The invisible hand of business models (E)

0:0030 years ago, if you were growing up in Roundup, Montana, you probably worked in a coal mine. And if you were working in a coal mine, you knew exactly what your job was, to dig coal out of the ground, bring it up to the surface so that the boss could sell it to someone. Hey, this is Emily in the Bronx, and you're listening to a special archived episode of Akimbo. him though.

0:33Today, if you work in Roundup, Montana, you are almost certainly not mining coal. What you might very well be doing is buying huge cases, wholesale lots of odds and ends from Target and other big box retailers, and then taking those boxes apart, putting them into smaller boxes, and waiting for a UPS truck to come pick them up because they were sold on Amazon. The business model has changed. And understanding where you fit in the system and what model you are working under is essential if you're going to figure out if you're doing a good job. It's important to understand before you enter the industry.

1:22It's a really good way to figure out if you want to be a customer or an investor. Business models and how they fit into the systems of our lives determine what's going to get done and why. The original business models were super simple. Either you made a thing and sold it, or you bought a thing and sold it, or maybe you traded something. Every once in a while, there might be a business model like, I run the marketplace so that lots of vendors can come together. So if that's the business model, if you're running Smorgasburg, which is a giant food fair in Brooklyn, New York, you know how to do a better job.

2:07Do a better job by getting better vendors. Better vendors will get you more customers. More customers will help the vendors justify paying more to be at your food fair. You understand the business model. You can do the business model better. But business models are getting more complicated, not just for the people who run them, but for the people that they serve. Consider Home Depot. Home Depot, when it began just 50 years ago, there was no hardware shortage in the United States. If you needed to buy some hardware to fix up your house, you could do it. Home Depot showed up with a different model, and their model had a bunch of elements to it.

2:55One element is they're going to be out of town, not in the center of town. Another part, they're going to have a very, very big store, which means they can have more selection. They're going to count on having lots and lots of stores, which is going to give them buying power, which means they can't buy goods that are sold by small companies because they need a ton of whatever they're going to buy. Literally a ton. There's more than 2 ,000 Home Depot stores now, more than 400 ,000 employees. But this systemic change to the hardware business forced thousands of hardware stores out of business because what Home Depot offered the consumer, the contractor, the person fixing up their house, was simple.

3:47If you are willing to get in your car and drive 10 extra minutes, you can have more selection at a much cheaper price. There isn't anyone who's going to know your name. No one's going to help you very much when you go there. But they were making a bet that at scale, that wasn't going to matter. Which means if you work at Home Depot in the buying department, you understand you're not going to win any prizes for buying something obscure in small quantities, which means that if you're the manager of a local Home Depot, your goal is to avoid controversy, not to deliver extraordinary service, because that's not the business that you're in.

4:31King Gillette was one of the pioneers of the razor blade business model. And the method there is pretty easy to remember. You can get a Gillette razor for not a lot of money, but the blades, the ones you're going to have to buy over and over again, those cost extra. So they can afford to get the consumer in early with a big promotion. And then they get lock-in because you don't want to switch the platform you're using and you stick with it. So if you're building a company that is based on this model, a lot of your decisions are already made for you. For McDonald's, the important original customers weren't people who bought hamburgers.

5:18The important original customers were people who bought franchises. That McDonald's had a business model like Carvel that was based on acquiring and satisfying people who were going to run each of the individually owned and operated stores. And so, again, the system determines where the good decisions lie. Ironically, the Big Mac, one of their biggest home runs, was something that doesn't match the system. It was invented by a franchise, not by the home office in Illinois. But they haven't really learned from the Big Mac lesson. Instead, that central facility in Illinois is constantly perfecting systemic changes that can make each McDonald's franchise owner a little bit more successful.

6:12The internet opens the door for all kinds of innovative business models, most of which are copied from other people who have innovated their business models on the internet. You couldn't possibly have Uber or Lyft if you didn't have that supercomputer in your pocket that let you sign up with a credit card and that gave the institution your location whenever you needed a car to pick you up. Uber and Lyft don't need to own cars. What they need to own is information. What they need to have is trust. And in their race to get big, sometimes they forgot what their real business was. But now it's interesting to watch them get back to the basic principles that are at the core of their business model.

