesn'twill pay for all the other ones.
Right.
That's the idea.
The winners must pay forthe losers.
I mean, but you gotta have awinner though.

Brian (43:47):
Money's

Om (43:48):
pharmaceutical companies are, a model we can
talk about here.
They bet very widely.
And you know, theydo 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 acertain window of
opportunity during which you cancapitalize, right?

(44:08):
Because you've done thisresearch, you know about that
particular segmentand nobody else is doing this.
So if you can makethat work, you have a leg up on
the competition

Brian (44:19):
and depending on the country you're in, you have
intellectual property thatis gonna be your IP for years,
depending on the industry Idon't know how pharmaceutical,
I've never worked in pharma, soI don't know, but there's IP.
There's the outside outsizedreturns from your big hits,
your big bets, your big wins.
And you have someexclusivity until

(44:41):
the market catchesup to you but also
your portfolio you have thepotential to put a little bit of
money in a wholebunch of things.
Because if onething hits big and
you make a bunchof money on that,
you turn around, you reinvestthat money.
I mean, this is like pre 1975America where you

(45:02):
had mega companieswhen they made money, they put
money back intosmaller companies
that they would take ownershipof portfolio.
And you had a bunch of likeGulf and Western?
Old companies like that, theywould own a movie studio and be
like, what the heck is Gulf andWestern even do?
You put money intoa bunch of smaller
bets, but from your perspective,having billions of dollars in

(45:22):
the seventies, like everything'sa smaller bet.
So one of thoseis gonna explode.
I mean, they're, they're allstaffed by people
that are trying to do the bestthat they can.
So what are we doing here?
We, we believing that peopleare doing the best they can.
Or are we not I mean, theirstrengths all up and down here
about, you've gota wide portfolio, you're putting
money in, you'vegot IP that you're buying, even

(45:44):
if it doesn't make money, nowyou've got an IP
you can leverage in the future.
You're getting outsidereturns from all your hits.
Even if you're investing acrossthe board, your
hits are covering your laws.
The blockbuster businessmodel that I'm describing now
is basically the SiliconValley business model that I'm
describing.

Om (45:59):
To a large degree.
It really is.

Brian (46:01):
So if we're bailing out the banks, there are
some failures that we have totalk about in this category.
Ohm and boy, I'm gonna talkabout number one, 80 to 90% of
these projects, like they fail,

Om (46:12):
right?
Yeah, exactly.
The failure rates are high, butare they really consider this
failure rates.
So knowing thathelps weather the
storm a little.

Brian (46:20):
Are you saying knowings have to battle

Om (46:21):
knowings more than half the battle in this particular model?
Right.
You shouldn't be surprised whenover 60, 70, 80% of your bets
Don't come to fruition becauseyou're waiting for
that one or two, which will payfor everything.

Brian (46:34):
You know, the harder part for people to choke this one
down, is the massive upfront.
Investment cost.

Om (46:41):
Oh, the development.
Investment, yes.
This is true in r and d money.
I mean, it's significantlylarge to cause concern about,
predictability onnet present value, all of those
financial ratios.
Yeah.
You do those and you know thata lot of those are gonna fail
so you're right about trying to,especially if you are trying
to finance, if you're trying toobtain finance for your company,

(47:03):
This can be verydifficult to do.

Brian (47:05):
And then the one we don't talk about, which is, I'm gonna
put it in the weakness categoryhere, timing, and by timing
what I really mean him is luck.

Om (47:14):
Oh boy.

Brian (47:15):
Yeah.
I mean, the funny thing is as aproduct manager I
have been in theseat of developing
the right product that does theright thing, the wrong time, and
being so ahead of the marketthat nobody's, like everyone
says, this is the coolest thingI've ever seen.
Nobody's willing to pay for it.
Until you go through itpersonally, like I, as a team

(47:36):
that developed a solution, thatkind of thing.
It is insane there wasmachine learning
before all thesefoundation models
came along, right?
Definitely.
That worked on those likemachine learning algorithms
or whatnot.
They must be saying the samething right now.
It's like, this is bananas whyis everyone freaking out now?
We were doing this 10 yearsago, 12 years ago, whatever.

Speaker 6 (47:54):
Yeah.

Om (47:55):
Yeah.
That, that's very, very true.
Timing, timing risk is asignificant disadvantage here
because to yourpoint about luck,
you really can't call it, right?
I mean, it is what it is.
Yeah.
And then the otherone I would say is because of
the fact that thefailure rate's so
high because ofthe fact that you don't have any
sense of certaintyon the timing, et cetera, right?
Yeah.
A lot of organizationstend not to make those bets or

(48:18):
not make as many of them, right?
Right.
Yeah.
So they become risk averse whichthen kind of spirals down into,
well, if you're only making afew bets and most of those don't
pan out, what happens next?
I would say youdon't have enough
to come throughto cover them all.
All the failures.

Brian (48:33):
This is a really interesting
business model because theblockbuster business model
is all about making bigbets, accepting high risk, high
failure rates, and then lettingthe winners pay for everything,
and then just keeping goingwith the cycle.
And I would say that themajority of modern businesses,
they're not okaywith this risk at

(48:54):
all they're notinterested in, I'm
interested to hearfrom anyone who
works in pharma ormaybe in cutting edge government
research.
You mean the PEpeople that like,
if the research doesn't panout, it's okay because everybody
investing in researchalready knew.
I don't know if anyone fromSilicon Valley listens to
this podcast that they're inthe same kind of business.
I'm really interestedin hearing if anybody's engaged

(49:16):
in this business, like what ittakes to succeed
in this business.
Because the majority of peoplethat I work with, they could not
deal with this level of risk.

Om (49:24):
Yeah, I agree.
There's just not thestomach for it.
It's again, especially if youare financing for your business,
how do you obtain money?

