AA238 - 23 Business Models Everyone Should Know, Part 2 of 2 - Arguing Agile

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Brian (00:00):
We're gonna continue with podcast number two on the

(00:02):
book, the Art ofProfitability by
Adrian Slywotzky.

Om (00:06):
Business Models galore.
Oh, I thought you were gonna sayBusiness Time.
It's business.
It's business time.
It's business
time.

Brian (00:15):
I'm gonna start right away by asking you,
do you wanna know the businessmodel where unique
products command massive marginsbecause nobody else offers them

Om (00:25):
The specialty business model,

Brian (00:27):
that's exactly right.
So if you're stuck sellingcommodity products
where customers only care aboutthe price.
And if you're exhausted becauseyou're stuck in a price war and
whatever you say doesn't reallydifferentiate your product with
the competitor products, thenlet step into my office.
'cause I wanna talk to youabout the specialty product

(00:48):
business model.
So if I offeredyou something that
was so unique thatcustomers had no
true alternative, now, would yoube interested in
talking about thatas a business?

Om (01:01):
Absolutely.

Brian (01:02):
I harp on the podcast a lot of times about
segmenting the market and I feelthis is part.
Of segmenting the market whereI say like, oh, no, no, no, no.
All those otherproducts, they're not like mine.
Mine is unique.
'Cause some of this specialtybusiness product is like, it may
not necessarily be a truespecial product.
It just might be aslightly different

(01:23):
take on a normal commodity.

Om (01:26):
Yeah.
Or, or just have a few extrafeatures sprinkled in there.
Right, right.
And just hype up that typicallyI find though, here in this
model, you have to be an earlyentrant in here.
Because if you have a productalready and you
have competition, it becomesharder to play in this model

Brian (01:44):
The market segmentation I was talking about
for example, likeCrowdStrike, like who, who's out
there competingwith CrowdStrike, right?
Deep, deep threatdetection slash cybersecurity
that CrowdStrike offers.
not a lot of people.
With the broad setof offerings, when
you peel 'em back,you're like, oh,
I can find a halfa dozen companies
that do all the same things.
But they're not CrowdStrike,'cause again, they've segmented

(02:07):
the market saying like, oh, justsign on with us with all your
stuff move over from GoDaddyor whoever your
domain is hosting and just moveover to us.

Om (02:14):
CrowdStrike's a good example.
I found another example, kind oflike on a local level, might be.
Some of these people that makecraft products and
they sell 'em atfarmer's Market.
So places like that, oftenthese are premium priced.
And they're local, butthere's a certain allure to what
they're selling, especially tothe audience that covered
this, right?
So maybe those products theartisanal food segment.

Brian (02:38):
Oh food beyond Meat was another one.
Like they were very early inthe like, oh, we're special.
We're not necessarily meat.
We're all plant-based,everything.
And they were one of the earlyentrants into the
market to segment the market.
And I'm sure they had followers,fast followers that kind of
follow their business model,but I can't think of a single
one by name.

Om (02:55):
Right?

Brian (02:56):
Yeah.
So strengths of the specialtyproduct.
Business model.
I would think they're, Imean high margin reduce,
like reduced competitionwe already talked about.
So reduced competition iswhen you segmented
the market and you are the onethat segmented the market.
Like Beyond Meat, for example.
You basically cancharge what you want to charge

(03:16):
for your segment of the market.
Or I guess, I guess in BeyondMeat's example, they're, they're
tied to meat, in and of theequivalent.

Om (03:23):
I think the other thing of it
is I mean, along with charginga premium for your product
is commanding an increasedbrand loyalty?
Yeah.
Because these are, these areniche products typically, right.
And people who like those,really love them.
And so they'll they'll talkabout those products to other
people that might be interestedas well.

Brian (03:42):
If Beyond Meat is an example, there probably are.
Competitor companies likeBeyond Meat that I'm not
mentioning.
'cause I don't know about them.
It's like your competitionhas big shoes to follow if
they want to catch up and beseen as equals in the market.
That was establishedby the company that established
that brand.

Om (04:00):
Anybody following a leader like that?
Even software, it's harderfor them.
It's a harder hill to climbbecause you are trying to now
take market shareaway from somebody who's already
established themselves.
So consequently you end uphaving nuances to your product.
So you're trying to carve outa different niche now.
Maybe adjacent, but stilldifferent otherwise it's,

(04:23):
like I said, it's a hardhill to climb.
So what are someof the challenges in this model?

Brian (04:27):
So the weaknesses of this business model, and you probably
could have already guessed,is limited market size.
Like that, thatwould be the first
one that I want tojump to is limited market size.
If you're the Beyond meats ofthe world, well, cybersecurity's
a great one I figure that everycompany that's serious about
cybersecurity already has acybersecurity provider.
So like, that market ispretty small.

Om (04:48):
it's a small market in this case, in this model.
However, you arecharging premium prices Right.
To kind of offsetthat a little bit so yeah, it is
still a challenge.
I think the natural one to,follow that up with would be,
well, the market'ssmall, so how do
you grow bigger?
The scaling challenges existin this model.

Brian (05:04):
The one thing in this category that bothers me the
most about thisspecialty product,
I was at a companyone time where we
did a specialty product likethis, and we had a
constantly competewith competitors
that were clones, but that werejust like, AI garbage clones.
And the customercouldn't tell the
difference betweena well crafted, well researched
product and AI garbage versuswell researched human written.

(05:28):
Maybe those humans that areresearching are
using AI as well, of course, butthey have to check
their sources.
They have to follow backon stuff.
Like think about cybersecurity,that kind of stuff.
you have to educate the marketat the same time as you build
products for that market, whichis the same as cybersecurity.
I mean, you have to constantlybe educating the market about
the threats that are out there.
Otherwise, they have no idea oh,why do I need your solution?

(05:49):
Well, hey, there's thesenew exploits and
are you on theseoperating systems?
You using these thingslike, there's legitimate things.
You are just, it's not all scaretactics, although
that is part of trying to getpeople to move to your solution.
But educating customers why theyneed your product,
why your productis different from
all the rest ofthis, like AI slop
on the market, that's gonnatake, especially if you're the

(06:10):
product manager.
That's gonna takea big part of your
time, and it's gonna be a bigproblem too, the
more competitors that flood yourmarket trying to
make a quick buck.

Om (06:19):
Yeah, I absolutely agree.
I'll give you an example ofthat, where it's
actually happened like that.
So most financial companies,advisors, brokers,
et cetera, they now have theserobo advisors, right, that
they offer online, right?
You could do it all yourselfor no fee.
Or you could use aRoboAdvisor for a
fee, or you could go custom witha human advisor,

(06:41):
and that chargeseven more, right?
So these roboadvisors varyacross different
companies, right?
And each company is touting theadvantages of using theirs,
trying to wedge their way into amarket in which there are more
and more entrants every day.
So it becomes that much moredifficult.
Too many players in thesame market.

Brian (06:58):
Yeah, I mean, that's exactly this.
So the specialtyproduct, business
model, like it'sall about owning
a unique product category whereyou there's not a
lot of competitionbecause you, you
truly are unique and special.
The problem is like the, theperception of that
uniqueness, is that a real word?
Uniqueness.
Mm-hmm.
That like, that's something youhave to constantly
be crafting and moving along.

(07:19):
And it, it's better if you'redirectly talking
to your customerson a regular basis
so that you're helping them stayeducated to keep
ahead of just AI slop that's outthere invading like every
product area.
But I can only think about likeyour finance people being
like, but what are you doingwith your, when,
what do you charge that time to?
like if you're having thosekinds of discussions this

(07:40):
business model is not for you.

Om (07:42):
Absolutely not.
Yes.
And the other sideof it is with the
finance equation.
You have to be constantlyinnovating.
In this, if you're in thismodel, right.
So where's that rand d money going
to be asked a queLike, when, when are you gonna
monetize the investment thatwe're making?
Right?

Brian (07:55):
So if you have questions about the specialty product,
business model we're all ears.

Om (07:59):
We are.
And d let us know.

Brian (08:01):
So let's move on to the next business model, the
local leadership business model.
And I'm interestedin talking about this one 'cause
I feel like this kind of borderson the podcast business model
here, which is, do you wannaknow the business model?
Where dominatingyour local market makes you more
profitable than any nationalcompetitors that you may face.
Then you're in the right place.
So are you competing withnational chains that have deep

(08:22):
pockets, way deeper pocketssaying you ever could have, or
are you individualsolopreneurs like us, like with
facing off againstpeople, blasting stuff out into
the, sorry, I'm trying not tocall out Lenny.
Where they have like teams ofpeople and they're
just projecting stuff out onthe internet.
If you're frustrated andyou can't compete on pricing
with a broader market, then.

(08:44):
Maybe you don'thave to that's the
local leadership business model.
So if you become so dominant inyour local market that customers
choose you over any nationalalternatives which again, like
I feel like I'm talking directlyabout us here.
Your local relationships andexpertise create an advantage

(09:05):
for you as a business that'sjust untouchable.
That's the local leadershipbusiness model.

Om (09:10):
I think it's a really powerful model myself,
because as longas you have those
relationships and you're engagedlocally with your, not only
your customers, but just thelocal market.
Yeah.
You're getting feedback, you'regetting signals,
and you are comingup with products that satisfy
those needs.
Yeah.
You're gonna prevail.
It's harder for someone else, anational brand to break in.

(09:31):
'cause they're not even awareof the nuances of
what's needed atthe local level.

Brian (09:35):
I'll give you a few that like everybody that's here
in the south knows Publix.
Like that's yes.
That's a, that'sa regional brand,
believe it or not.
Actually it used to be a Floridabrand, but not, not it's a
regional brand inon the West coast
in Out Burger I don't think theyhave any out burgers here.
I haven't seen any DutchBrothers coffee.
Like chain, like those are allthey started as local change.
I mean, even Starbucks startedas a local change.