7:00And what about Trader Joe's, the famous Trader Joe's supermarket? What is their business model? Because no Trader Joe's, not one, has ever opened in a location that had no access to food. And people who shop at a Trader Joe's are not there to buy something they can get from anyone else. In fact, a key part of their business model is to sell things you can't get from other people. But another part of it is that they don't sell brands. Instead, they work with many food providers who put Trader Joe's name on the thing they are making. So their message is, you don't need more food, but you might want food entertainment.

7:48You might want a low-cost item to fill your pantry that puts a smile on your face. And you might want to buy it in a place that isn't like all the other places. The more they do that, the better their business model works. Where it gets interesting is when we watch conflicts between two business models. Consider the business model of Warner Brothers or any other movie studio and the business model of Netflix. What business is Netflix in? Netflix is now in the business of getting people to not cancel their Netflix account. That, yes, there's room to grow. They need to grow. Wall Street wants them to grow.

8:33But they're not going to get any more of the mainstream folks that were easy to sign up to pay for over-the-internet TV. And so Netflix has to race to produce enough bingeable media that people who are paying for Netflix can't imagine quitting Netflix. And then the second thing they need to do is go to the edges, to the fringes, to find remarkable content for Netflix that will get the people who haven't yet signed up for Netflix but who can afford it to take a deep breath and sign up for it. This is almost exactly the opposite of what the movie business has been thinking about doing for 100 years.

9:19What makes you a hero in the movie business is when you make a blockbuster movie, a movie for everyone, the feel-good movie of the summer.

9:32Jaws. When you can make Jaws, you can build a career around that. Right down the center, a home run. The infinity model, the model that has no scarcity, the model of Netflix, doesn't know what to do with that. That's not their job. And so people who are working in one part of the industry look at the other part of the industry and say, that makes no sense. The people who are working at the checkout at Macy's look at the people who are working in Roundup, Montana, and they can't figure out why on earth someone would stand in a building opening big boxes of stuff and putting them into small boxes.

10:14This approach to understanding the system and the business model within it doesn't just get reserved for entrepreneurs. Consider what it means to be working at a diner on a busy highway. You're never going to see these customers again. The only reason they have a server is because it is easier to do that than to have a cafeteria, a buffet. And your job, with as little muss and fuss as possible, is to bring the food from the kitchen to the table as quickly as you can, and then get on to the next customer. Only what's on the menu. You can have a number two, a plain omelet that comes with cottage fries and rolls.

10:55Your job is not to have an argument with people. Your job is not even to be particularly charming. Your job is volume because the person who is at the restaurant came to this restaurant because they want to come, and then they want to leave. On the other hand, if you work for Danny Meyer at a Union Square Hospitality Group restaurant where it might cost$60 or$80 a person, including tip, to eat there, your job is not to bring the food from the kitchen to the table as quickly as possible. If they want that, they can stop at any of the diners between their home and the restaurant where you are working.

11:33No, your job is to create an experience that they decided was worth paying for. And so we're now seeing the rise of ghost restaurants. Ghost restaurants are restaurants that fit a different business model, the business model of seamless. That if you're ordering for delivery, it doesn't matter if the restaurant has a storefront. And the storefront of a restaurant is one of its biggest expenses. Why not take five or ten different restaurants and put them all under one roof on the third floor of a cheap office building on the outskirts of town? You can have Thai food, Egyptian food, Ethiopian food, French food, and Japanese food, all made from the same facility by the same team of cooks.

12:25Because the business model of Seamless is, I see it on my screen, I order it. Why should I be paying for all of that other stuff? And so we're going to see the restaurant industry change again. and the people who work in it are going to be victims of that change unless they see it coming and figure out how to fit into that model. Here's a great quote from this week's Fearless Flyer from Trader Joe's about chocolate, lava, gnocchi. There are three words you have never heard in a row before. Chocolate, lava, gnocchi. Some people look at foods available to them and say, why? We imagine foods no one has thought of before and say, why not?

13:12I'll read ahead here a little bit. Spurred into action by a sweet chocolate gnocchi enjoyed in a famed London shop, our product innovator worked with an Italian supplier to produce a one-of-a-kind creation that captivates with chocolate complexity. So apparently, this is macaroni filled with chocolate. I'll see if I can find some and report back to you. It's perfect for Trader Joe's. It makes no sense to put this in the freezer at the local Safeway because they have different models, different ways of fitting into the systems of our lives. And as these business models proliferate, open source versus closed source software, for example, we will continue to see different behaviors.

