Magretta, Joan
2002
Why Business Models Matter

She says: business model = story. Is this the same thing as the “Why? of business” like in that TEDx talk?

86f
“A good business model remains essential to every successful organization, whether it’s a new venture or an established player.”

87
Definition-business model:
“They [business models] are, at heart, stories-stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?”

88
“a successful business model represents a better way than the existing alternatives. It may offer more value to a discrete group of customers. Or it may completely replace the old way of doing things and become the standard for the next generation of entrepreneurs to beat.”
“Creating a business model is, then, a lot like writing a new story. At some level, all new stories are variations on old ones, reworkings of the universal themes underlying all human experience. Similarly, all new business models are variations on the generic value chain underlying all businesses.”

89
“This was something new. Before the personal com­puter changed the nature of business planning, most successful business models, like Fargo’s, were created more by accident than by design and forethought. The business model became clear only after the fact. By en­abling companies to tie their marketplace insights much more tightly to the resulting economics-to link their assumptions about how people would behave to the num­bers of a pro forma P&L­ spreadsheets made it possible to model businesses be­fore they were launched.”

90
“Profits are important not only for their own sake but also because they tell you whether your model is working.” -> and which part of it is working.
“Business modeling is, in this sense, the managerial equivalent of the scientific method – you start with a hypothesis, which you then test in action and revise when necessary.”
“When business models don’t work, it’s because they fail either the narrative test (the story doesn’t make sense) or the numbers test (the P&L doesn’t add up).” -> story here means what you do and how.
“Ultimately, models like these fail because they are built on faulty as­sumptions about customer behavior. They are solutions in search of a problem.” -> I think she mentions 1990s interactive TV.

91
“Every viable organization is built on a sound business model, whether or not its founders or its managers con­ceive of what they do in those terms.”
Definition-business strategy:
“Business models describe, as a system, how the pieces of a business fit to­gether. But they don’t factor in one critical dimension of performance: competition. Sooner or later-and it is usu­ally sooner-every enterprise runs into competitors. Deal­ing with that reality is strategy’s job.”
“When you cut away the jargon, that’s what strategy is all about – how you are going to do better by being different.”

92
“When a new model changes the economics of an industry and is difficult to replicate, it can by itself create a strong competitive advantage.”
-> Dell:
copy it -> die (“If Dell’s rivals tried to sell direct, they would disrupt their existing distribution channels and alienate the resellers on whom they relied.”)
don’t copy it -> die (if they didn’t copy Dell, they would have to pay all the middle men and their profit margin would shrink and it would become impossible to ever catch up with Dell)
“It’s true that any attempt to draw sharp bound­aries around abstract terms involves some arbitrary choices. But unless we’re willing to draw the line some­ where, these concepts will remain confusing and difficult to use. Definition brings clarity. And when it comes to concepts that are so fundamental to performance, no or­ganization can afford fuzzy thinking.” -> This is what I’m doing with EA!!!