Brian (49:32):
we're gonna pivot now to the profit multiplier model.

Om (49:36):
Profit multiplier.
That's right.

Brian (49:38):
Well, if you wanna hear about something
that sounds great,I'm gonna tell you
about a businessmodel that takes
one great productand sells it over
and over without rebuilding it.
Are you ready?
Sure.
Let's go.
Are you tired frombuilding a custom solution and
customizing yoursolution for every
single customer that you go to?
Are you tired of starting overfrom scratch with every customer

(50:00):
because you cannotreuse components inside of your
applications?
Are you leavingmoney on the table
because you can't sell it once?
Then move on?
What if you builtit once and sold
it many times indifferent markets
or to different customers andyour initial investment, what
if that could be multipliedacross an unlimited amount

(50:21):
of opportunities?
That's the profitmultiplier model.

Om (50:25):
Wow, that sounds really enticing.
Sign me up.
Well, wait a minute.
Slow down,

Brian (50:29):
slow down.
Because I, I'm also gonnacall this the the licensing
model, right?
Okay.
Also known as thelike the software license butts
and seats model.
So you might notlike, this might
not be as alluringwhen we get into it and when we
dig into it.
So you see this with when Disneyor video games or whatever,
license characters across moviesor merchandise, that kind of

(50:51):
thing, right?
you see it withMicrosoft selling
Windows licenses the strengthsof this model, like they're
very strong.
The strengths of this model.
Yeah.
The competing number ones forme are number one rapid
scaling, which is like, Hey,we download my Windows software,
install it.
Like I, I don't spend

Om (51:08):
anything.
And especially now you're notshipping CDs.
That's

Brian (51:10):
On the other side of that is the investment leverages you
invest once, but the revenuegets captured multiple times.
so the economics,they don't even,
they're not even real anymore.
Yeah.
They're just bananas economicsand the returns,
every market thatyou enter, every market, every
parallel that yougo to your returns just multiply
over and over and over again

Om (51:30):
without you having to do anything.
Nothing, nothing.

Brian (51:33):
Microsoft for government, Microsoft for education,
Microsoft for fun and profit,whatever.
Yeah.
It doesn't, doesn't matter.
Microsoft for theme parksdoesn'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 everyother market.
Right?

(51:53):
Oh, well, Microsoft dominateseducation, technology.
Mm-hmm now people in governmentare like, well, why, why are
we not using if feeds on itself?
Same.
Yes.
It feeds on itself.
So this is a brandcompounding effect is happening.
So this is a, it is a strongbusiness model.
Profit multiplier.

Om (52:13):
Profit multiplier.
Yeah.
I mean, another strength is youbasically, you've
got one productor product family,
and you can attackvarious markets,
which is the one, right, you'renot tailoring or making bespoke
solutions

Brian (52:27):
is the SAP folks where they
had their naturalgas product and they had their
electricity delivery productand they have their FinTech
product and they have theirwhatever that doing your own
stunts product.
Weaknesses in this businessmodel, like I, so
the weaknesses, I started offpointing out something and then
I backed way off of expanding onit early in the
podcast, which isDisney licensing characters

(52:48):
or stories or properties toother people, to studios.
Like when you go watch a movieand like 15 names pop up brought
to you by X, y, z, that's whatit took to like
there's licensing involved, likethey bought the
characters of thestory or whatever from Disney
and now they're making it ontheir own dime and
they're using theDisney license.

(53:09):
The main issue, the weakness ofthis category is
quality control.
Because once you are selling thelicense to be like, Hey buddy,
you can use my thing a one timefee of this, x percentage
of the profits of whatever.
But now a bunch ofpeople are putting
out stuff with your characters,your story, your
software wrapping Android inwhatever, right.

(53:30):
And putting out crummy releases.
People are not gonna look atthe oh, this one
gaming studio orthis one hardware manufacturer
or whatever.
They're gonna lookback at you right.
And be like, oh, Google'sAndroid sucks.

Om (53:43):
Yeah.
So it's always the huge riskof tarnishing your brand.

Brian (53:47):
Yeah.
And also like thebrand dilution is
a part of this.
Sure.
It's the opposite of what wewere talking about earlier.
Premium brands, right.
This is the opposite of that.
Yeah, definitelyyou have, almost no control.
'cause you're just licensingout to be like,
Hey buddy, do my,I don't know why I'm doing this.
Hey buddy, do mystuff for me and I'll just kick
back and collect the licensing.

Om (54:05):
Yeah.
I in the, so getting away fromDisney for a sec,
going back to the Microsoft one.
The danger here is if they slipup on the quality
side once, because it's all overthe map right.
Suddenly you'vegot this coming at
you from multiple directions.
Yeah.
and that's, that'sa risk as well.
So you don't have isolation.

Brian (54:24):
And we haven't even talked about the complexity of
managing the brandas it creeps how
many people do youhave now in the
home office right?
To manage your lizards andwizards as everyone prints,
lizards, and wizards productsI 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 ahundred licensees and I've still

(54:47):
still got one brand manager andnow everyone's going wild.
It's Liz's andWizards gone Wild.
That's what I'm, well, this is,so the profit multiplier, like
this business model, it'sabout building once, or I guess
owning once.
Creating once, right?
Yeah.
And then deploying everywhereto capture exponential returns.

(55:08):
And, other than Liz and Wizardsand Microsoft and
the examples thatwe pointed out, if
you have another example of thisplease go ahead and let's know
in the comments.
Absolutely.
So you knew we weren't gonnaget outta this podcast without
Brian having to struggle to sayentrepreneurial,

Om (55:22):
entrepreneurial business model, right?
Yes.

