a good business model is essentially to control social resources through the value chain and turn enterprise value into profit. The core is to solve the following three problems: value chain, moat and profit zone.
1. control social resources through the value chain to solve the problem of interest distribution;
2. Continue to invest resources to build a moat and strengthen the core competitive advantage;
3. Lock users in the core profit area and solve the problem of realizing value;
"Value Chain" was first put forward by Michael Porter, a professor at Harvard University in 1985. Value chain is the general name of a series of economic activities carried out by enterprises to create value for customers, and enterprises can also be said to be a collection of these activities.
the essence of the value chain is that a group of stakeholders invest their own resources and capabilities to form a trading structure. This transaction structure will continue to create value, whether it is the upstream and downstream of the enterprise or the internal employees of the enterprise, each party will allocate this value according to a certain proportion of interests. If the value allocated by each party exceeds the opportunity cost of its ability to invest resources, the transaction structure will become more and more stable.
when constructing the value chain, the most important thing is to start from customers, what are their preferences, what sales channels are convenient for them, what products/services they are willing to buy, what we need to invest, and what assets/core capabilities we have to achieve these?
Although the business model can continuously create value, it can't avoid being copied and imitated by others. High-quality products, high market share, effective implementation and excellent management may be just a flash in the pan, which can't stand the erosion of time. Buffett put forward the concept of moat in long-term value investment. The moat is a structural feature that an enterprise can maintain its competitive advantage, and it is a core advantage that other competitors can hardly replicate.
Common enterprise moats have the following aspects:
1. Intangible assets, such as brands, patents or legal licenses; Well-known brands, technology patents owned by enterprises and legal permission of the government can give enterprises pricing power and effectively prevent competitors from entering.
2. Customer switching costs. When customers face high switching costs in the competition of similar products, they will not try new products easily unless the new products are greatly improved in price or function.
3. Network effect. As more and more users use a product or service, the value of the product or service to new and old users also increases, which leads to the network effect.
4. Cost advantage, enterprises can compete at a lower price to seize market share. The favorable cost advantage may come from technological advantages, good geographical location, scale effect or the convenience of obtaining a unique asset.
5. economies of scale. if an enterprise can serve more users without increasing costs, then its marginal cost will tend to zero, and the economies of scale of the enterprise will be very strong.
In Warren Buffett's office, there are photos of former Boston Red Sox legend Ted Williams playing for the first time. His career batting average is as high as 34.4%, which makes him one of the players with the highest batting average. He once said a famous saying: "To be a good batter, you must wait for a good ball before hitting.". If I always hit the ball outside the lucky zone, then I can't be a baseball hall of fame player at all. "
Without Jin Gangzuan, we won't do porcelain work. When we determine what kind of moat we want to build, so as to keep ourselves away from homogenization competition, we need to constantly invest resources to build a core competence circle. When a competitor enters the game, it will be the first time to usher in a blow!
Google started as a search engine, and by May 214, it occupied 68% of the online search market. Although Google defines itself as a technology company, it develops self-driving cars, Android phones and wearable devices. However, 95% of the revenue still comes from search engine advertising, and the revenue of other products was only $2.35 billion in 212. This is the core profit area of the enterprise, and the enterprise value is continuously realized as profit.
every industry has its own life cycle. with the entry of competitors, under the homogenization competition of pursuing market share, oversupply leads to the gradual formation of unprofitable areas in the industry, and most enterprises can only get managers' salaries in the end.
so how can we always grasp the profit zone of the industry? There is only one answer, that is, always keep up with customer needs.
one way is to continuously iterate the product itself, so as to continuously meet the needs of customers. For example, the transition from PC-side computer internet to mobile internet on mobile phone is also a game product. In order to adapt to customers' having fun on mobile phone, the operation design of the game has changed greatly.
another way is to extend and expand products around customers' economic system. For example, a printing factory provides printing services, and expands to provide design, warehousing and delivery services, thus creating more value for customers and gaining more profits.
We must understand:
Why do customers rely on us continuously and what kind of value do customers need us to provide?
why are customers willing to keep paying, and where are our core profit areas?
In the book Finding Profit Zone, Slavoski summarized the following 22 common profit zone models to help us design our own profit zone better.
1. Customer solution model
Invest in understanding customers, design solutions and establish good customer relationships. For suppliers, this practice is a net investment in the initial stage of developing customer relations, but it will bring a lot of profits in the future. The famous example is: General Electric (from hardware to services to solutions).
2. product pyramid model
the product pyramid is formed because of the differences in customers' income and preferences. At the bottom of the tower, there are low-priced and large-scale products; At the top of the tower, there are high-priced and small-batch products. Most of the profits are concentrated at the top of the pyramid, but the products at the bottom of the tower also play an important strategic role. Because the products here can play the role of "firewall".
3. Multi-component system model
In the multi-component system model, a supply system includes several subsystems, some of which account for a large proportion of profits, while others are almost unprofitable. The multi-component system model can be applied to various industries, such as carbonated beverage industry (the profit is mainly in restaurants and vending machine subsystems) and hotel industry (the profit of conventional business is low and the profit of company conference rental business is extremely high).
4. Distribution board model
In some markets, many suppliers have transactions with many customers, and the transaction cost of both parties is very high. This will lead to the emergence of a value intermediary business. This business function is similar to switchboard, and its function is to establish a communication channel between different suppliers and customers, thus reducing the transaction cost of buyers and sellers. The more suppliers and customers join the system, the greater the value of the switchboard.
