Is Your Business Model Built for the Long Haul?
Despite public statements to the contrary, most of us know full well that more technology company business models are built around the technology than are built around customer relationships. The problem is that all technology either becomes obsolete or a commodity given enough time, meaning that centering your business model around a specific technology often leaves you one wrong move away from putting your very business survival at risk. Less thought about, but perhaps even more important is that technology-centric business models limit your offerings and growth potential, so they are associated with lower valuations over the long term.
Are you planning for the long haul?
We all know examples of companies that dominated their markets until the technology changed. Some came up with new technology and survived, but many are filed under “where are they now?”
In an environment with as much technological change as Silicon Valley, it’s dangerous to tie your fortunes to any specific technology. Every technology developed eventually will either become obsolete or a commodity. The challenge is to have something to show for your efforts when the inevitable happens. How do you want your efforts rewarded in the long term? Would you rather have a reputation for excellence in some obsolete or commodity technology or lasting customer relationships you can carry to new products or markets?
Whether you aspire to be the next Bill Gates or plan to be acquired, the correct answer is the latter one.
If the answer is so easy, why is this such a pervasive problem in Silicon Valley?
Why companies do it the way they do
Silicon Valley exalts the technologist — the heroic figure is the inventor. It is generally easier to build a business around a technology than it is to build a business around a customer relationship. VCs want to hear about concrete problems and how you’re going to offer a differentiated solution now, if not yesterday. It’s hard to build a value-based relationship from scratch, so even the good relationship companies often start out as product companies. The truth is, maintaining these relationships is hard as well. Just ask anyone who runs a service business of any kind. (Disclosure: Rubicon is a service business, so we think about this a lot.)
Best value or best-in-class components
While we can’t stop the relentless advance of technology, this doesn’t mean that your company has to die or have a near-death experience when technology changes. Companies that base their business model on customer relationships are in a much better position to survive in the long term and can more easily bridge inevitable technological changes. You still have to invest in technology and having the right products, but a good customer relationship gives you an enormous leg up versus product-centric competitors. It even helps you to make the right product and technology decisions.
Sometimes this process, while inevitable, takes years to play out. Since everyone reading this is undoubtedly in the enviable position of change being years away, why should you care? The other reason to put customers, rather than technology, at the center of your business model is growth. The technology-centered company can grow only as fast as it can develop technology and the underlying markets for these technologies. Not only that, but the technology all has to be best-in-class as that is the chief selling point. The customer-centric business model provides a platform for selling additional products or services to your existing customers. Because you are selling to existing customers on the basis of your trusted relationship and the overall value provided, the individual components can be good and solid, but don’t all have to be universally best-in-class individually.
Moving to a relationship-centric business model
A customer-centric business model is not about how much you love your customers, although that helps. A customer-centric business model is about finding lots of ways to touch your customers. If you offer a product today, think about services that you could offer to provide additional touch points. Think about the “whole product” and the related services and products that are needed to support or employ your technology from your customers’ perspective.
Don’t think about this from a technology perspective. You may be very good at some technical process that you could offer as a service to other companies. Resist the temptation. If you want to be a provider of outsourced services, recognize that you will be paid accordingly — and you are still exposed on the technology front, just with more customers. Instead, start by thinking about what else you can do with your existing customers, and let it grow from there. Make the transaction about your trusted relationship, not about a specific piece of technology.
Categories: Strategy
Tags: business models
Bruce LaFetra on January 13, 2008
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