Brian (55:24):
It's the one that individuals.
throw the business on their backand they get going to forge
into new areas, it's a businessmodel to reward you for taking
insane risks thateveryone else is
too scared to takeor forge new paths
You're embracing uncertainty anduncalculable risks.
I don't know ifthat's really true

(55:45):
uncalculable, butdefinitely risks of doing it all
yourself, startingit all yourself.
You're quitting your day joband doing all your own stunts.
I mean, listen, even Jeff Bezos,at one point, Jeffrey Bezos was
at one point a startup founder.

Om (56:00):
Absolutely, yes

Brian (56:02):
had, he just had a little loan from his parents of a
million dollars,whatever he had.
I don't know whathe had $300,000 in
1992 or whatever.
Yeah, I don't rememberwhat it was.
That's what it was.
But the strengths of this model.
Our massive like everyoneunderstands, like
the entrepreneur slash founder,like the Silicon Valley people
are on LinkedIn all the timetalking about the strengths of
this model, which is you do onething, you do it

(56:24):
great, you do itbetter than ever.
You serve your customers betterthan other people, especially
better than thelarger businesses can do it.
You know, maybe you segmentthe market or piece of what
they were doing.
the upside potential becomeshuge for you who were working a
job before and now you're doingit on your own.
This is the entrepreneurialbusiness model.

Om (56:44):
I think one of the other strengths, just segueing from
that is the satisfactionyou gain, right?
Right.
Because, 'cause these kindsof models are purely fueled by
passion, right?
Right.
So the satisfaction youactually wanna get
up every day andgo to work because
this is your baby.

Brian (57:00):
And, this is how you will destroy a much larger company is
that you reallyenjoy what you're
doing and you'rereally good at it
and companies willpartner with you.
Rather than goingwith much larger firms that are
employing these folks that arelike, oh, I need like one senior
person and five junior people.
But I build the rates ofsenior people.

Om (57:21):
you gotta get approvals to do everything.
Yes.
The bureaucracy, these are bigorganizations, are
so, so you admired

Brian (57:25):
with you as the entrepreneur, as
the founder, youhave full control.
You make all the decisions,you capture all the rewards.
Nobody tells you what to do.
You're responsiblefor all your risk
level, your own stunts, whateveryou wanna do.
You're the evil knievel of yourown parade.
That's so, I, I don't know why Ikeep harping on this doing your
own stunts thing.
It's, it's, it's become a themeat this point But like I said,

(57:48):
you potentially could segmenta market.
And that's something thatdoesn't really get talked about
a lot in this entrepreneurialcategory is you may segment a
smaller part of something that alarger competitor
has captured, butyou may segment a smaller part
to be like, oh, this specificpain point no vendor does very
well, right?
So I'm gonna do this and justtake it off to the side and just

(58:11):
do that piece.
And you just concentrate onthat and just smash it so you're

Om (58:15):
not competing, you're inventing

Brian (58:17):
or you may take something that's like the
competitors they,they've got it,
but it's like slowand laborious and
you make it fast and efficient.

Om (58:25):
Yeah.
I mean, owning your ownentrepreneurial business in this
model allows faster wealthaccumulation, right?
Because you, it sure does.
You are, you're going toautomatically,'cause you're by
yourself anyway.
I mean, what do you, what areyou gonna get

Brian (58:39):
two, 2% year over year with your current employer?
Like, what are you gonna get?
You're over heregetting a million
dollars for stuffthat you would've
got 2% year over year before.
So it's, it's noteven comparable.
However, there are trade-offs.
There are always, thereare weaknesses.
Let's talk aboutsome weaknesses,
which is the most new ventures,most new startups
fail within thefirst five years.

Om (59:01):
The odds are stacked against you.

Brian (59:02):
I want to talk about this, I want to take
this one offlineand have a whole
different podcast.
Yes, indeed.
Just about that statement,which is absolutely true.
The majority of new businessesfail within the
first five years.
There are some asterisk thatgo along with that, but I'm
gonna save that.
I'm not digginginto that one now.
Nuances will be in a differentpractice.
I'm saving that one foranother one.

(59:23):
Obviously the onethat stops most people financial
insecurity, right?
especially in America you don'twork, you don't
eat Those are therules in America.
So that keeps a lot of peoplefrom doing this.

Om (59:33):
Right they're always on a roller coaster.

Brian (59:35):
yes.
Obviously the extreme level ofstress of now you
run the business, and especiallyif you're the entrepreneur
and you're at the point whereyour business is successful.
I always, like in productmanagement, I always tell people
like success would be yourgreatest enemy because of the
terrible way that you're runningthe business.
And also, you'rea terrible person.
Sorry.
That's, sorry.

(59:55):
It, it, it, I'm sure it soundslike that, but the way I explain
it is you're not controllingyour business processes.
It's not a system.
It's just like us flailing totry to bring the income in.
And success while it's success.
Wild success wouldbe our biggest enemy right now.
We'd all be extremely stressed.
Correct.
We haven't thought through this.

Om (01:00:14):
Yes, yes.
You'd be mentally exhausted.
Yes.
At no time at all.

Brian (01:00:17):
Yes.
You'd be working every day,every night.
Weekends you'd be9, 9, 9, 9, 6 for
life over here.
That's right.
And goes along with not havingany kind of work life balance.

Om (01:00:30):
Oh.
There is no work life balance.

Brian (01:00:31):
I'm gonna clip this and put
it on LinkedIn forwhatever, whatever
the, whatever thenonsense, those stupid LinkedIn
galleries that are like worklife balance or quiet cracking
or whatever.
Quiet, quiet.
Fracking.
Cracking, cracking, fracking,quacking, those LinkedIn
galleries that nobody asks for.
Literally nobody asked for.

(01:00:52):
It's only the people atLinkedIn that do the LinkedIn.
It is actually videos.
It's so wild that they just likeforce that stuff
on us nobody caresabout your quiet.
Quacking quacking youducks over here.
So the entrepreneurialbusiness model, like it's,
it's all about calculatedrisks to capture
outsized returns that as anemployee, like you'll never see

(01:01:15):
like that, that'sjust not possible
as an employee.