(09:56):
They started as local chains andeverything I just
listed has becomea regional chain.
But it doesn't even haveto be that.
It could be one city.
You know, just like we weretalking about the podcast is
like, we're we on the podcast?
We are more popular in Tampa,obviously, than we are anywhere
else in the world.
Like by a long shot, you knowwhat I mean by like 75%
or whatever.
Other than Berlin,like thanks for

(10:17):
everyone listening in Berlinyeah.
Where was that going?
but the strengths of this model,that's, that's where I was, I
think I was goingto the strengths of this model,
the strength of this model islike, hey, like your community
trusts you.
It doesn't matter what communityyou have.
Especially with the podcast,people bending over backwards
when you run a podcast to giveyou advice.
Sure.
And it all stinks.
The advice that is good is likeyou need to build a community.

(10:38):
It was sort of a little bit ofthe last model we talked about.
But on top of that is like, youneed to build.
Community that you're sellingto, quote, selling to and if the
community is here in Tampa,that should be easy for us.
And then we know the businessesthat are here and
we know the people that run thebusinesses here.
So you can connect andhave an intimacy that there's no
way that, like somebody fromwhatever regional,

(11:00):
national, what it's gonna breakin, in the middle of, they might
replace it because they're supercheap or some other business
model, they're notgonna erode that business model

Om (11:09):
used to be the mom and pop shops were like that
stores, right?
Yeah.
On Street corner.
They knew everybody whowent in there.
But I mean, the other one iscommunity banks.
You know, they know theircustomers very, very well.
That's right.
And they're thriving in amarket where national banks
may not be doing as well.

Brian (11:24):
That's right.
HEB in Texas was another onethat's regional that I didn't
take note of.
But the other thing about yourmom and pop stores or companies
whatever, consultants,whatever it is, is the company
might pay more forthat individual consultancy or
that individual person than theywould for a chain.
I think about in softwaredevelopment, I think about the
Accentures of theworld or the TCSs

(11:46):
of the world where like, yeah, Icould get somebody
for half the priceto two thirds of
the price, right?
Or I can get somebody from mylocal consultancy
that is here in Tampa that couldoccasionally come
to my corporate office if I needthem, and I'm willing to pay a
premium for that.

Om (12:01):
That's a great example.
Yeah, I agree.

Brian (12:03):
So there, I mean there's a trust factor there.
That kind of goes unspoken.
Because there are weaknessesof this model and
exactly like the consultancies Ijust mentioned, the Accentures
and the TCSs of the world.
Like hey, the money driveseverything.
Absolutely.
And you know, yourpeople are good and everything,
but at some point gotta get thatevery little last penny.

(12:24):
Gotta scrape'em off thefloorboards and look through the
couch cushions.

Om (12:27):
Yeah.
Kinda segueing off that.
You're also more vulnerable to,fluctuations in the
economy, right?
That's right, that's right.
If you're a local player only, Imean, you can not really weather
the storm as wellas the national ones game.

Brian (12:38):
I mean, it's to the dependency on the economy being
fair, let's say at least fair inyour area, but basically not
taking downturn, I guess it atthe economy took a downturn
in your area.
That's when theshift would happen
to be like, well,maybe I will go with TCS and I
know that it'sless efficient and
I get worse codeand whatever, and I'll have some

(12:59):
problems, but hey, I'm spending60% of the money I was spending
and I'm willing to do that for aperiod of time.
And then I bring some peoplein just like everyone using
AI to replace their employeeswho are not using AI at all,

Om (13:10):
other than just the price factor.
It's also justhaving uncertainty
that the local shop's notgonna be around

Brian (13:16):
I can see that too.
This is the old nobody got firedfor going with
IBM type of thing.
Right?
That's the same one.
Yes.
And then , if you are the personrunning that local business
And this is your business model,it's knowing that
at some point, thelocal leadership business model
will permeate and there is asaturation point
with this businessmodel that could
scare some people.

Om (13:34):
Yeah.
Growth challenges could includebeing able to recruit
talent locally.
That's true

Brian (13:38):
Talent acquisition could be a problem.
Depending on whatmarket you're in.

Om (13:40):
Depends also if you're in a small place or a town.
Mm-hmm.
Versus a big city.
Mm-hmm.

Brian (13:44):
Oh yeah so the local leadership business model
that's about dominatinga geographic market through
deep community relationships andlocal expertise.
Another one we left out is like,well, it actually requires you
to get out into your community.
So this, this is aninteresting one.
I feel this one'slike, the larger the company
gets, the more underserved thismodel, the more like, I think

(14:05):
this is the way to sneak underbig companies right here, like
a hundred percent of the time.

Om (14:09):
Definitely agree.
So,

Brian (14:10):
If you have stories or questions about the local
leadership business model,let us know in the comments.

Speaker 4 (14:15):
Absolutely.

Brian (14:16):
And we're gonna move on to
ask the question.
Om, do you wanna know thebusiness model where processing
millions of tinytransactions makes
you incredibly profitable then?
Step right up.
Step right up.
Like where, where are youstepping up to?
I don't know.

Om (14:31):
Step up to the bar.

Brian (14:32):
Oh, hey, have a drink.
And I want to askyou some questions
here step in my office partner.
Are you focused onlanding big deals while ignoring
massive small transactionalopportunities?
Are you leavingmoney on the table
because you thinksmall transactions are not worth
your time?
Oh boy.
If I had a nickel for every timethat I heard, we wanna sell
massive multi enterprise level,multimillion dollar boy.

(14:56):
Volume can beat value.
And that's just not a, it'slike there's some people
that are immune to that adviceright there.
So let's, let's,let's talk about.
You process millions of smalltransactions and those tiny
margins adding add up to a, amassive profit.
It's the transaction scalebusiness model.

Om (15:19):
About some examples.
I mean, the one that obviouslycomes to mind really quickly
is the payment processing usingpoint of sale.
Like each transaction is small,potentially, especially if
you're, you don'thave to be buying$200 items.

Brian (15:32):
Was, I was thinking anyone that takes
transactions on Stripe, or I wasthinking about anybody who opens
the storefront in Shopify or uh,Etsy or whatever.
Robinhood, Coinbase, any,any of those ones
that, like each individual tradeor whatever is
like, it's a tiny,they're taking, like they're
shaving pennies off the trade,but still they're doing millions
and millions of trades every dayso like those millions of, of

(15:54):
pieces of pennies, like I thinkwe're describing the plot of
office space.
Actually.
Nevermind, nevermind, Itake it all back.

Om (16:01):

Brian (16:03):
The one big one we didn't talkabout that they literally wrote
the book on this one was Visa.

Speaker 4 (16:09):
Mm.

Brian (16:09):
I mean, they visa, PayPal,
stripe, like allthe FinTech bros.
They basicallyinvented this bus.
They didn't really invent thisbusiness model.
But if we're saying Palantirinvented customer
solutions, we're saying, we'resaying PayPal invented this
one, then that'swhat we're saying.
What a world we live in, andthen of course stock exchange is
stock exchanges.
That's, yeah.
So strengths of this businessmodel, obviously massive volume,

(16:33):
potential, smallmargins, millions
of transactions.
Nobody's noticing.
You're cutting a penny off a,here penny off
there or whatever.

Om (16:41):
The brokerage business is big on this 'cause
you know, even ifthey don't charge
you fees, let's say, 'cause thatseems to be the
recent trend now.
They're making money onthe spread.
And the spread is bigger thanwhat a lot of people think but
they are makingmoney every time.
You're selling or buying.

Brian (16:56):
Right.
And, and also the benefit ofthis one, unlike other business
models, is one customer or twocustomers leave.
Like your, your whole businessis not at risk., That the
diversification here will keepyou afloat.
And, and like, I,I would honestly be surprised if
you really knew, you probablyknow who you're,
like your biggesttransactions come from, but like
the rest of themthe, the lower of

(17:18):
50% is probably so diverse

Om (17:20):
straight in the back.
Yeah.
I think getting to the pointhere where you can really start
to make money, that investmentis constant regardless of
the size of thetotal addressable market.
Yeah.
Which is fantastic.
If you think about it, there'snot many models where you could
state that claim.
Right, right,

Brian (17:37):
The acquisition of the total addressable market.
I think is lowering becauseyou have a very low customer
acquisition cost.
Yeah, because there's so many, Imean, like Stripe for example.
Like what is the customeracquisition cost of Stripe for
people to sign up and just starttaking payment?
I mean, it's gotta be near zero,, and then obviously scalability

(17:59):
you build your system, right?
You're basically infinitelyscalable.
It cost you near zero toonboard people.
Everything's profit atthat point.
Yeah.
So well this is sounds,this sounds like we should quit
our jobs and be FinTech bros.
There's gotta beweaknesses in this
business model.
Let's talk about 'em.
Obviously you're gonna scaleforever and let anyone sign up

(18:19):
immediately.
There's gonna be someinfrastructure investment.
Yes.
You're gonna need to ask yourdevelopers, Hey,
don't just phone this one in.
Build it in a way where it couldscale infinitely forever.
That's gotta cost a couple

Om (18:31):
bucks.
It does.
And you have, you've also, sotwo things, right?
One is you've gotta protect yourcustomer's data.
That requires that you get yoursecurity right.
That requires investment.
And the flip side of not doingthat is massive rep damage.
you screw up once, guess what?
It's gonna take you a while toget back up.
Because there areother people that

(18:52):
you're competingin the space for.
Fraud goes along with that.
so it's all about protectingyour customer's data and there's
an investment involved there.
Which is big.

Brian (19:00):
Other than like outsized spending on infrastructure and
actually making itlike when people
are crying like, oh, we'll justmove fast and break the law.
You can't really do that.
You kind of needto be sure that it
theoretically willscale because you
can't be runningout in the middle
of the night and having a firedrill when you know a thousand
people on board or whatever likethat, that's not gonna work.

(19:20):
So you have to pay more.
Upfront to be ready forit to scale.
The issue with this businessmodel is it's like
the scale businessmodel, but you need a bunch of
money to make a bunch of money.
You need a bunch of transactionsto be able to support a system
like this.
'cause the system itselfis a little more expensive than
a normal quote system that Iwould talk about.
in software development

Om (19:41):
it's very difficult to land on a And complex.
And complex.
Yeah.
The complexity is huge.
It's very difficult toland on a, a scale that you
can deliberately plan for it.
It's probably more realisticto think that you can achieve
managed growth.
So you only knowwhat you know, and
if you don't know,you can't really
scale for that Imean, 'cause it's a money drain
at some point.

