Saturday, February 2, 2008

High-growth business models

At an academic reception this week, I met Josh Long, a former entrepreneur now part-time business plan instructor. Like all sorts of people, Josh has a blog.

One posting caught my eye, one he posted last week on “Entrepreneurial Business Models.” To quote:

Since I started teaching a class to Entrepreneurship students at Fresno State on Business Plan Writing I’ve found that there are only 3 business models from a strategic perspective worth pursuing. There are 2 other business models that aren’t worth pursuing at all, but is where most business owners fall into because it is so easy to. The business models are Category Creators, Niche Perfectors and Category Killers. I learned about these categories in the book ‘Blueprint To A Billion’ by David Thomson that goes over businesses that have gone public since 1983 (386) that have achieved $1 Billion in annual sales. He found that all of these ‘Blueprint Companies’ fit into one of these three business models.
I think our instincts are the same: Category Creators are sexy but attract too many failed efforts, while Niche Perfectors offer opportunities almost everywhere to exploit.

Unlike many entrepreneurship instructors, I think there are many sound reasons for starting a business that doesn’t become the next billion-dollar enterprise. (A 90% chance at a $5 million/year company makes more sense than a 0.1% chance at a $1 billion/year company). Still, the “Me Too” companies that Thomson disparages often offer the worst of all possible worlds: no upside, and not a sure survivor either.

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