5. Speed model
In some industries, suppliers with innovative business have the first-Mover advantage, so they can get excess returns. As imitators followed suit, profits began to be eroded. The speed model reflects the benefits of innovators. In the speed model, profit comes from the uniqueness of products or services. Excess profits will gradually disappear with the entry of imitators. The successful case of applying speed model is Intel, and Intel is always two steps ahead of its peers in the competition.
6. blockbuster model
in pharmaceutical, music publishing, film and television production, publishing and other industries, the main business activities are carried out around the project. In these industries, the cost of various projects may be five times different, while the income of projects may be 5 times different, and all profits are concentrated on "blockbuster" projects. For example, the development cost of a drug may be between $5 million and $3 million, while the cumulative revenue brought by drugs is between $5 million and $15 billion.
7. profit multiplier model
the profit multiplier model refers to repeatedly harvesting profits from a product, product image, trademark or service. The best example of applying the profit multiplier model is Disney Company. Disney Company packaged the same image in different ways. Mickey, Minnie, Little Mermaid and other characters appear in movies, movies, books, clothing, watches, lunch boxes, theme companies and specialty stores. No matter what form they take, these roles bring returns to Disney.
8. Entrepreneur model
When the enterprise succeeds and develops, diseconomies of scale begin to play a role: the indirect expenses of the enterprise rise, unnecessary expenses increase, decision-making is slow, and customers are separated. In order to offset this negative force, some companies (such as ABB and Software Library Company) reorganize themselves and divide them into many small profit centers in order to strengthen their profit responsibility and get closer to customers.
9. Specialized profit model
In many industries, the profit of specialized manufacturers is several times that of "tiger balm" manufacturers. The reasons why specialized manufacturers make rich profits are: low cost, high quality, excellent reputation, short sales period and higher cash inflow.
1. basic product model
in many businesses that apply the basic product model, the sales or profits of the basic product are not high, but the profits of its subsequent products are extremely attractive. Such businesses include: photocopiers, printers, razors, elevators and so on. The key point is to establish basic products with the greatest potential, so as to bring more sales revenue and profits of follow-up products.
11. industry standard model
the most striking feature of industry standard model is its scale profitability. In the industry with positive scale returns, a large number of competitors (from the starting equipment manufacturers to application developers to users) are sucked into the "gravity field" of industry standards. The more people enter the system, the higher the value of the system. Therefore, with the increase of system value, industry standard holders can get higher scale benefits.
12. Brand model
Over the years, companies applying brand model have invested huge amounts of marketing investment to increase the public's understanding, recognition, trust and credibility of their products. When customers
are willing to pay high prices for such products, the brand effect will be transformed into tangible profits.
13. Unique product model
When an enterprise develops a new product, it will benefit from the premium of this product. Unique products are profitable before competitors start to follow suit.
14. regional leading model
in many industries, the company's business is almost entirely regional. Such industries include: on-site medical treatment, food stores and retail outlets. It is important to be a regional leader, not a national company.
15. large transaction model
in some industries characterized by transactions, with the increase of transaction volume and income, the cost of completing each transaction does not increase at the same rate. Profits are concentrated on large transactions. Examples include investment banking, real estate management and long-distance air transportation.
16. Value chain positioning model
In many industries, profits are concentrated in some links of the value chain, while profits in other links are very small. In the computer industry, profits are concentrated in the fields of microprocessors and software. In the chemical industry, profits are concentrated in the production field, not in the sales field. For general products, profits are concentrated in the sales field, not in the production field.
17. Periodic profit model
Many industries have unique and obvious periodicity, such as chemical industry, steel, equipment manufacturing and other industries. In these industries, corporate profits are a function of industry cycle changes. Therefore, the utilization of production capacity can reflect the profit level of an enterprise.
18. After-sales profit model
In industries such as product manufacturing and air transportation, enterprises do not rely on selling products or providing services to make profits, but rely on after-sales service and financing of products to make profits. Kingston, for example, sells additional memory to personal computer users and gets a high profit.
19. profit model of new products
the profit of new products is a function of new products and their development speed. After the launch of new high-profit products, the development will be rapid. Once the product is mature, the profit will drop. In industries such as automobiles and mechanical equipment, the product cycle ranges from 3 to 7 years. The key to success is to develop the next generation of leading products and gain a leading position. The next generation of leading products refers to those products that can best meet the most important needs of customers at that time.
2. Relative market share model
In many industries, enterprises with high market share are more profitable than other enterprises. Because large enterprises have more experience in product manufacturing and the conditions for purchasing raw materials in bulk, they have advantages in cost and pricing. Relative market share is for competitors in the same industry, not absolute market share.
21. Empirical curve model
Empirical curve model means that when enterprises accumulate more experience in manufacturing products or providing services, the cost of each transaction will decrease. Compared with inexperienced enterprises, an enterprise that has accumulated a lot of specialized experience will be more profitable.
22. Low-cost enterprise design model
You can always overcome past experience, and many people have done this. You can use low-cost enterprise design to overcome past experience, thus making the experience of existing competitors in the industry worthless. Dell Computer Company used the low-cost enterprise design model to overcome the traditional street shop sales mode and multi-level sales channels by direct selling.
The profit area of an enterprise comes from the precise control of customer demand. No matter what profit model is chosen, the enterprise value can be realized as profit only if customers continue to rely on it.
business model, simply put, is to form a transaction structure through the value chain and pass the value to customers for realization. The key to a good business model is to find a moat and protect your own profit zone.
I hope today's sharing will inspire you ~