Brian (20:02):
Yeah.
The transaction scale businessmodel.
It's about capturing tinymargins on a massive amount,
a massive amount of volume.
And it's, it's obviously, it'sthe FinTech model as we've
pointed out.
I, I wonder if you like the AIcompanies maybe are doing this
with credits and tokensand whatnot.
I don't know.
A little less'cause it'snot really their model.
so if you have ideas where thismodel is at play let us know in

(20:25):
the comments we will move on.
We will burn on to the valuechain position business model.
Do you wanna know thebusiness model?
We positioning yourself at themost profitable point in the
value chain makes you rich andeveryone else.
Sad.

Om (20:41):
I wanna know that because we're
all working hard and we're notgetting where we need to get to.

Brian (20:44):
Working hard and barely making ends meet?
Well, you might beliving in America.
Sorry, that's, that was, vote,vote for Pedro.
Are you stuck in the leastprofitable part of
the value chain?
While you watch others indifferent parts of the value
chain get rich?
Are you upset because youreffort is not earning an
outsized amount of profit?
Your positioning in the valuechain does well.

(21:07):
Well then we've just identifiedyou need to move to the
most profitable position inyour industry's value chain.
So if you stop competing wherethe margins are thin and move
where the money is, then you'llbe in the money.
The value chain.
Position business model.
So T-T-S-M-C dominates chipmanufacturing, it's probably not

(21:28):
a great example.
Lemme see if there's abetter example.

Om (21:30):
I think the distribution company example is a good one.
They, they're kind of wedgedthemselves in between the
producers and the consumers.
So they're a broker.
Yeah.
Yeah.
I mean, you can't,producers can't really get to
consumers withoutthese companies

Brian (21:43):
is that what this is?
This, I think that's whatthis is.
Did did we, did we run acrossthe billionaire market business
model right now?
Because that's what itsounds like.
It sounds like, like the NVIDIAof the world, Nvidia doesn't
manufacture anything.
Like TSMC manufacturesall the chips, like they quote
design them I mean, as far asyou and I know they design them.
Then somebody else builds themlike the same like Spotify.

(22:05):
Like Spotify doesn't createany art or music or anything.

Om (22:09):
They don't

Brian (22:09):
then they barely pay people.
Yeah yeah.
They barely pay anyone.
Yeah.
Door DoorDash, like they, theydon't make any food, right?
They've Amazon, I would put inthis category as well 'cause
they position themselves betweenthe people looking to sell goods
and the people looking to buygoods and they just kind of like
wedged themselves in the middle.
oh boy, we're getting veryMarxist on the podcast now.
They, they, so there, thereare strengths of the business

(22:31):
model of being in the middle ofeverything and taking control
of everything.
That's what I'm saying is

Om (22:36):
I think this sense of essential.
Component really kind of inthe chain, the essential link in
the chain, that's where you needto be, right?
Because the chain gets broken ifyou're not there,
which means youhave to be there, which means
you, you're not really producinganything.
Yes.
But you are relaying from oneend to the other.
And collecting your cut inthe middle.

(22:56):
The funny thing

Brian (22:57):
about this is, like you, you
just said exactly my feelingsabout this business model.
you are not as the intermediary,you're not really doing anything
here, but you are optimizinga potentially high profit point
in the chain.
So like the Amazon thing,it's like the, oh, we guarantee
next day delivery.

(23:18):
Whatever, right?
Like you're optimizing aparticular pain point and that's
basically how you're making yourwhole solution is
you're optimizing one thing, theshipping Right.
You know and how you do that.
Well, you you've got warehousespace in every major American
city and blah, blah, blah,blah, blah.
Automation people, automation.
Yeah.
All kinds of stuff.
And boy, the the market power ofcontrolling all

(23:39):
of those all those points in thevalue chain, like
again, with the,Amazon's a great example 'cause
it's super easy for anyone who,who's not quite sure about this.
T-T-S-M-C makes all the chips Imean, the value chain is like,
anybody can dream up a cool chipwith a bajillion transistors on
it, but only TSMC can actuallymake the chip.
Only one company,one, one facility can build it.

(24:01):
Yikes.
That's a problem.,You wanna maximize
value like that, that would bethe way it is.
Like figure out where along thechain you can insert yourself
and basically take control.
Or if you don't take controlof it, to optimize that,
that particular process I mean,other people can build chips.
Sure.
It just costs them 30 timesthe amount.

Om (24:18):
investment is a huge obstacle right there.
but they've already made theinvestment, right?
And now they're capitalizing onthat investment.
So not everybody can do that.
A distribution company,same thing.
They have a network in place.

Brian (24:31):
the strengths of this one obviously is optimizing
your margin.
I mean, you basically canpick your margin on this one.
For TSMC, I mean, they basicallycould charge what
they want within reasons theystart breaking the making it
unprofitable forthe parent company or whatever.
But up until that point,

Om (24:45):
which is a pretty flexible rate.

Brian (24:47):
and then you know, the market power gives them
leverage mm-hmm.
to basically notnever be underbid.
I mean, you said it in yourpoint is like, well, who's
gonna come up with the capitalto build more manufacturing?
Yeah.
Right good luck.
We'll basically need you.
And the other advantage here atthe point where you get enough
capital sorry, where you getenough capital.
You get enough strategicdominance but you can move up

(25:10):
and down that value chain.
I would expect Amazon could juststart selling.
Actually Amazon did.
'cause they havethe Amazon basics
where they justmanufacture their own low costs,
electronics or accessoriesor whatever, and they just
sell their own.
So they have moved up and downthe value chain
which is scary forpeople that are like for people
that get on boardwith them early and then start

(25:30):
turning around one day andit's like, Hmm, that looks a lot
like my product.
Too late.
You're outta business.

Om (25:35):
They've already put the batteries in place.

Brian (25:36):
Yeah.
So is there weaknesses to thisbusiness model?
Every business model.
let's talk about this one.
The one that I would thinkof would be the capital
requirements.
Necessary for this upfrontinvestment.
So like if you wanna have twoday shipping anywhere you
are in a world,country, whatever
boy, that takesa lot of capital.

Om (25:54):
Yeah.
You gotta have thatinfrastructure and
everything else

Brian (25:57):
Right.
And then you gotta upkeep

Om (25:58):
it, logistics and everything, and you gotta
upkeep it.

Brian (26:00):
Yeah.
I mean, those, those robots arenot gonna enslave themselves.

Om (26:04):
You have to make robots to enslave robots.

Brian (26:06):
Yeah.
We got robots anyway.
Like and then also you're justwaiting for a market disruption.

Speaker 4 (26:13):
yeah,

Om (26:13):
And if you're in this model, you have to develop expertise
in adjacent spaces as well.
In the case of Amazon, initiallyit wasn't an issue
for them to worryabout logistics and all of that,
but they had to become expertsin logistics and
shipping so these are adjacentto Amazons.
Original book selling business.

Brian (26:32):
And also one other weakness
that it's probablyworth pointing out is everybody
who sells on Amazon, I'm sureprobably has their own store.
And probably ifthey could easily
offer a discountto be like, Hey, buy it from me.
Maybe it's not two day shipping,maybe it's three day shipping,
four day shipping or whatever,but like, here's whatever
discount you get from buying itstraight from me and cutting

(26:53):
Amazon out of it.
I would imagine that like, thisis, this is the advantage that
should come out of like the eraof vibe coding is anyone,
there should be some kind oflike package or something that
anyone can just copy paste tobe like, here's my item on the
Amazon store andhere's a link in the description
that goes over to my store andgives you the same
thing for 10% off.

(27:14):
Whatever, something like that

Om (27:17):
It sounds fanciful.
The issue really is being ableto compete at scale with a
juggernaut right?
Yeah.
So of course Amazon's not gonnalet you put your
own links in their descriptions.
Yeah.
To start with.
Best you could do, if you canleverage that with
them and create the contracts,is to have your own store, but
it's still an Amazon store.
Mm-hmm.
The fulfillment aspects of it,they will take care of that

(27:40):
and you can't get your handsin there right.
Because they've already gottheir pause into a clause, into
the value chain at that levelwhich is the most profitable
segment Right.
in the chain itself.

Brian (27:49):
Well, the value chain position, business
model, like it's about findingand capturing the
most profitable position inany particular industry's value
chain, right?
And then, and the value chaincould be, it's a very mushy
topic, right?
Value chain.
But I'm interested in this one.
And there's otherin industries that
we probably couldtalk about more.
We didn't even talk aboutregulatory being a weakness of
this business model wherethe government just comes in

(28:11):
and smashes you know, Hulksmash with the business model.
But we're gonnamove along because we have a, a
ton of other ones we get to.
do you wanna knowabout the business model where
timing market cycles perfectlymakes you rich while everyone
else goes broke?

Speaker 4 (28:25):
Ooh.

Brian (28:26):
Are you getting crushed by
market downturnswhile competitors somehow stay
profitable?
Are you frustrated because youmake money in good times, but
lose it all in the bad times?
Well, then you might be bettingon meme stocks.
That's what you might bedoing right now.
So everyone has the same cyclesin business, like the ups and
downs, right?
But what if you understood theindustry cycles and positioned

(28:48):
yourself to profit in upturns,and keep even in downturns.
Well that's whatthe cycle business
model's all about.
There are no role modelsin the cycle.
But here, let me see if Ihave anything in the cycle.
You're not gonna like anyof my examples in the cycle
business market.

Om (29:04):
can think of one.

Brian (29:05):
Okay.

Om (29:05):
So if you are a financial broker, that is not a fiduciary,
by the way.
You pay my fees.
the market went down.
I'm sorry, but you have topay my fees.
Yes, the market went out.
Gotta still pay my fees.

Brian (29:15):
They do

Om (29:15):
very well

Brian (29:16):
so is this gonna be the predatory market
segment business plan right now?
Is this, is thisthe scamming old people using AI
business plan?
'cause that's, that's what it'sgonna sound like.
There's no role models here.
If you were looking for abusiness plan that's like, Hmm,
I could have agood night's sleep at the end of
the day because I, because I'mgonna, I'm gonna tell you right
now, the cycle business modelsare all of the,

(29:37):
all of the private equity globalmanagement firms.
like you were talking about,what are they called?
The asset management theones that own the big , what
are they called?
The mutual fund owners.
Yeah.
that extract a fee, whetherit makes money or lose
money, they're extracting thatfee every month.
I think about CarMax.
I think about Rocket Mortgage.