Om (01:01:17):
And there are examples of people that have
made it, but theypale in comparison With the ones
that didn't.
Yes

Brian (01:01:23):
yes.
And, and, and I'm sure thereare plenty of examples in the
entrepreneurial category, smallcompanies that turn into big
companies, that kind of stuffthat we didn't talk about.
Like if you have examples or ifyou can think of something that,
that, that hits you right inthe fields, let us know in the
comments because we have to moveon, we do to the specialist
business model.

(01:01:43):
And Om, I want to ask you, doyou know the business model
that lets you charge a premiumprice by being the absolute best
specific person for the job?

Om (01:01:55):
Best person for the job?
I guess some of these specialistlawyers or doctors,

Brian (01:02:00):
oh, I was gonna say you're the enterprise
business agility consultants.
No, he doesn't pay, but itdoesn't really pay any, he
doesn't for the labor of love.
Are you trying to be everythingto everyone and winning nothing.
Nothing.
Are you competingwith generalists
and undercutting?
What you are worth it's, it'sexhausting to be
super good at onething and people not recognize
the value.

(01:02:21):
But what if you became thego-to expert in a very narrow
niche where youbecame undeniably the best?
What if customers sought you outand paid a premium
because nobody else can dowhat you can do.
Now, we would be talking aboutthe specialist business model
and right off thebat, , the Mayo Clinic, the John

(01:02:42):
Hopkins of the world specialiststhat are known far and wide for
being specialists.
Now, I want to dig intothe weaknesses right away.
'cause the weakness,actually, you know what, we're
gonna start with the weaknessesAlright.
Of this model.
Let's do that just for a change.
First of all we started bysaying like, well the customers,
you're competing with a bunch ofgeneralists that

(01:03:02):
claim that they'rethe specialists.
Right?
And I, this is a great category.
In disguise in the middle of thepodcast that I hope people get
to because agile coaches havefound 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 hereis that you have

(01:03:22):
difficulty provingthat you're in this category,

Om (01:03:26):
especially because all the customers know is your
price is high.
So how do you get out fromunder this?

Brian (01:03:32):
And also, like you, you are
the specialist.
So if the niche declines yourspecialty, is that
a real world or is it specialty?
Specialty.
Yeah.
Specialty or specialty.
I like specialty because itsounds fancy.
If the niche declines, likeyour whole business is
at risk at this point.
That's right.
What if you're a consultancyof agile coaches
and suddenly the world is like,we don't believe agile coaches

(01:03:54):
is a real thing.
Suddenly, like LinkedIn runs oneof those little like, video
galleries of like,agile coaching is
not a real thing.
Like suddenly everyone's gonnasee that and start
thinking like, oh, maybe, maybeagile coaching is
not a real thing.
'cause LinkedIn randomly told meit's not a real thing now your
whole business just fell apartbecause people,
some random personon the internet who doesn't

(01:04:16):
know anything about softwaredevelopment is questioning
agile coaching as a niche.
And I could do that withanything.
In the current informationeconomy where for anything that
you say online, there is anequal opposing(Russian troll).
There's an equalopposing opinion.
Yeah.
Online debating that.
And then it's up to you tofigure out what right is the

(01:04:37):
truth or whatnot.
Oh boy this is bananas.
The dependency on the niche isbananas here.
And the fact that you are thecoach, you are
the expert and youhave to somehow
prove with a bunchof people that
don't do research.

Om (01:04:50):
Right.
It's hard.
Especially if you wanted tonow say, okay, you know what?
This pool is small.
I want to get out of it.
Right.

Brian (01:04:57):
Yeah.

Om (01:04:58):
To pivot.

Brian (01:04:59):
It's hard.
, Or you do likethe Agile Alliance where you're
like, well, we'regonna, we're gonna
go join the PMI so maybe we canreach a broader ba basically the
way I always saw, I know we dida whole podcast on that, right?
The reason I bring this upis because the total addressable
market, like themarket size that's a real thing.
So if you're limiting yourtotal, total addressable

(01:05:21):
market, or if you're saying thetotal addressable
market is this, but like, thesepeople don't believe in agile
coaching anymore.
Like, now yourmarket just shrank
the whole market just shrank.
Or there's like this activeinformation attack
on the market.
Yeah.
Saying like, oh, agile coachescan't help you at all.
It's product coaches that youneed now some, like an active

(01:05:41):
segmentation of the market,whether it's in
good faith or not.
Yeah.
It really, this isa scary business
model to be in it

Om (01:05:51):
is a scary business model depending on the industry

Brian (01:05:53):
I'm almost at the point where
I don't believe it's gonna work.
I would say out of all theseweaknesses, which are dire,
especially in the agile coachingrealm, the weaknesses are
scary until youget an agile coach that actually
can perform and then they just.
Blow your socks off.

Om (01:06:09):
I think that's true of a lot of specialty segments here.
So yeah, I agree.
The biggest strength is theycommand a premium and they, not
command, but demand and, andjustifiably Right.
Demand a premium right.
Rather than generalists, becauseguess what?
They are the expert so that'sthe biggest advantage
here, I think.
There are others they are in aniche, so the competition for

(01:06:32):
them is limited because thereare fewer people
that are at thatlevel think about
the Mayo Clinic example how manyspecialists, doctors are
they like the Anderson Clinicfor example.

Brian (01:06:42):
Moffitt.

Om (01:06:42):
Moffitt Cancer Center.
So all those doctors arespecialists and there aren't,
I mean, they are really topof the top.

