Maximize your strategy with business model.
In our last post, we discussed hacking your business model with strategy.
A natural question might be: Shouldn’t we be using the business model to maximize strategy in every way possible? Especially if we are already using moats to hack the model to begin with.
Let’s look at the five “maximum” levers we have to work with (in no particular order):
- Visionary Storytelling
- Vertical Integration
- Legal Monopoly
- Economies of Scale/Scope
The question is can or should you be the best at all of these?
The answer is that no company has ever accomplished this feat. But you don’t have to…
Using moats to help complete the model, we better understand the specific tradeoffs we have to make to accomplish certain strategy.
Maximum strategies simply structurally don’t work for all companies. Nor do they need to…
Let’s look at M&Ms:
- Not the brand you’d think of when it comes to visionary storytelling. However, although they have no network effects, they do have outstanding brand loyalty.
- Some vertical integration. They manufacture, distribute and own some retail and direct sales channels. However, although they don’t produce the raw materials, they do have strong intellectual property.
- No rundle. All M&Ms purchases are transactional (and seasonal).
- No legal monopoly. Others can sell candy-coated chocolates.
- Definite economies of scope. Any color you want. With almost anything written on them. Sold in almost any type of packaging.
One out of five “maximum” levers.
Yet what moats does that lever get us?
- Brand Loyalty
- Higher Prices
- Cost Advantage
Pretty strong strategy.
Also, clarity around the business model and innovation/marketing execution.
Maximum > Moats > Model
Let’s look at another example: Tesla.
- Visionary Storytelling. Elon. Check.
- Vertical Integration. From manufacturing to customer.
- Rundle. Subscriptions, yes. No rundle. Yet.
- Legal Monopoly. No.
- Economies of Scale/Scope. No.
Two out of five “maximum” levers.
And what moats do those levers get us?
- Brand Loyalty. They own the EV market today.
- Higher Prices. A “starter” Tesla will cost you more than twice the average car.
- IP. 3000+ patents.
- Talent. People want Tesla on their resume.
- Systems of Intelligence. Tesla collects an insane amount of data from their cars.
- Regulation. See https://www.washingtonpost.com/technology/2021/09/15/tesla-biden-administration/.
Even stronger strategy than M&Ms.
And, again, clarity for business model and execution.
Now go spark that revolution.