(29:57):
I think about guys likethat, like big mortgage brokers.
I think about insurancecompanies, like they're gonna
take their cut.
Regardless, yes.
You know, hey, economy's ina downturn.
Nobody's driving.
It's COVID.
Your rates are going up.
Why are my rates going up?
Like nobody's even drivingon the road.
The accidents are down 50%or whatever.
'cause literally no one'sdriving rates are going up.

Om (30:17):
Same thing with the home insurance, right?
I mean a great year forhurricanes.
Guess what?
Doesn't matter.
Your rates aregoing now and they
blame inflationor some something.
That's right.
The wind went thewrong way or Oh

Brian (30:28):
the strengths of this model, if you are ebony,
are scrooge.
Let's let me putit that way 'cause
I beeped out and edited out whatI said earlier in the podcast
are massive.
I mean, the timing advantage.
Understanding the cycles and buylike the, just like, just stick
with mortgage companies,for example.
When rates go up and if you'rea real estate investor, for

(30:51):
example, when therates go up and
all the sales slowdown when people's
homes are on themarket for a long
time and pricesstart coming down,
what a great time market timing.
obviously the private equityfirms are great at
this because they have people onstaff that just do
risk management.
Sure.
So they, they're looking foracquisition opportunities

(31:12):
to bring like, large amountsof cheap assets into the fold.
Or I guess, if I'm gonna try todefend this for
a second, I'm notgoing to, but if
I'm gonna try todefend this for a
second, the, the,the private equity firms of the
world are goingto say, Hey, we've
done a review of this business.
And we see the risk is lowand we see what they're doing
with the money they have and thepeople they have.
If they had more money or moreopportunity, or if they were

(31:35):
joined with us or whatever, withmore opportunity in the market,
they could be doing a lotmore business that, that's
the way they'll look at it.
So they'll saylike, this company
is basically like underutilized,understaffed, under
monetized, under

Om (31:48):
company has a high upside,

Brian (31:50):
Something like that.
There's a term for it, Ican't remember right now.
and the VC guysare the same way.
this company easily could bebringing in X fold
percentage overwhatever profits.
And that's what they'll look at.
not exactly the same as the wayI pitched it, of like you wanna
build a company that breaks evenwhen the market is terrible.
Makes a profit while the marketis good, where your competitors

(32:11):
in the same industry arelosing when the market is down
and struggling even when themarket's up.
That's how to pull ahead of yourcompetition, like
being super shady.
I don't know if that's a greatway to go about it, but, I mean,
listen, these people make alot of money.

Om (32:25):
They have the luxury of being able to plan
for downturns way beforethey happen.

Brian (32:30):
Well if we're planning for downturns, let's talk about
weaknesses of thisbusiness model
because you need abunch of money to

Speaker 3 (32:35):
make this happen.

Brian (32:36):
The people that are taking
money every month and chargingtheir customers
more or whatever, and they don'tcare who cancels or who leaves
or whatever.
Like, well, that's great.
It must be great to have somuch money that you don't care
about churn, you don't careabout, I mean, they probably
care about it, but like,

Speaker 4 (32:49):
yeah,

Brian (32:49):
Oh, who was the, who was the oh, it was The Chipotle,
the Chipotle, CEO recently wherethey, they had the chart of like
how much they've raised pricesover the years and like they
were complaining that people canno longer afford their baratos
and not burritos.
'cause burritos would be itoin the, anyway, that's, that's
a Spanish joke for everyone,for everyone to listen to.

(33:10):
Podcast number one, by the way.
But yeah, you need, youneed capital.
You need, you needa massive amount of capital to
be able to keep smashing yourcustomers down.
And and also likethe, the timing.
I mean, you can't you can mess,you can miss with this timing.
You can, you just can'tmiss by a lot.

Om (33:25):
Those bad events when they happen back swans, right?
Yeah.
If you diversify enough, youshould be able to weather those
storm, right?
Yeah,

Brian (33:32):
yeah.
You know, and then obviouslyyou're, you're gonna get hit by
market volatility just likeeveryone else.
It's just there's like apsychological game going on
which I, I say psychological orwhat I really mean
is there's like a business riskmanagement game and just a lot
of people that I maybe I've notworked for enough(evil) private
equity firms that like, havecalculations and

(33:54):
like actuaries tomeasure that risk.
Yeah.
But most businesses don't.
They don't.
I mean, they, they're like, theygot a thumb in the air figuring
out which way the wind blowsmeasuring risk.
They're not doing it withnumbers, you know?

Om (34:07):
Yeah.
I wanna lump in health insurancecompanies and pharmaceuticals.
Well, oh, that's a one.
Yeah, That's a good one.
It doesn't matter how fitthe population's getting.
They're gonna continue toraise their.

Brian (34:17):
I mean, think about the cycle of car insurance.
I mean, the cycleof car insurance is like you're,
you're, they don't want youto stay with the same insurer.
They want you to constantlybe moving and churning out, and
seeking betterreach or whatever.
They're gonna keepraising cable.
Same way.
They want you to keep moving,and if you stay because you're
lazy, suddenly you're paying$150 while your

(34:39):
neighbor is paying$48 or whatever.
That's just the way theirbusiness model is.
Again, not to go out on a highnote here, but this is the worst
business model inthe world right
here, because it'ssuper predatory.

Om (34:49):
Unless you are the business in this business model, then
you're like, well,that's what the
market will bear,

Brian (34:55):
Right.
So are you a trouble person?
That's what I'm, do youhave scruples?
Do you have scruples?
Maybe the cyclebusiness model's?
Not for you.
It's about understanding timing.
When to buy low and sell high.
You know, hey, may, like you'reprofiting from volatility.
I mean, maybe you wanna bea day trader.

Om (35:12):
Yeah.

Brian (35:12):
Tell us we're wrong.
Tell, tell us how Palantir isnot evil please,' Om: cause
we'd love to have a chat.
That's right.
Let's talk about the after salebusiness model.
And I'm not reallysure this is a real business
model, but,

Om (35:22):
This is a real business.

Brian (35:23):
you, if you wanna know the business model
where you make more money afterthe sale, then.
On the actual sale.

Om (35:29):
This is absolutely a real business model.

Brian (35:31):
Okay, well, if you make all your profit on the initial
sale and then youforget about the customer after
that, oh boy.
If you make a massive amountof revenue and you have like a
third party marketor whatever that
comes in and dealswith maintenance and support and
service and you'remissing out on all that money
and you're mad about it, stepback a second.
Hang on, I got more categories.
If you're frustratedwatching car dealerships make

(35:53):
more through their servicedepartments, then through their
dealer sales side,then like, step into my office.
If you're leaving money on thetable, step into my office.
'cause if I toldyou that you make
thin margins onthe initial sale.
And then you havea massive amount of profit on
the backend for ongoing serviceand maintenance and whatnot.

(36:13):
Then you might be interested inthe after sale business model.

Om (36:17):
Yeah.
let's look at a couple ofexamples of these.
We talked about a model whereyou could buy hardware like
printer mm-hmm.
For X amount of money.
Yeah.
Printer then keep paying overand over for That's right.
Ink.
that is after sales.
Really?
Yes.
I mean, the other one that.
Obviously the automotiveindustry, right?
You're paying XVcard and they lock
you in, et cetera.

Brian (36:35):
Tesla also the supercharging network for
Tesla let's see Peloton, whichis like more like a subscription
company than it is like aworkout machine company, right?
And also if we're talking aboutexploitative things that have
really rankled people's feelingsin the news, John Deere.
Because if you remember, likeyou had to go back
to them for partsand service, like
they locked out all their stuff.

(36:56):
Yeah.
With software.
So there, there are quite a fewin this category
that you wouldn't necessarilythink of

Om (37:02):
Electronics.
I mean, you buy electronics andthen you buy, you know warranty.
So the warranty,I mean, they get you, so things
like appliances, you buy washer,dryer, whatever.
And then you buy a warrantyfor three years.
'cause this thing's onlywarranted for one year.
They can stack'em and then atthe end of the three years or
before, then they'll hit youup to extend again
for another threeyears at a higher
price because now Appliances areolder, right.

(37:23):
More susceptible to breaking.
So yeah, these are examples ofthe after sale business model.

Brian (37:28):
And also like, there's other ones that
like normal folks,unless you work
for a company likethis, you probably
would never thinkof like a Boeing,
you think you can just go down aadvanced auto and buy a new part
for a jet engine.
Like I mean, youprobably gotta go
back to Boeing or,or, or whatever company they,
contract with tobuild those parts.
But yeah, I meanthere, so it's a,
the maintenancecontracts I would

(37:51):
imagine, like for like a companylike Boeing for example, I
would imagine the maintenancecontracts are probably worth,
like you build your originalairplane for like, whatever,
a hundred million dollars orwhatever it is,
you build a plane,$60 million,whatever it is you
build a plane for.
But then the ongoing maintenancecontracts to be
able to get parts.
New engines, stuff like thatlike rolls, rolls Royce,
for example.

(38:11):
Sure.
The engines they built foraircraft, do you think they make
the majority of their moneyon their cars or off of like
the aircraft engine division?
Right.
You know, that like Rolls Roycedoesn't have, they don't make
airplanes, there'sa lot of companies
that you probablywould never think
of that are superprofitable just
because they havethese contracts.
They, they justdo these contracts
and it's a massiveamount of money.

(38:32):
And some of themare controlled by
the main company.
Some of them are not but yeah,high margin like I think about
the US governmentand like fighter
jets for example.
Where they have to buy like asilly little part.
Like there's people on YouTubeall the time that you can see.
But there's some of theselike defense acquisition guys
that I follow on LinkedIn.
I'm gonna start spitting whenI say LinkedIn.
Terrible, but it's almost asbad as Jira.