Brian (01:06:49):
you know, there's another thing that I'm thinking about
when you're describing thisis the specialist will command a
certain amount of customerloyalty when they are deployed
on the job.
So I think aboutall the software demos I've been
in when there's been a trainedAgile coach.
Yeah, whatever role they're inas facilitator or
scrum, it doesn'tmatter what role

(01:07:10):
Scrum master is,what I'm thinking about, right?
They're in a facilitationrole, right?
And having that person there,like it brings people into
the discussion.
it sets your brandapart from other brands because
you've got a facilitator nowthat tries to draw
the customer intothe conversation and tries to
connect people.
Whereas when thatperson's gone that
presence, that lack of presenceis felt when that person's gone.

(01:07:33):
Like if they're a contractor whatever, you know?
And that customerloyalty I guess it's a strength,
but also it's like, it's asquishy strength because like,
companies don't,they don't put a
value on that, itis tough 'cause there's a lot
of like the, thereputation, like the success in
a, in a niche, like it buildscredibility in that niche.

Om (01:07:54):
Absolutely.
You've gotta staywithin it, right?
Yeah.
It's like going back to themedical providers.
I know that there's a specificdoctor that I went with and I
was very happy.
I'm gonna go back to them again,

Speaker 5 (01:08:04):
right?

Om (01:08:05):
For a similar issue, or I'm certainly gonna recommend them
to everybody who has a need forthat kind of a service, right?
So word of mouth loyalty.
It does that is, althougha strength, it can also
quickly become aweakness, right?
Yeah.
Because all it takes is onedissatisfied customer to
go tell 10 others, right?
And so there is that, butif you're a specialist in

(01:08:27):
this kind of segment, thatis a risk that you're running
with anyway.

Brian (01:08:31):
Another strength of this business model,, I would expect
is you turn intosuccess, you get known for it,
and then your customers startrecommending you to their peers
and their people they work withand whatnot to be like, oh, get
om and he'll help your team getinto shape and get
them delivering orget your product whipped into
shape or whatever it is, right?

(01:08:52):
whatever you'reknown for, right?
And then they startrecommending, and then your
skills become so in demand thatyou've dominated
this like, narrowniche of taking businesses that
are at this leveland then elevating to the next
level, and then.
You know, you're,you're constantly in demand.
So that that's, that's where youwould command a premium.
The pricing premium wetalked about in the strength of

(01:09:13):
this category.
You got a line ofpeople and then you select from
the front of thatline who you that you can make a
difference basedon the people that
you're talking to and whatnot.
So this is a, the specialistbusiness model.
I mean, it's, it's scary.
It's like, even though we justtalked about like with your
expertise, you canreally accelerate
yourself in thisniche, it's still scary to me.

Om (01:09:36):
It's scary.
There are threats from a lot ofdifferent angles.
You know, overseas entrance intothis market space.
Yeah.
That will undercut your premiumrates that's one AI agents
eventually Right.
Will be able to assist thegeneralists in performing the
roles that you're performing.
Perhaps not to the same degreeinitially.
But from the customer'sperspective it's attractive

(01:09:57):
because the, the price is right.
Yeah.
So there are, there are threatsthere for sure.

Brian (01:10:01):
Well, if you like this category and you
think the price isright, let us know
in the comments,

Om (01:10:07):
especially if your name's Bob Barker.

Brian (01:10:08):
That brings us to our next business model.
Own the installed basebusiness model.
Do you wanna know the businessmodel where you give away the
printer, but then make a fortuneselling the ink?
Well, I'm about totell you because
if you're makingall your money on
the initial saleand then leaving the customer
alone, that's an issue, right?
If you're missing a massiverecurring revenue opportunity

(01:10:32):
because you're notselling anything
to your existing customer basethat's an issue.
And then if you're exhaustedbecause you're working really
hard to acquire new customersbecause you can't
make any money offof your existing customers,
also a problem,

Om (01:10:47):
right?
Absolutely.
'cause the cost is high.

Brian (01:10:49):
So if I sold you an initial product
for cheap or evenat a loss and then
made a massiveprofit for ongoing
consumables and or services,would you be interested in that
business model?
Most definitely.
Well, that's the installed basebusiness model.

Om (01:11:09):
Yeah.
You cited the exampleof printers.
Pick up a printerfor 80 bucks and
then the cartridgeis like $30 a pop.

Brian (01:11:16):
I feel this is what keeps Gillette and HP and Lex Mark.
In business.

Om (01:11:21):
Absolutely.
Yeah.
And, and similarlythe coffee cup model, right?
Yes.
The coffee pods rather.
Yes.
Curate K-cups.
Yeah.
K-cups.
Yeah, exactly.
So the install base,

Brian (01:11:30):
the strengths of this business model obviously
the recurring revenue stream,the consumables the biggest one.
Yeah.
That generate a predictableongoing income.
Keep your finance folks happy.
There's not a bunch ofarguing about margin in these
businesses becauseeveryone's happy.

Om (01:11:46):
Everyone's happy.
And if you're smart andyou, you have products where
the consumables are such thatother people's consumables
cannot be used in yours Right.
Printed cartridges.
They're all different shapes.

Brian (01:11:59):
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 whatevermaybe it's not as
much as you want,but over time it is predictable.

Om (01:12:14):
Right.
Your profit per customer.
I mean, it's, it's, it's a nobrainer it's, and
and also tho like

Brian (01:12:20):
those consumables we're talking about now blades for the
Gillette razors or whatever.
Or even to a pointthe, the credits
for the AI vendorpeople shucking ai credits.

Om (01:12:32):
Well, credits there.
Definitely.
'cause you have no product assuch, right?
Right.
It's just all pure profit.

Brian (01:12:37):
Well, that's a consumable here.

Om (01:12:38):
Consumable.
But for the physicalproducts that are consumables, I
have to believe that the profitmargin's up there in the 60,
70% at least,

Brian (01:12:46):
Well, it's, I mean, it can't be that easy.
Running a business isnever that easy.
Never that easy.
What are some weaknesses on, canyou, can you tell
me any weaknesses?

