Sunday, June 07, 2009

Why do companies often start with a bad business mocel? Because it is easy!

I have seen, inherited and continue to see companies knowingly or not, start off with a business model they will regret. Whether it is distributorships which will be ineffective and expensive to change, as GM has discovered, or prime sources of revenue which are the least profitable, as Nielsen and IRI know, it happens again and again. I see it regularly. So why?

Usually, the inferior business model is easy, cheap and fast to enter. Distributors seem to offer immediate market entry at no cost. Some customers are quick to buy than those from other sectors, but will never pay much, and by making them customers, it hurts future profit. Limited distribution seems to restrict sales potential, though it often helps profitability. Companies often start by selling data, thinking that they can add value later, though they never can. Cutting quality or service may seem like a good idea to make a sale, but you can never afford to add it back.

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