(38:53):
Like some of these defenseacquisition guys
that I follow on LinkedIn, likethey're showing like this little
tiny little like metal part thatwe can't get except for the
manufacturer.
It's like $5,000that we started 3D
printing it for $3

Om (39:05):
I think that model that's been there for decades is now
being disrupted by technologieslike 3D.
So there are othercountries where they couldn't
find, forget about fighterjets and stuff.
I mean, they couldn't findspare parts for imported cars.
Right.
Unless you went tothe manufacturer.
Now what they're doing isfashioning them and before 3D
printing became athing, they were

(39:26):
already creating those out ofbare lump, like lump of metal.
They were actuallyfashioning parts
and manufacturing them.
Could be subpar, doesn't matterbut way affordable
than going back tothe manufacturing.
So now 3D printing, anyonecan print out parts like that
so that model'sgonna be disrupted even further
going forward.
Maybe not quite with the Boeingscale, but On a lower level.

Brian (39:47):
The customer lock in especially with John Deere,
where they're like locked outwith software, their parts where
you can't just change parts.
Yeah.
that's a strength of this model,but also like ooh,
I almost want topivot right into
weaknesses, whereit's like, in the
weaknesses of thismodel, customer resentment is a
big thing with this one becauseJohn Deere got in
a lot of trouble in the pressand got beat up pretty hard.

(40:08):
Rightfully so, by the way withthis customer resentment of
like, why, like I just gottareplace some mechanical part.
Then it's sort of like the parthas some sort of electronic
component in it that's stampedwith like a VIN number
or something like that.
Like in the computer stampedwith a VIN number.
So it knows that you've changedthat apart

Om (40:25):
and then it shuts down.

Brian (40:26):
then it shuts down.

Om (40:27):
Yeah.
That's predatory, I feel.
But I think an example of thismight be if you
have any extended warranties foryour IPhone or , AppleCare.
Yeah appleCare, yeah.
Good one.
that, that's an example.
The risk you runhere is disruption
through a thirdparty, being able
to offer the samekind of service.
Mm-hmm.

(40:47):
But of course, in the case ofApple, hey, they have to play
within the apple

Brian (40:52):
wall gardens.
I know.
Well, I mean, AppleCare isan interesting one because
, there's like a organizationalconflict that we haven't
talked about.
Like inside of theorganization that
sells AppleCare.
Just that, maybe this is not agreat example, but let's use
this example fora second the, the
people that sellthe products have
to also tack on AppleCare, whichthey may or may not want to do

(41:13):
there's a wholenother team that's only incented
by the service and the cost ofselling AppleCare.
They like, they're financedby the sales of AppleCare.
Yeah.
To people bringingin the store and there's tech in
the back and allthat kinda stuff.
So I would think like theless AppleCare subscriptions,
the less of thosepeople can work at the store.
That kind of thing.
So it's like, there's anorganizational kinda like,

(41:35):
well, if I jack up the price ofAppleCare, it's harder to sell
more phones and it's hard tosell AppleCare.
I don't know how they dealwith that kind of thing, but it
is a conflict.
Anything that requires beingtalked about between folks in
the organizationis a weakness of
the model becauseas we know on the
podcast, people don't like totalk to people.

Speaker 3 (41:51):
Exactly.

Brian (41:52):
But yeah, one concept, customer resentment, I
mean you know, it's the, theand then the, the AppleCare one.

Om (41:58):
Services 24%.

Brian (42:00):
So it's

Om (42:00):
Okay.

Brian (42:00):
so Apple doesn't break out Apple Care specifically,
but it says it's responsiblefor 24%.
Apple Services isresponsible for 24, 20 4% of the
revenue check.
The next bullet, AppleCareand extended warranties are 8.4
billion in 2025.
So a good amount that'smore than our

Om (42:20):
nation's GDP$8.4 billion.

Brian (42:23):
The services division has substantially higher gross
margin around 75% comparedto the hardware sales, around
39% that that comes from RandoGoogle AI search.
So that's interesting.
Like the margins are way higher.
If you were a company and youwanna set up something like
AppleCare for the first time,like there's a, a longer cycle
to profitability.

(42:44):
Yeah.
You know, that's somethingto consider.
it's a little lessof a weakness, but
it is something to consider.
So the after salebusiness model, like it brings
in a bunch of revenue obviouslyfor Apple, 24%.
Yikes that's pretty significant.
Mm-hmm.
It's all about capturingongoing value through service,
maintenance and support withoutbeing a predatory.
what was the previous one thatwe just talked about the, Cycle

(43:04):
business model.
the predatory cycle businessmodel.

Om (43:07):
I'm pretty sure you guys have
other examples inmind, so please let us know.
Yeah, it's below.

Brian (43:12):
Let's move on to the new product business model.
And I know you wanna know abouta business model or being the
first to market lets you chargea premium before
your competitors arrive.
Well, we're gonna talk aboutthe new product business model.
So are you playing it safewith incremental
improvement whileyour competitors are launching
breakthroughs?

(43:32):
Are you watching first moverscapture massive margin while
you're still competing on price?
are you preaching that speedmatters more than perfection?
Well, your company's movingway slower than you want to.
That's we're gonna talk aboutthe new product business model.
What if you continuouslyinnovate and what if you can
come up with somesort of business model where it
was all about capturing firstmover advantage over and over

(43:55):
again, iterating and continuallycapturing first mover advantage
over and over again beforeyour competitors arrive.
The speed to market is yourcompetitive advantage.
That is the new productbusiness model.

Om (44:06):
It requires a certain DNA of a company to be there.
I mean, to get there first ofall, and then to remain there.
For any period of time.
So one company that springs tomind is Tesla.
They did that.
With the innovation ofthe ev capturing a pretty
decent sized market and thendefending that.
Now lately, there have beensome competitive pressure from

(44:27):
foreign brands, but in the USCanada, they pretty much
held their market share.

Brian (44:33):
Yeah first, first mover advantage.
I mean the all the AI companies,I mean chat, GBT, anthropic,
like they both have first moveradvantage here.
Google's trying to catch up.
NVIDIA is constantly reinventingits products like every two
years the H one hundreds thatall the AI stuff is trained on
Is like nobody else can do it.
Other than those,nobody else can do the training

(44:54):
unless they have those chips.
Obviously you cancharge whatever you wanna charge
'cause it's brand new offering.

Om (44:59):
Yeah.
For a period oftime you dominate
the market, right.

Brian (45:02):
And then the first movers shape the market.
So like, I thinkof every AI token business model
that's out there.

Om (45:11):
Right, right.
Yeah.
And that breeds some sort ofcustomer loyalty.
'cause people, a, people haveseen that for the
first time, likeEVs, for example.
And then your product becomessynonymous.
Your brand name rather becomessynonymous with the product.
So rather than saying ev peoplesay Tesla.
And this isn't just in this sortof market segment.
In other cases, we talked theother day on the previous

(45:33):
podcast about how tissues becamesynonymous, right?
With Kleenex The brand.
Years ago it used to be a vacuumcleaner, the brand Hoover.
So it does give you thatmarket defining brand loyalty.
Because you had first moveradvantage.

Brian (45:50):
Let's see, what are there weaknesses in this business?
Yeah are there weaknesses here?

Om (45:53):
listen, the obvious weakness to be able to market, to do,
to be able to dominate themarket, you have to have a
substantial r and d investment.
Oh, right.
Yeah.
So you have the deep pockets.
That's the first.
Yeah.
Weakness.
If you don't have the money toinvest, you're not
able to get there.

Brian (46:09):
This, this is the opposite of what most
people will sayis like, oh, just put something
out quick, or whatever.
It's like, I dunnoI like the, the,
the longer I seein the field, the
more that I likethat we probably should do a
different podcast just on the,because there,
there is somethingto be said about the people that
stay on and refinea product until
it's like polished to a certainlevel, even if it's like ready

(46:32):
to be shipped.
Yeah.
Like the old apple, likeholding all your releases until
a certain day in the year andonly releasing twice a year or
whatever other than securityfixes but like holding all of
your features andthen releasing in
a big bang, big gothere's something
to be said aboutthat and the high
RD cost is like the Airbnbs ofthe world is like, we ought have
a big marketing kickoff launch.

(46:52):
Well how much money must youhave to be able to hold all of
your developments?
Just for marketing reasons, youmust have a lot of money.
And I think about a lot of moneyin terms of like high RD costs.
Like you have the money totake this team with all their
high salaries orwhatever, and say,
sit over there for six months.
Eight months or whatever.
Develop this new model and thenwhen you're ready,

(47:15):
big bang, whiz bang, whatever,big splash in the market.
The other thing about theweaknesses of this model is
somebody comes outwith like, Ooh, we're coming out
with the latest.
You know when Claude code cameout, what, what
the heck is that?
It's a brand newproduct, leverages
their product,brand new product.
Like now they haveto teach everyone,
they have to spendtime teaching.
Even when the GPTmodels came out,
GPT two came out, nobody cared.

Speaker 4 (47:37):
Right?

Brian (47:37):
It took them a while to teach the market.
, Hey, it's thismachine learning and it's this
token generation predictionand that kind of stuff.
And then they taught themarket enough to when their GT
three came out, then they hada breakthrough on their hands.
so there was that investmentin Teaching

Om (47:52):
you're right.

Brian (47:53):
Yeah.
And then if we're gonna take thetop two in this category, which
is anthropic and,old ChatGippity.
Then we're gonna talk about therisk of fast followers.
Oh yes.
Oh, deep seek would be agreat example.
Like Open AI comes out, oh, SamAltman over here
saying like, don'tcall it a bubble.
And then deep seeks over hereis like, we train this model for
three 50 and it's pretty good.

(48:15):
Just as good as your latestflagship model that cost 500
bajillion dollars.
And Sam Alman sheds asingle tier,

Om (48:24):
yeah, I mean the same thing with EVs, right?
Same thing.
Now along comes aforeign competitor
and that's right.
Not only is it, is their productcheaper, but they would claim
it's better.

Brian (48:35):
Right.
Well claiming that you're superhot and got the greatest product
and continually innovating anddropping models left and right
all the time, youbetter keep doing
that because the minute you stopsomeone's gonna overtake it.
which is why, I mean, I wouldargue that's why Claude is
where they're at in the market.
They just came out with a bettermodel and for a long enough time
without respondingthat they were able to grab all

(48:57):
that market share.
So this, I mean the new productbusiness model, like it's about
capturing firstmover advantage if
you can, through innovation andspeed to market.
If you can maintain it.