Om (01:12:54):
I think the obvious one here is that you're making the
initial sale at a lower price.
Yeah sometimes maybe evenat a loss.
With the promiseof future returns, obviously.
But just to get that base youmight have very low margins
and that means you lose moneyat first.

Brian (01:13:12):
Right.
That could be okay though.
I would imaginethat if you could
design the initial product whereyou're not, maybe
you're breaking even, you're noteven necessarily losing.

Om (01:13:20):
If they're consumables that can be cloned very easily.
Mm-hmm.
That's a risk.
Mm-hmm.
For you.
Because people will buy thecheaper clones.

Brian (01:13:27):
Don't do business in China.

Om (01:13:29):
I know.
everything is closed.
Oh my goodness.

Brian (01:13:32):
I was trying not to do that on the podcast.
But like, you can't have yourcake and eat it too you can't
farm off all your labor and farmoff the consumable
and think that you're not gonnado anything that's just
not gonna work.
And in this the third partycompetition can't be ignored.
whether it's legitimatecompetition or whether you

(01:13:53):
don't think it's fair becausesome different country with
different laws.
Copied your consumables right.
And now is just gonna cut yououtta the market like they can
be undercut by anyone.
I mean, somebodycan undercut them
with a company oflike three people.
Sure.
That doesn't have to payany overhead and now they're
gonna cut you even if it's notsomething that you
consider illegal,

Om (01:14:11):
absolutely possibly.
Absolutely.
So yeah, that's arisk, that's one of the, one of
the weaknesses.
The other majorweakness might be,

Brian (01:14:17):
oh, oh, I've got the major weaknesses.
Go ahead.
It's the same as the one in theUber category is I will not pay
surge prices.
I'll go to the, I will go to thebar, I'll go to the restaurant
across the street from theairport, and I'll just sit there
for three hoursbecause I will not
give you money.
I refuse like the,I start resenting
the company that I as a customeram locked into.

Om (01:14:40):
That's right.
Customer resentment is big here.
Yes yes.
Because they figure out veryquickly that the price of
these cartridges in cartridgesor razor car, whatever.
Right.
Prohibitively high in some casesin most cases.
And they realizethat they've just
been locked in.
Now you gotta buy a new printer.
Yeah.
So that's a risk.

Brian (01:14:57):
And then the only, thing to point out, which may not
be relevant everywhere isit might take a, the initial
investment or theinitial loss or whatever you're
doing, it might take a long timeto pay that back.
Hopefully not if you're,going to be in the consumable
market in the lowupfront, and we'll get our money
back over time,market, hopefully you don't take
too big of a losson the initial,'cause you could

(01:15:18):
lose your whole company there.
So there's sort of a balance inthis category of the installed
base category.

Om (01:15:25):
Yeah.
I agree with that.

Brian (01:15:26):
AI is a great one for this one.
It's like, well, I signed up forthe $15 plan for the $20 plan or
whatever, and nowyou make me heat buying credits
at some point it models changeor whatever.
And like,

Om (01:15:38):
you're gonna drop.
Or,

Brian (01:15:40):
I complain all the time about
the Opus model oflike, I ran one query with Opus
and I used 33% of my tokens forthe whole week.
At some point it'sjust like, it's
untenable and I'mjust gonna go get
a different model.
The install base businessmodel, it's like, it's all
about capturing ongoing valuefrom customers after the initial
sale through consumablesand services.

(01:16:03):
We didn't even talk about ink,no printer in,

Om (01:16:05):
we also, I don't know if this
fits neatly intothis category or
even tangentially automobiles.
Yeah, so you buy acar and then they make recurring
revenue off of maintenance fora long, long period of time.
You're pretty much locked inat that point.
Yeah.
What you gonna do?
Buy another car?
Right?
Yeah.

Brian (01:16:20):
So what other installed base companies can you think
of, let us know in the comments?
Let's see.
Do you wanna knowthe business model
where you become the industrystandard by which everyone else
has to play.

Om (01:16:32):
Wow.
This is a good one.
You become the standard, right?
So everyone thinks of yourproduct, the standard bearer

Brian (01:16:39):
business model.

Om (01:16:39):
Let's think about some of the examples here of products
like this.

Brian (01:16:43):
Well, I can think of, I mean, I can do the
opposite examplewhere your product
is better than thestandard bearer,
but everyone goes back to that.
There are some flavors of Linuxthat are far superior to the
normal Windows operating system.
More secure, bettertools, Better compatibility,
better drivers.
They don't get any visibility.
'cause they're not the quotestandard.

(01:17:04):
You know, why are they not onevery business laptop, shipping
from the factory?
They're not the standard areyou building great products?
Are you building great products?
But customers keep choosingsubstandard competitors
because quote, that's whateveryone uses.
Or that's just what you get whenyou get X, Y, Z, PC or whatever.
If you know yourproduct is better
and you're stuckcompeting behind

(01:17:27):
your competitorsthat, that's this
category of the defacto standardif, if you became the industry
standard that everyone elsehas to come up to
the bar of what if your productstandard became non-negotiable?
Like how do youget to that level?
That's this category.

Om (01:17:44):
I agree.
one of the products I thinkabout in this category would
be, for example Adobe's, PDF

Brian (01:17:49):
Well I thought you were gonna say Windows
was like, pDF's a good one.
Yeah,

Om (01:17:51):
because there's no other alternative for Windows.
I mean, yeah.
You mentioned Linux.
How many peopleactually do that?

Brian (01:17:57):
Adobe.
Listen, Adobe.
Adobe is the best example herebecause I have not used Adobe.
I, I think in 10 years I haven'tused like, Adobe's
actual product.
'cause it's, you install Adobe,you get so much bloatware, so
much garbage, and there'supdates every day.
and they can do that becausethey know that like, well every
enterprise is gonna see PDFand think I need Adobe.

