To build sustainable business models, you need to have control over some type of ‘factor of production’. When my wife and I took the mule train to the bottom of the Grand Canyon to visit Phantom Ranch, I realized how valuable the concession was to operate the service. First of all, it’s a monopoly service. Second of all, it operates in one of the seven wonders of the world, a sacred place. Thirdly, there is practically unlimited demand– you need to book ahead many months or you won’t be going.
How would you like to control the bridge from Windsor to Detroit which in the first 11 months of 2005 carried 8.9 million vehicles and is one of North America’s most congested choke points? And every one of those vehicles paid a toll to Manuel Moroun’s company. Now it appears that Mr. Maroun has negotiated a 90 year agreement with the Wayne County Port Authority to build another bridge. The Port Authority is rumored to get a 2.5% royalty. Sheesh. That means that Mr. Maroun gets 97.5%. Seems like a pretty good deal for him.
Business modelas that work need to have some kind of differentiator; some type of ‘pixie dust’, the magic that makes a business work. For a National Football League franchise, it is the right to operate an exclusive franchise within a defined geographic area and exploit all the revenue rights within that area– tickets, merchandise, suite rentals, sponsorship, signage, parking, etc. and to share in national television revenues.
Most entrepreneurs who don’t have some type of value differentiator either can’t build sustainable businesses or the ones that they do build produce no more value for them than if they just went out and got a JOB.
The role of an entrepreneur, in my view, is to build a business that creates more value than that and which can take on a life of its own– i.e., it can survive the passing from the scene of its founder or can make money for its owner while she/he is lying on a beach. The latter is the preferred option, obviously.
A spa, for example, might have some pixie dust becuase of its high end location or because it has some highly sought after hair stylists or because it has some sophisticated software that runs its appointment calendar and inventory of products and reverses out some of the work to its clients (e.g., they can self book online).
A friend of mine, Rob Hall, runs Pool.com, a business that revolutionized the backordering of domain names. Instead of paying $60 to backorder a domain name that may never delete, Pool.com allows you to register your backorder FOR FREE. You only pay if Pool.com is successful in getting the name for you. Guess which site gets most of the backorders now? (BTW, over 5,000 dot-COMs delete every day).
Pixie dust/value differentiation– think about it, see how you can add some to your business and watch your revenues and margins grow.
Dr. Bruce