Om (49:08):
You've gotta be able to withstand the pressure
of continuouslyinnovating, right?

Brian (49:11):
And also you can't be consuming your own
product over here.
You can't be like believingyour own hype,

Om (49:17):
right?

Brian (49:18):
Which is basically, I'm just saying don't be Sam Altman.
That's what I'm saying.
So if you're Sam Altman, giveus a comment.
That's what I'msaying right now.
And if you're not, we'll takeyour comments too.
No, actually, if you're not SamAltman, yeah.
Please give us a comment.
we have three business modelsleft, so we're on the bomb run
here to the end of this podcast,we're gonna talk
about the relative market sharebusiness model.
So you wanna know the businessmodel where the bigger market
share equals waymore probability through the

(49:40):
scale advantages that's whatwe're gonna talk
about right now.
Are you competing against marketleaders who somehow charge
less but make more money?
Are you stuck with higher costsbecause you just
can't scale like the big boys?
The relative market sharebusiness model is
about dominating market shareto unlock cost advantages

(50:01):
through scale.
So it's being bigger makes youmore profitable.
that's the relative market sharebusiness model.

Speaker 4 (50:07):
Yeah.

Om (50:08):
Yeah.
And what springs to mind here isAmazon Walmart, Amazon, Google.
Walmart.
Absolutely.
Walmart's a good one too.

Brian (50:13):
Yeah.
So the look jumping straightinto the strengths
of this business model, becausethis is like, this is a, I don't
wanna spend toomuch time on this business model
'cause it is a business model.
Be big so we canget better cuts.
Yeah but I mean most peoplelisten to the podcast saying,
gonna be like, yeah, I'll runout there and do
this right away.
The cost leadership, likethe scale allows you to use your

(50:34):
leverage of just massive amountsto get discounts.
Yeah.
So you, you win onvolume discounts
to your suppliersand that improves
your margin and you basicallydictate the terms.

Om (50:45):
Yeah.
I mean'cause you'rescaled up, so you're a front
of mind for a lot of people.

Brian (50:49):
And then and then the Googles of the world will say
like, the more data that peoplegive us, the more
transactions thatwe see, the better
algorithms we canbuild, the better
decisions we can make basically.

Om (51:01):
say more data.
The data pool is bigger.

Brian (51:03):
Yeah.
So and then obviously the morelike the, I think about the like
online processing world, the AWSonly because like I'm on the AWS
stack now, it's like if I payso many dollars to keep a server
running, there is some sort ofbalance where it's
like, if I getmore than X amount of concurrent
users paying for the platform,there's a number that like just

(51:26):
balances out to zero what I pay.
For the platform.
If I get a certain number overthat, then you know, it's pure
profit basically.
Right, right.
this number is like, there,there's a, there's a fixed cost
leverage amount that you'respreading your
cost over a largeramount of units.
So your per unitbecomes like it's
tiny, minuscule, yeah, tiny.
Yeah, yeah, yeah.

(51:47):
So those are thestrengths of this
business model.
I mean, there are weaknesses,obviously, bureaucracy, like
Amazon's laying off thousandsand thousands of people in
manager positionsright now because
they want to be quote closer.
I mean, they want more money.
They're saying that theywant less bureaucracy in
the organization.
But also as we know with Google,when you are the big dog in the
market, you gottago buy innovation in house.

(52:10):
You don't build innovation,you buy it.
So there's that.

Om (52:14):
You gotta be able to afford that.

Brian (52:16):
Yeah.
And then, then of course that's,that's cool until the government
comes in and you know, antitrustor monopoly or whatever, any
kind of function.
I mean, I understand Americangovernment's not, not functional
right now, but maybe othergovernments are functional and
they'll come in and just slamtheir fists down and be like,
sorry, apple gotta put batteriesin your phones.
Or sorry, apple gotta add uscsin your phones or whatever.

(52:38):
And then Apple says like, oh,okay, I guess we'll do that now.
And then every, every otherconsumer will be like, what the,
what the, how come you couldn'tdo that three, four years ago
when I bought my phone new?
And they'll say I like breadI don't know.
So I dunno what they'll say.
They have no excuse.
'cause they always couldhave done it.
Sure.
The risks of thismarket is like, and beyond a
certain scale likethe additional once you dominate

(53:00):
a market, like there's no deeperyou can go in that market.
Like there's only so much you

Om (53:04):
keep innovating.

Brian (53:05):
You can only lay off so many people until you just don't
boost profits withlayoffs anymore.
That's what I'm saying youcan only fire a hundred percent
of the workers and then youcan't fire more workers to make
any more money.
So let's take online hostingplatforms anymore.
Like there's only so muchyou can dominate that industry
by competitors or whatever,and then charge
until people just refuse to buy.
Yeah.
So like, there is a limit.

(53:27):
just like the Chipotle CEOwe were talking about earlier
in the podcast.
there's a limit where you makethis much, you charge a dollar
per burrito, you sell ahundred thousand burritos and
then your margins are a hundredthousand dollars or whatever.
But then you sellto less people at
a higher price.
You make $120,000 but you cutout 20% of the people that
you're selling.
That equation hasa lower limit of

(53:50):
like 50% of peopleare not willing to
buy burritos overthis price point.

Speaker 4 (53:55):
Yeah.

Brian (53:55):
So now you're in a real conundrum so that there, there's
a diminishing returns Thatcan really quickly turn
around and ruin your business.

Om (54:03):
And we've seen that happen over the over the years.
We've seen household, we'veseen greed happen.
Greed and grief.

Brian (54:09):
Oh boy.
So the relative market sharebusiness model, it's about
dominating market shareto unlock cost advantages and
data benefits thatcompetitors, they
just can't match.
boy, if you like burritos, likehit us up in the comments.
How much would you be willing topay for a burrito?
That's what I'm asking onthe podcast.
That that's not what I'masking, but

Om (54:26):
essentially that's what you're asking,

Brian (54:27):
that's what I'm asking.
So the next business modelwe're gonna talk about is the
experience curve,business model.
This is one of my personalfavorites, the experience here.
So you wanna know the businessmodel where doing the same thing
over and over again makes youmore profitable.
This is a businessmodel for you, the
So are you starting fromscratch with every project?

(54:48):
Like it's your first time.
It's like we never see thatin software development.
Oh, no.
Are you watching experiencedcompetitors lap you and do the
same work for less money andfaster and more chocolatey.
And more chocolatey.
And, are you getting upset?
Because every timeyou do something, you should be
getting better and faster andmore efficient, but you are not
systematically capturing anyimprovement in it all.

(55:10):
What if I told you that everytime you serve the market, you
could have yourcosts be dropping,
your efficiencyimproving and your
speed quickening.

Om (55:20):
Is gonna be very alluring, I would think, right?

Brian (55:22):
accumulation of experience that is
your competitiveadvantage in the
This is one I feeldoes not translate
to modern business right here.
Thought you were gonna sayto software.

Om (55:34):
What about, what about businesses like the chip
manufacturing company we talkedabout earlier?
TSMC?
TSMC?
Yeah, absolutely.
experience, stay focused.
And they excel, theyown the market.

Brian (55:46):
I would argue that any auto manufacturing
has to have this.
Any kind of manufacturing?
T-S-M-C-I think about ismanufacturing.
Sure.
They're manufacturingvery specific niche products
that require extreme skill.
And I would expectyou gotta have deep, deep skill
and expertise tomake the you can't
just like, turnthe machine on and
hit the button.
No yeah.

(56:06):
Like that's notthe way it works.
Like you need some skill to,to operate and to maintain
those machines and to operatethem properly.
Any auto manufacturerwould be the same way , anything
where they workon technology that
goes to space.
Nasa, SpaceX, any of those typesof blue what?
Whatever.
Jeffrey Bezos company isblue Origin.
. Jeff Bezos's space company is.
Blue Man Group.

(56:26):
. I can't remember.
Cybersecurity and DevOps arealso like on the
deal, I think arein this business
model in some way,shape or form.
But also like Southwest Airlinesstarted in this business model
because they only ran certainroutes, right.
Or routes.
They only ran certain routesand they only ran them with
like the 737s andthe, that was it.
They had one plane, one route.
Yeah.
You know what I mean?
And they just did that overand over again'cause they were

(56:48):
very experienced at that.
And that was itso that's a great

Om (56:52):
Yeah.

Brian (56:52):
If we're gonna stay on the strengths of this business
model for a minute continuousimprovement, which includes
your margins, continuousimprovement.
Each iteration should be eitherincreasing your expertise and
or your cost.
Ideally both.
And you should be gettingmore profitable over time.

Om (57:10):
You're probably also increasing your brand loyalty
over time as well.
Keep your cost affordable foryour customers.

Brian (57:15):
sure.
Like you're compounding yourknowledge with each iteration
of continuous improvement.
You're optimizingprocesses, which
is basically thesame as continuous improvement,
and then you'reincreasing quality
to everybody in that value chainof your company, the internal
employees, board members,stakeholders, and of course
customers.
And that shouldbe the experience curve business
model, we got experts doingexpert job.

(57:38):
We all fully support them.
Like that, that, that's likethe opposite end of this bm
like what, whatcorporate America is currently
doing right now not hiringjuniors at all.
You know?
So we're at the opposite endof, or maybe it isn't at the
opposite end.
'cause the senior jobs are kindof they're on an
uptick right now in the market.
Anyway.
Maybe we'll have another podcastabout the market.

(57:58):
So there's a few things that area advantageous and strengths
of this business model, but it'snot all strengths because every
who rules this, every businessmodel has weaknesses.
Let's talk about some here.
Which is obviouslythe technology disruption or
really disruptionof any kind, but technological
disruption.
Like you can run the bestnewspaper company in the world.

(58:19):
But here comes Google's AI onevery page that give you all the
news, whether it'strue or false, doesn't matter.
People can't tellthe difference.

Om (58:26):
That's right.
Exactly.
I agree.
And that's a good example.
The publishing industry is agood example.
They were basically dominantat one point and
they didn't reallysee it coming They
also ignored the trend that themodern generation,
they don't reallyRead newspapers
they consume newsin different ways,

Brian (58:42):
There was two things that happened in news periods.
I think that technologydisruption, number
one, and also themarket shift risk that basically
like which also happenedwith Napster to music Yeah.
Is that they decided like thecost of the cost
of acquiring musicis now going to drop the zero.
What are you gonna do you know,record companies.