(01:18:22):
And because they're everywherethey can take advantage of that.
Ubiquitous natureto throw a bunch of garbage in
there that you just can't avoid.
'cause people just don't knowany better.
And I, I guess I'min the weaknesses
of this category the weaknessright away that I'm gonna
start is like the weakness ofdisruption, which
is because you're the standardbearer windows goes through

(01:18:43):
this too, right?
Because like Apple gaineda significant stronghold against
Windows with theMacBooks and like
the Mac laptops and whatnot.
Because like Windows wentthrough a period where they got
bloated with a much garbage andthen like Windows
10 and Windows 11were an immediate
response to that,where they peeled
it back and made Windows 10 ableto run on like lighter weight

(01:19:05):
type of stuff.
That was a response to Macgaining foothold in the market
and being a real player.
Before Windows seven, nobody hadMac laptops it was like a niche
thing, right?

Om (01:19:15):
corporate world,

Brian (01:19:16):
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 peoplehave MacBooks basically.
And that was just unheard ofa decade ago.
Because of the risk ofdisruption here.
It's like you put a bunch ofbloatware on your stuff, you
know what I mean?
You put a bunch ofstuff that's not

(01:19:36):
elegant, doesn't lend itself tohelp the user and users migrate
somewhere else.
They go somewhere else.
So the risk of disruption,the weaknesses category of
being the standard beareris everyone's coming after you.
Yeah,

Om (01:19:49):
yeah, yeah.
Let me go to the other sidefor a second.
So you become a householdname, right?
if you're a defacto kind ofbusiness 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 ahousehold name over the years.
So it becomes synonymous nowwith what we're talking about.

(01:20:12):
but we refer to abrand name, Good
and bad it is goodbecause, that's what people know
it's bad because there could beanother product that comes along
that's better now they'resignificantly facing like a
uphill battle to try andbreak through.
Right?
Right.
'cause everyoneknows what Kleenex is and nobody
knows what this other brand is.
so from that strengthsperspective they have mind share

(01:20:35):
and, market power.

Brian (01:20:36):
They have, they have a massive amount
of market power.
Yeah.
I mean at the point, likeKleenex for example, or
Windows, right?
Sure they, they set the rules.
I mean, windows,you don't need to
mess around withdrivers they just
figure out what drivers for thedevice you just plug in and you
just plug your devices in andyou let Jesus take
the wheel at thatpoint the Windows
for example, or Kleenex, likeself-reinforcing network effect,

(01:20:59):
more people that have aWindows machine.
Honestly, or if,if I'm gonna take
my weakness and roll it into thestrength category
of the Mac, the more people thathave the Mac, the more snazzy it
looks to people, the more peoplewant a Mac.
And now, like that cycle Is justself-reinforcing, right?
It's a strength and a weakness.
Like it's a weakness becauselike, you gotta watch out for

(01:21:19):
people cutting away smallcorners of your market and then
self-reinforcingthem until they're like, whoa,
this person's cut away 25% ofthe market and nobody notices,
nobody said anything that'sa big problem.
The pressure to innovateis definitely working against
you when you are the standardbearer in this category because

(01:21:40):
there, there's no pressure.
On the standard bearer toinnovate.
Maybe you have people internallythat are pushing you, but in my
experience in corporate Americaand in software development, and
I was a product manager at onepoint where we had a hardware
component to the software wewere developing.
The innovation when you are thedominant player is

(01:22:01):
not, I mean, youcan push as hard as you can, but
there is a pointwhere your pushing
does not get your company ahead.
It just damages yourown reputation because you start
being seen as like a troublestarter kinda.

Om (01:22:14):
I can see that.

Brian (01:22:15):
And that's when you're in a company that is already
ahead, that is the predominantplayer, they don't like people
rocking the boat.
Okay.

Om (01:22:23):
Well there's if you try to do that, even for
all the right reasons, thepushback from up
on high is don't rock the boat.
That's right.
It ain't broke.
Don't fix it.

Brian (01:22:30):
That's don't rock the boat.
I say like innovation pressure.
The only other thing about beingthe standard bearer that could
be a weakness inthe category that
we haven't talkedabout is backward compatibility.

Speaker 6 (01:22:41):
Right?

Brian (01:22:42):
A PlayStation, for example.
They hate backwardcompatibility.
They despise the idea that whenthey come out with a next gen
console, they haveto support all the games that
came in the past.
And consumers it couldn't bemore North Pole, south Pole.
Consumers absolutely wantevery game they
want, they've everpurchased, ever to run on every
console, ever.

Om (01:23:02):
do.
I mean, look, sometimes fromthe perspective of
the vendors, it's deliberate andbuilt in, right,
because they wannabe able to sell new versions of
old games mm-hmm.
Or new games.
I understand that, but froma consumer's perspective, it
is frustrating.
'cause now you have all thesegames piling up, what are you
gonna do with it?
Right

Brian (01:23:19):
I mean like I'm not keeping points in this
category, but if I was like, allthe points would go to the crowd
that want all their games to becompatible listen,
I agree with that.
You could put emulators into run every That's right.
if somebody, if Tony Starkcould build an emulator in a
cave, you could put an emulatoron your latest gen console.
Okay.
Absolutely.
So the defacto business standardmodel, it's all

(01:23:40):
about becoming theindustry default that everyone
has to follow.
And we talk about a couplecompanies here.
I'm sure there's a dozencompanies that we forgot about.
Yeah.
So if, if there'sanything that you guys have that
you can think about, let us knowin the comments.
So I got one more and then we'llfinish for today.
Okay.
Om, do you know of a businessmodel where customers pay

(01:24:01):
more just because of the logo onthe product?
Do you know any productslike that?
Where do I start?
Are you competingpurely on features and price?
because customers see you asa commodity?
Are you frustratedthat competitors running similar
products charge 50% more?
That's right.

