Business Models No. 2 and 3
When I wrote to you recently about the business model I call “Inventory Management,” I mentioned that it was just 1 of the 4 universally successful business models. Having now received 527 emails asking about the other 3 business models, I've decided to illuminate 2 of them for you today.
The “Custom” business model creates one-of-a-kind things. Tailors who measure you for custom-fitted clothes and architects who design custom homes “just for you” do business within this model, as do dentists, doctors, lawyers and all other professionals whose products, services, or advice must be fitted to each customer.
The danger of the Custom business model is that you are selling your time. You don't really have a business; you have a practice. And when the practitioner isn't practicing – such as when he's away on vacation – he is essentially unemployed. And the degree to which he becomes famous is the degree to which his customers will resist dealing with anyone but him. It's a sweet and beautiful trap.
The third business model is what I call “Proprietary Product.” Any retailer or distributor of a powerful proprietary brand who says, “the area's authorized dealer for…” is using this business model. The Proprietary model includes all specialty stores that feature branded goods, such as Culligan water softeners, Apple computers, Harley-Davidson motorcycles, Victoria's Secret lingerie or Rolex watches. Likewise, all new car dealerships fall within this business model. The danger of the Proprietary Product model is that while you may be selling a powerful brand, you don't really have a brand of your own. You'll always be at the mercy of the manufacturer you represent. When they make a wrong turn, it's your business that crashes.
It was while I was playing with the notion ofduality and creating intersection graphs to illustrate “intersecting dualities” that I accidentally discovered the 4 essential business models. But a few hours later, I realized that I'd charted only one new business model; the one I haven't told you about yet. The first 3 correlated loosely to the business models described by Michael Treacy and Fred Wiersema in The Discipline of Market Leaders. Their Product Superior discipline was my Proprietary model. Their Customer Intimate discipline was my Custom model. And their Operational Excellence discipline was similar to my Inventory Management model.
The business model that Treacy and Wiersma missed, however, is Path Dominance. Nearly invisible, Path Dominance is the most confusing business model of them all.
I'll tell you all about it next week.
Ciao for Niao,
Roy H. Williams