(59:02):
Yeah.
You know, chargingwhatever, $18 a CD or whatever,
when you only wanted one track.
I'm not saying the model wasn'ttotal garbage before, but the,
the market shift.
Was totally ripe.
Yeah.
To be shifted

Om (59:16):
yeah.
And they shifted it.

Brian (59:18):
And I would say also, if you
have no mechanismsin your company for knowledge
transfer, this is not yourbusiness model.

Om (59:24):
Yeah.
You can't sustain yourself ifyou're gonna not have that.

Brian (59:28):
Yeah.
one of the thingsI would ask about
this one is the Toyota systemwill say you have continuous
improvement and itjust keeps going
on and on forever.
But at some point wouldn't youreach a pinnacle level where.
I mean, it's like,how many different ways can you
put in lug nuts?
I'm just saying wouldn't youstreamline to a point where the
improvements arediminishing, you

(59:48):
know what I mean?
you have diminishing returns inyour continuous improvement.

Om (59:52):
Maybe,

Brian (59:52):
not in like Southwest Airlines.

Om (59:53):
Yeah.
But the diminishingreturns wouldn't
happen everywherein your business.
I mean, maybe in some placesbut in other places, you can
constantly be in a pursuitof perfection.
Yeah it's in the chaseall the time.
Mm-hmm.

Brian (01:00:06):
Well that's, that's the experience curve,
business model.
It's all about capturinglearning and efficiency gains
by repetition and continuouslyreducing costs of it.
Continual learning continualimprovement type
of business model.
this is a good one.
We have, I'm sure on the fast,we've never done
a Toyota specificepisode, but that would be this
business model.
when it comes to that side oftheir business.

(01:00:27):
So we're gonna jump tothe low cost business model.
You wanna know the businessmodel where your entire business
is designed to have a structuralcost advantages that competitors
cannot match.
Are you trapped in a high costbusiness model?
You're watching low costcompetitors undercut you
while they makegreat margins and
your margins arelike super slim?

(01:00:48):
Are you trying to cut costsincrementally while competitors
have fundamentallydifferent cost structures?
Are you frustratedbecause you're trapped in this
high cost business model and youdon't know how to get out of it?
Then let's talk about the lowcost design business model.
So the low cost we talkeda little bit about Southwest
in that they only ran pointto point routes

Om (01:01:08):
and use specific equipment.

Brian (01:01:10):
We wouldn't use specific equipment.
There's also Ikea, like youmight consider IKEA low quality.
However it's a low cost.
To them, right?
Yeah.
To produce business model.
And then Dropbox is another one.
And Dropbox really any onlinesubscription kind of product
where if you onboard theirsolution, their
cost because they,they've already set up their
infrastructure and everythingis near zero to onboard you.

(01:01:33):
Nobody talks to anyone.
Nobody knows that you jointhe platform.
I know we talkedabout Southwest as
far as airlines, but there areother airlines like Spirit Air,
Ryanair, there's other thingsthat are, known for being low
cost carriers.
Low cost, yeah, yeah, yeah.
They're known forbeing carriers.
And grocery stores do this too,where they have like knockoff
or generics, generic productsand whatnot.
Low cost cost themnearly nothing to produce.

(01:01:55):
High margin! The strengths ofthese business model is a, it's
a structural cost advantage.
your business model createsstructurally creates these
cheap products that othercompetitors they'd
have to invest alot of capital to
make things thatcheap and they're just not going
to, you know?

Om (01:02:12):
Yeah.
And you could be profitable ata lower revenue because your
cost is lower

Brian (01:02:16):
because it, yeah.
Because your cost is lower.
And in order to do thatthe discipline required to be
able to do that like in the caseof Southwest, it's
like, well, how many mechanicswould, like American Airlines
for example, have, well,all Southwest mechanics,
they're all 7 37 mechanics.
A hundred percent of them.
Yeah.
And like, okay,well you can, it's
pretty to trainthe new mechanics
on the new fleet.

(01:02:37):
Pilots would be another one.
You train your new pilots andall the new pilots
is a good one.
Yeah, yeah, because

Om (01:02:41):
I mean, the, obviously it costs
are higher there train pilots.
I agree.
I think that's true.
Whereas the alternative,like another airline they
could have otherdisadvantages like
your one or twomechanics that you
have specifically for anequipment, right?
I don't know what that might be.
7, 7, 7. they'renot available out
sick right now.
What do you do?
Whereas here, you can bringsomeone in, right.

(01:03:01):
The drop of a note quick notice'cause it's all
7 37 it gives youthose advantages.

Brian (01:03:05):
You know, the strengths that I really enjoy about this
business model, and you don'teven need to be like low cost in
my mind shares space with like,cheap, you know what I mean?
like cheap meaning, likelow quality.
Yeah.
It doesn't haveto be low quality.
'cause like inthe case of like a
Southwest Airlinesfor example, or like a Dropbox.
we do one thing we do it well.
We do file sharing, filesyncing to you file, you install

(01:03:26):
the thing on your computer, itsyncs your files
to the cloud thatyou put in there.
You have a limitedamount of space, but it syncs
your files to the cloud in anyother computer that you join.
Like gets those files.
That's it.
That's the only thing we do.
Now, Dropbox isa million things.
That's good.
Like it's, they kind of don'tunderstand what they were good
at, but that onething if you can
keep your companycosts in control

(01:03:47):
your scalability,if you can keep the low cost in
control boy, thatcompetitive moat
that you just drewaround yourself,

Om (01:03:53):
formidable, isn't it?

Brian (01:03:54):
They'll really have to sabotage themselves.
I, I think aboutlike a Google or somebody to say
like, Hey, we're willing to losemoney for 10 years to be able to
compete with you I would expect,like why would they do that?
, I, I can think oflike the Amazon six pager of
like, we should lose money for10 years just because nobody
else is competing.
I don't think theywould do that.
I think, I think at an Amazonlevel, one of those, one of

(01:04:16):
the big boys out there, I thinkthey would just buy you and
then that'd be the end of it.
You know, that's, that's morelikely that's what
they'll do thantry to roll their own solution.
It is a moat.
I mean, the pricing hasto be right.
But it is a moat.

Om (01:04:29):
Yeah.
Yeah, I agree.
And it is quite a, quite a solidproposition there, so it's a
formidable moat ifyou get it right.
So lastly on this,the four column low cost allows
you to scale better than highcost alternatives because again,
your costs are low, so yourscaling costs are
correspondingly lower as wellyeah.
Where your, yourcosts are higher.

(01:04:49):
So growth is more efficient foryour money, right?

Brian (01:04:53):
And so in the weaknesses we already talked about quality.
Let's just lay that one out onthe table and kinda look at
what it means.
So low cost.
Oh boy I will tellyou right now, I am not getting
on a Spirit Airlines aircraftright now.
I'd like oxygen mask when myplane goes over 10,000 feet and
needs to send, now you're askingfor too much.
You know what?
I don't know, man.
I stick it out

Om (01:05:12):
the window.

Brian (01:05:13):
Yeah.
Like I like drink serviceon my plane is what I'm saying.
I like you know, I'm withyou there.
Listen, the air, air travelyou like, you're already
crammed in.
Don't, there's only so manythings you can take away from me
before I start.
I mean, like software I thinkof the same way as hey, too
many hats or too much garbageor too much bloat in there.
And I'm looking for alternativeslike low cost should not

(01:05:34):
necessarily meanreduced service.
And when you're asking thecustomer to make sacrifices.
Not just, you don't get perksto make sacrifices
like for example, like you can'ttake anything on the plane with
you Come on dude.
Everyone's got a backpack or aroller bag when they're flying.
Yeah.
Nobody flies with a toothbrushin their pocket and that's
it, you know?
Right.
That's ridiculous.

Om (01:05:52):
It is ridiculous.
But that's where we aretoday, sadly.
The perception is an issuehere, right?
Low cost is perceived tobe inferior.
Mm-hmm.
So people think, oh, you pay alittle bit more,
you'll get more.
That's not always true either.

Brian (01:06:07):
There's a commoditization risk here where like people
don't see the advantages of yoursolution anymore.
like air airfare, for example Ihave preferred airlines and I
know people that have preferredhotels too, because they have
Points or whateverthat kinda stuff.
But some people just get onwhatever site they look on
for airline and just take thecheapest flight.
They don't care what it is.

(01:06:28):
Mm. And like it's commoditized.
They don't care at all.
Home insurance, for example.
you come at me with a cheaperrate than I'm getting now.
I'm taking it.
That, that kind of stuff.
It's commoditized, like nobodyused it anyway.

Speaker 4 (01:06:40):
Yeah.

Om (01:06:41):
Yeah.
No, I get where you're comingfrom at the end
of the day though.
You gotta look deeper, right?
Mm-hmm.
As a customer,

Brian (01:06:46):
Yeah, maybe, some of these are like, they're
just cheap.
They're cheap service andnot great business models.
Yeah.
Yeah.
You know, but again, like someof these, I just would never I'm
not gonna fly on an airline.
It's like, sorryBrian, you can't
take anything butyour toothbrush and I'm gonna
charge you Heyman, I don't wanna
be nickel and DMedlike, get outta
my pocket and get outta my life.
Shut the door.
On your way out.
What, who are you?
How'd you get in my house?
Remember when wetalked about the

(01:07:06):
pyramid businessmodel where like
your luxury brandsat the top and then you like
entry level brand,like the, the, the
Cadillac brand isat the very top.
Yeah.
That's your premium product.
And then the very bottom is likeyour Chevrolet
whatever pre entrylevel, you know, a college kid
car or whatever.
This sort of hasvibes of that is
like, this is yourlow tier product.
You're looking toundercut all the

(01:07:27):
market, resegmentall the current competitors into
like a mid tier or a high tier.
Right.
And then come inunder them where
you can get away where like themajority of people just looking
for a cheap ride to the airportor whatever it is, right?
You're gonna comein and undercut all of them.
I think about howeasy it would be for someone to
kick Uber out of a local market.