(01:24:21):
I said fiddy% more just becauseof their logo and hey, are you
doing great work?
But customers don't care becausethey don't know anything about
your brand that could bethis category, the brand as a
business model.

Om (01:24:35):
Yeah.
So some of the products thatcome to mind here Nike comes to

Brian (01:24:40):
mind.
I was, I was gonna start rightaway with Apple.

Om (01:24:42):
Well, apple too.

Brian (01:24:42):
So what if you could work your marketing people
to help you?
Into a place withyour brand where it creates so
much emotional connection,emotional damage?
Ooh, no, no, no, no.
Not an emotional damage.
No, no, no connection, emotionalconnection with your customers
that they pay apremium regardless
of the functional benefits.

(01:25:03):
What if your logo alonecommitted loyalty into premium?
That is the brandbusiness 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'stons of examples.
we're gonna jump straight intothe strengths of the brand

(01:25:26):
business model.
Strong brands command 20 to 50%premium because
the customer paysfor perception.
This is the BMW of marketing.
Customers believe the BMW brand.
It's worth X, y, Z dollarseven though it's a maintenance
nightmare, even though it's notmore reliable than

(01:25:47):
any other car.
Even though they can buy a newMercedes and get better interior
or whatever doesn't matter,even though every
other car's got more horsepower,doesn't matter.

Om (01:25:55):
Right, right.
It's almost like a blind orcult following.
Yes.
So one of the biggest strengthsis the product sells itself,
honestly.
Yes customer loyalty.
is there in droves, I meanpeople are just gonna buy it
premium pricing you alreadymentioned but you
know, marketing efficiency,they don't have to try hard to
sell it to you.

Brian (01:26:14):
Right, right.
Well, it's a funny thingyou just said, marketing, like
the efficiency.
Because one of the weaknessesof this model is it requires
a sustained investmentof marketing.
Yeah.
Over years.
Same message, samebrand over years.

(01:26:36):
And most companies are.
They're done they're out.
They're not evengoing to attempt something like
this, a consistentbrand for over a decade or more.
From the time youdecide you wanna spend money to
position yourself in the market.
What we're talkingabout is marketing positioning
right Now.
Where's, where's Martin at?
Like, I can't believe he doesn'twatch a podcast
because like, thisis like straight down his lane.

(01:26:58):
By the time you decidethis is what we wanna be known
as, you gotta start spendingmoney, you gotta start targeting
your audience.
You gotta start designing thoseproducts, . And that takes a lot
of time and you'renot 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 (01:27:17):
be it in for the long term.
Yeah, absolutely.
I agree.

Brian (01:27:20):
Yeah.
And then again you do it, youstart producing good products
or whatever, one bad product,one bad campaign, whatever.
You're setting your whole selfback, your whole brand back.
these are the weaknessesof this.
and then of courseall that assumes that you don't
have serious competitionbreaking in.
I mean, the early two thousands,audiophile market was just

(01:27:44):
jam packed with competitors.
Terrible market to try to breakinto you know?
'cause there was so manygood 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'sstill in it.

Om (01:27:56):
You know, Alpine's still around.
I missed my my DVD player, bBlu-ray player brand from apo.
they've extracted themselves outof the market'cause they just
couldn't compete.
Yeah, they came inas an entry level interestingly,
and then they just very quicklywent up to a premium price.
And probably thatwas their undoing.

Brian (01:28:13):
If you go up to a premium price without a
pyramid in place.
That's right.
Yes.
That's exactly what happenedwith that.
The problem is other people comein at different segments of the
pyramid imagine ifyou have a super low end product
and a super high end product andnothing in the middle and a
competitor comesin in the middle and erodes your
high and your low end product.
You know,

Om (01:28:32):
you're hollowed now to the core.
Yeah yes.
Pretty much that's exactlywhat they do.
I mean, it's easy for thecompetitor then
go up or down Yes.
In the pyramid, whereas you'realways defending.

Brian (01:28:40):
that's, the main weakness, if
I'm gonna pick onein the category here that we're
talking about ofthe brand business
model, is that the competitivepressure, like you're always
defending, if you're sayinglike, my brand is the premier
brand, my name is the best inthe business.
When you think about soccer,you only think about a couple

(01:29:01):
brands in your head, whateverthose brands are.
I'm not gonna say 'em onthe podcast.
Whatever those brands are, Iguarantee you they always have
a budget to defendtheir position.

Om (01:29:12):
Oh yeah.

Brian (01:29:12):
In that market that you are thinking about
right now soccer or football,whatever it is.
And they're spending a lot ofmoney to do that.
So if you're not willing tobe continually spending
that money,

Om (01:29:22):
yeah.
It's tough.
I mean, one of the biggestchallenges there is if you are
willing, right?
How do you measure brand value?
That's always difficultmeasuring impact.

Brian (01:29:31):
I think if you're trying to build a brand.
It's gonna stand the test oftime, and you're
constantly asking like, how muchmoney do I have to
like, what's theROI or whatever.
I think you're in the wrongbusiness.
Exactly.
I think you havethe wrong business
model, and you probably want toexplore one of
the other businessmodels that we've talked about.
The brand business model,it's all about
creating emotionalconnections, not non emotional

(01:29:52):
damage, attachment, notemotional damage that justify
premium pricing beyond theseROI functional benefits.
Yeah.
You know, what do I get if Iput this many marketing dollars?
That just doesn'twork for BMW and Adidas and Nike
and those guys.
We've gone throughabout half of the
business models at this point.
Maybe we'll do afollow up and get

(01:30:14):
the rest of the business models.
Definitely do a follow up.
So look for that and like thepodcast if you enjoyed this
review of businessmodels and let us
know other topics that you wantus to dig into,

Om (01:30:24):
like, and subscribe.

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