14:05People think that Twitter and Facebook are fun playgrounds where they are the customer. But you're not the customer. That's not what their business model is about. You're the product. You're the one they are selling to the advertisers that pay the bills. What each of us gets to do is to follow the money or to follow the influence or to follow what the boss is keeping score of. Because sooner or later, every institution, nonprofit or not, has a business model, a model for what they're here to do, the job that they are measuring. Some people in Roundup, Montana, are running profitable businesses that fit into Amazon's business model.

14:52and some of those people are waiting for the coal mine to come back, which isn't going to happen anytime soon. Thanks for listening. We'll see you next time. Hey Seth, it's Maria. Hey Seth, my name's Kyle. Greetings, Seth. This is Stephen out in Madison, Wisconsin. Hi Seth, Alicia from Charleston here. Hi Seth, this is Anupam. Hi, this is Caitlin. Hi Seth, warm greetings from Curacao. Hey Seth, my name is Nick Ryan from Pittsburgh, Pennsylvania. Hey Seth, this is Rex. Hey Seth. Hi, this is Vasilis from Greece. Hi, this is Roberta Perry. My question is... And that completes my question. Thank you, as always, for listening.

15:32I really appreciate it. If you've got a question or want to see the show notes, visit akimbo.link, that's A-K-I-M-B-O dot L-I-N-K, and click the appropriate button. Hi, Seth. My name is Nikki, calling from Hollywood, California. I've spent the last few months binge listening to every one of your podcast episodes, and each time I become even more of a fan. So first, I want to say thank you for taking time to create such interesting and thought-provoking content and for encouraging us to be purposeful about the changes we are creating in our culture. You've spoken about the need to create your own story when the story you have about yourself doesn't serve you well.

16:20My personal story is filled with varying degrees of mental and physical abuse that's left me with an overwhelming sense of doubt and quite often hopelessness. So when I attempt to do the work that is necessary of any creative to put myself out there, I feel defeated before I even start. I'm wondering if you could give the first two steps that you would take to overcoming that so that I can begin to create my own story and then go on to do the work that I know I need to do as a creative. Thank you so much, Seth. I really appreciate you. Thank you for this, Nikki. so many people wrestle with issues like this.

17:16Some people wrestle because they've been the victims of verbal or physical abuse. Some people because of the situation of their birth or because of a series of unlucky breaks, because of economic hardship. The list is really long. The story we tell ourselves could very well be centered on the things that have happened in our past that we cannot change. But we cannot change them. What we can change if we choose is the story we tell ourselves. So you asked me for two steps. Here are the two steps that I can propose. The first step is begin by telling yourself a story that starts in a different order.

18:00The things that happened in our past happened, and they are part of who we are, but we don't have to lead with them. When we remind ourselves of here we go again, when we remind ourselves of what we're not good at or what we're trying to overcome, they get reinforced as parts of our story, our self-narrative. Begin with I am smart and eloquent and healthy. Begin with I have contributed in this way and this way and this way. Begin with I care enough to try to make things better because those things are also true. And if we start with those, they're more likely to be brought to the fore, which leads to the second answer.

18:45Start a podcast. Do it under another name. Do it anonymously. Start a blog. Blog every day. Do it under another name. Do it anonymously. Simply do it. Every day, publishing your podcast. Every week, publishing your podcast. Every day, publishing your blog, and on and on and on. And maybe two people or four people will encounter it. Do not read the reviews in any way. It's anonymous. It doesn't matter. Simply do it. Because if you do that, now you get to begin your story with this. I'm a podcaster. I'm a writer. I'm a blogger. I'm a painter. I'm an actor. Simply begin. And if you begin and persist and tell yourself that story, it is possible, not guaranteed, but possible, that one day you'll make it not anonymous, that one day someone will seek you out and even pay you for your work.

19:46Or maybe not pay you, but thank you. Thank you for contributing, for doing something generous, for closing a loop for them, for making a connection happen. The best way to tell our story is to live a new story. Thank you for your generous question. Thank you to everyone for listening. We'll see you next time.