(01:07:48):
You know, to just launch like anUber-like app and
just like have thebranding of like,
the driver takes60%, we take 40%,
you know, driver take like, callit like a, I'm coming in with
a business rightnow on the spot of
like kicking Uber out of a localhyperlocal market.
Just one city at a time.
it doesn't even have to be awhole city.
Just one like five mile blockat a time.

(01:08:10):
Yeah.
Five mile area at a time.
Saying like, we are the driver'sapp of like, when you go with
us, the driver is guaranteedto get 60%.
We'll show you all of the, we'llshow you all of the transparency
of billing.
And I, I think with a productlike that, I think you could
kick Uber out of a mi like, it'slike you could be low quality,
charge less, make less money.

(01:08:31):
Yeah.
But you're goingup like each, each
like server and infrastructure,whatever you stand up would
be specific to that city.
They wouldn't have to scale 'embajillion times or whatever.
Yeah.
So you'd have scale up costsand stuff like that, but it'd
be like city by city you know?
You would come in undercuttingthe market.
I just wanted tostay on this one a little longer
because we beat upthe weaknesses of
this one a littlebit, but I wanna
point out as the product managerI see a lot of potential in

(01:08:53):
this, especially in the era ofvibe coding.
'cause that's what a lot of theSilicon Valley CEOs and those
guys, that's what they'resuper scared of.
They're super scared of peoplegoing through and
getting rejected from the goingthrough 20 going through and be
like, Hmm, sorry,you're above 40.
You got 20 years experience.
We're looking forsomeone with More
energy and they're worried aboutthose people going
and vibe, coding a replacementsolution, dropping

(01:09:15):
it in and just replacing theirwhole business.
Yeah.
It's a significant threat tothem though.
Yeah yes.
Agreed.
So the low, this is a great wayto get your foot
underneath almost any business.
This, the low costbusiness design.
The low cost business model.
Business

Om (01:09:29):
Absolutely.
Only good thingswill happen to you
if you did that, I think, right?
I mean, you could run into theceiling there of scaling up but
alternatively these, one ofthe big boys will buy out.
Yeah.
There you go.

Brian (01:09:41):
So the low cost business model it's about fundamentally
redesigning your businessfor structural cost advantage.
So good luck everyone.
Let us know if you put Uber outof business in the comments.

Om (01:09:53):
Yes, indeed.

Brian (01:09:54):
the last business model that we have, you wanna know the
business model, we're limitingsupply lets you charge 500 to
5000% markup.

Om (01:10:02):
Those are absurd numbers, Brian, but I understand where
this model is.
I mean, I can think ofproducts that fall under this.
I absolutely wantto hear about it.
I'm sure our audience does too.
So,

Brian (01:10:11):
are you maximizing volume when you should be limiting
your supply?
Are you watching other brandscharge 10 times more for the
same product that you produce?
Are you frustratedbecause you think
that your product is better andsuperior to other,
more profitable products?
Then I got a businessmodel for you.
It's called the scarcitybusiness model.

Om (01:10:34):
It's about commanding a premium price for
the fewer numberof products that you produce in
terms of what your output is

Brian (01:10:41):
I would also say that this
is the scarcity business model.
It's also not likethe, Ferrari's, luxury brands
that are made like Rolexes,like Rolex, Rolex that are
made in limitednumbers, like some
trading cards and stuff do this.
They're made in limitednumbers to drive the price up.
That is part of the strengthsof this model.
however this can be used withsome of the other

(01:11:02):
business models tolead into a real business model.

Om (01:11:04):
A different one.

Brian (01:11:05):
but it has limits.
It has limits.
I mean, how many cars canFerrari make?
Well, they make a lot of money.
Yeah.
But what if they wannamake double the amount of money?
they're not just gonna doublethe amount that their cars cost
there are some limits in place.
Sure.
but if you thinkabout the original
Gmail when it cameout, when you had
to get an invite.
That's right.
Or like early open ai.
I was part of a company that hadaccess early.

(01:11:26):
To open AI's.
Chat GBT when three cameout which was pretty cool.
Clubhouse, theoriginal clubhouse
you had, had to have an invite.
That's right.
I think of like some of theI missed that product isn't
the new video generation model.
I think you have to have aninvite or, AI for
TikTok, like AItalk or whatever.
anyway, you have to have aninvite for that.
Yeah.
so on one hand it's notnecessarily a full

(01:11:47):
business model.
It's more like a marketingtactic to.
Pivot you into another.
So it is a business model,but it pivots you into another
business model, you know?
Yeah.

Om (01:11:56):
I mean, for all the you know,
good things that it does, right?
I mean, it increases brandloyalty because if customers are
now competing to buy your

Brian (01:12:03):
product, we're talking about strengths now.
Brand prestige,

Om (01:12:05):
Nike limiting the number of sneakers they produce, right?
For a specific brand model,right?
Mm-hmm.
There are other exampleslike that.
You already talkedabout Ferraris and whatnot.
Not only is the volumecontrolled, right?
Yeah.
They stamp each, each itemwith a number.
So there's exclusivity.
Everybody wants the top fiveor top two.

Brian (01:12:26):
You know what another one is, is, there are social media
accounts, various,so I don't know, I'm not gonna
name a specificplatform, but like
people will go and create likea social media group, like on a,
a certain platformthey'll go create a group get a
bunch of followers or whatever,and then they'll
sell the group tosomebody else, the
new person will change the groupname and they'll

(01:12:47):
immediately have a Yeah, yeah.
they do that on a particularplatform that may or may not
own more than one socialmedia platform.
The scarcity is like you'rein that group.
The money they make off ofthe sale of that group that
they've curated this audience.
That's a scarcity model, I wouldargue Indeed.
there's demand generationscarcity creating desire

(01:13:08):
and urgency.
Right.
Yeah.
the extreme pricing power.
We talk about the luxury brandsyou have extreme pricing power.
I mean, Ferrari, I guess, coulddouble the price of their cars
overnight if theywanted, and they probably would
still sell cars.
You know?
and then there's awhole nother, like
the resale market.
There's a whole,like the trading cards do this
exclusively, wherethere's a resale
market, and some of the tradingcard companies have a share in

(01:13:30):
that resale marketand some don't.

Om (01:13:31):
Yeah.
I mean, I thinkmost people would understand the
car analogy.
Porsche does this very, verywell because not only do they
make limited numbers of theirhigh-end models.
We're talking about cars thatcost over 200,000 US dollars.
But they also then say, well,if you can't get
one of those, how about one thatwe're selling for
one 20 or one 40?
It's only 0.3 seconds slower.

(01:13:53):
it's brand prestige.
People follow that.

Brian (01:13:55):
You're selling fomo right there.
You're selling scarcity.
You're selling exclusivity

Speaker 3 (01:13:59):
exactly what you said at that point.

Brian (01:14:00):
You're in a club when you buy that.
This is the old saying that likethe, the BMW commercials are
not to convinceanyone they should
buy a b, they'refor the, they're for the current
owners of BMWs toreinforce that.
Like yes, you're in thisexclusive brand.
Is there weaknesses ofthis model?

Om (01:14:16):
Yes, there are.
Just like all the othermodels, right?
First of all,'cause you'reselling your items
at such a high premium price.
You have revenue limitation.
Total addressable market'salso smaller.

Brian (01:14:29):
Is, this is the Ferrari example I said earlier you can't
just double all.

Om (01:14:32):
can't.
Exactly.
And what happens if there's aneconomic downturn?
People aren't buyingFerrari today.
Yeah.
Or not as many people are right.

Brian (01:14:38):
We talked about the limitations of the revenue.
You can't just triple whatwhatever you want.
So there's

Om (01:14:44):
also a, a very delicate balance between oversupply and
undersupply right.
Oversupply dilutesyour scarcity.
Right.
And undersupply frustrates thecustomers because they can't get
their hands on it.
Yeah.
To a certain degree, all ofthese makes and
models that we've cited today doplay that game.
Yeah.
Like they will reduce supply butthere's a limit.

Brian (01:15:07):
Well, that's the scarcity business model.
It's all about deliberatelylimiting supply to create an
exclusivity and to command.
Extreme power overpricing.
I don't know howyou would do this
in a normal, likeI would think you
can do this in asoftware business.
I'm just not sure how other thanlike the clubhouse example where
it's limited, open beta, thatkind of stuff.
Yeah.
Games do this atlaunch they, they have that kind

(01:15:28):
of thing, right.
But yeah, this is an interestingbusiness model.
Most people don't leverage theirwhole business off of this.
They use it to lead intosome sort of expansion and
broader business.

Om (01:15:39):
You may start with this, right?
And then the revenue yougenerate, you could use to
segue into another model.

Brian (01:15:44):
So if you have questions about the scarcity
business model let us know inthe comments.
And that will wrapup our review of
business models,part one and two.
Review of businessmodels 23 business
models from the book the Art ofProfitability by
Adrian Slywotzky.

Om (01:15:59):
Yeah.
this is an MBA in twoepisodes, folks.

Brian (01:16:02):
If you enjoyed this one, if you have other business
models that maybe we forgot.
If anyone read a later versionof the book and there's any
business models that we missed.
'cause like I said, when Iread the book I think scarcity
was called digital or maybeanother one was called Digital.
Anyway.
Yeah.
It wasn't in the, version that Igot these examples from, but I'm
interested to know, if peoplelike this or didn't like it

Om (01:16:22):
I want names and numbers.
That's right.
That's right.

Brian (01:16:24):
Or if there were other things that we could
have expanded on.
I mean, we kind of breezedthrough just'cause there was
so many of them.
But we probablycould have picked
the, my favorite three or fouroutta here, I mean, the customer
solutions one.
Where we were talking aboutPalantir and then the pyramid
and then the Lowcost model.
Like those threewould be a huge, just those,

Om (01:16:41):
so let us know down below your interest and
any other topics you'd like usto delve into.
That's right.
I always like andsubscribe 'cause
every like helpsa whale somewhere.

Brian (01:16:49):
Oh, that's, that is true.
That's true.

All Episodes

AA238 - 23 Business Models Everyone Should Know, Part 2 of 2

Episode Transcript

Popular Podcasts

Las Culturistas with Matt Rogers and Bowen Yang

Crime Junkie

The Brothers Ortiz

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}AA238 - 23 Business Models Everyone Should Know, Part 2 of 2