- Introduction and About the Author:
- Main Ideas
- Razor and Blades Model:
- Brief Critique of ‘The Business Model Navigator’
Introduction and About the Author:
The book The Business Model Navigator: 55 Models That Will Revolutionise Your Business not only provides a list of business models but also serves as a guide to the world of innovation, cautioning about the need to rethink success in a rapidly changing business landscape. The authors are Dr. Oliver Gassmann, a highly cited professor in the field of business management, who has taught at Berkeley, Stanford, and currently teaches at the University of St. Gallen in Switzerland.
Gassmann introduces us to the era of ‘temporary competitive advantage,’ replacing the outdated concept of sustainable advantage. The book prompts the reader to consider not only how to prepare for the conclusion of current success but also how to effect transformation. In this context, the business model becomes a key tool for innovation.
Professor Gassmann brings rich experience in research and teaching at leading universities worldwide, adding weight and credibility to his statements. Let’s delve into the world of his research and practical recommendations presented in The Business Model Navigator.
‘The Business Model Navigator’ is a captivating exploration of business models that have become cornerstones for success in the contemporary world. Professor Dr. Oliver Gassmann and his co-authors, Karolin Frankenberger and Michaela Csik, propose an approach to innovation that focuses on business models rather than traditional technological or product innovations.
- Temporary Competitive Advantage: The authors suggest rethinking the paradigm of sustainable advantage in favor of a temporary one. In the modern business world, where conditions change faster than ever before, constant reassessment of fundamental principles becomes imperative.
- Innovation in Business Models vs. Products and Technologies: The authors assert that over 90% of all innovations in business models result from the recombination of existing ideas and concepts. This offers companies tremendous potential to create successful strategies by adapting and changing their business models.
- Four Key Dimensions of Business Models: The authors highlight four crucial dimensions of a company’s current business model: who the customers are, what the value is, how this value is developed, and how profit is extracted. Changing at least two of these dimensions can lead to significant innovation.
- Examples of Successful Business Models: The book presents 55 business models, including ‘Direct Sales’ and the ‘Razor and Blades’ model. Professor Gassmann analyzes examples of successful companies such as Tupperware and Hilti to illustrate how the choice of specific business models can dictate success.
- Practical Approach: The book not only provides theoretical foundations but also supports the reader with practical recommendations. The authors offer frameworks for initiating, adapting, integrating, and implementing innovations in business models.
Razor and Blades Model:
One of the captivating business models explored in ‘The Business Model Navigator’ is the ‘Razor and Blades’ model. This strategy, also known as ‘Razor and Blades,’ involves providing the basic product (razors) at a low cost or even for free, and then selling consumable materials (blades) at a high price.
Key Characteristics of the Razor and Blades Model:
- Low-Cost Basic Product: The key component of this model is providing the fundamental product at an affordable price or even for free. This could be a device, system, or service that becomes an integral part of the customer’s everyday life.
- High-Margin Consumables: The real benefit for the company lies in selling additional or replaceable parts necessary for using the basic product. These consumables, or ‘blades’ are sold with a high markup, ensuring a stable source of income.
- Exit Barriers: To retain customers and guarantee the purchase of consumables from the company, exit barriers are created. These could be patents, unique form factors, or other restrictions that make it difficult or even impossible to use alternative products.
Examples of Successful Application of the Razor and Blades Model:
- Apple and iTunes: Apple sells the iPod at an accessible price, but the real profit comes from selling music through iTunes. The device is the ‘razor,’ and the music is the ‘blade’.
- Printers and Cartridges: Printer manufacturers provide the printer itself at a relatively low cost, but profits come from selling expensive cartridges.
Advantages and Potential Risks:
- Stable Income: The Razor and Blades model ensures a stable source of income, as customers are often obligated to purchase consumables from the company.
- Dependency on Purchase Cycle: However, companies employing this model may face challenges if there are changes in consumer purchasing behavior or increased competition, making constant strategy updates crucial.
The Razor and Blades model is a powerful tool for companies aiming not only to attract customers with the low cost of the basic product but also to retain them through constant purchases of additional materials.
Brief Critique of ‘The Business Model Navigator’:
- Applicability in Small Companies: Some business models may seem redundant or complex for small enterprises.
- Inconsistency in Examples: The attention to successful company examples is not always consistent, potentially reducing the book’s usefulness across different industries.
- Lack of Detailed Failure Cases: The book focuses on successful business models without delving into the analysis of unsuccessful scenarios.
- Industry-Specific Orientation: Some business models may be less applicable to various types of businesses.
- Insufficient Emphasis on Sustainability Aspects: The book lacks detailed information on making business models more sustainable in the long term.
‘The Business Model Navigator’ is a pivotal resource for investors, providing insight into how companies create value and generate profits. With a focus on 55 innovative business models, the book equips investors with the necessary tools to analyze and assess investment potential. The emphasis on temporary competitive advantage makes it particularly valuable, enabling investors to identify companies capable of adapting to rapidly changing market conditions. The practical approach to changes in business models ensures a deeper understanding of how companies build their success. Thus, the book becomes an indispensable tool for those seeking to make informed investment decisions, offering a compelling blend of strategic thinking and a profound understanding of key business factors.