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What’s The Best Core Engine To a Business?

Friday, November 11, 2016 6:22
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When we look at successful business models, it’s important to analyze why they are successful.  There are different models, but if I generalize, there are two strong ones.

  1.  Walled gardens.  They solve problems and have high stickiness with high switching costs.
  2. Network effect businesses.  These are hard to get going, but once they go they are sticky.

Often, two businesses will target a particular market segment using the two different business models.  The reason one wins out over the other has to do with the execution ability of the company, and the peculiarity of the market they are attacking.

If I focus on the network effect business model, there is one thing at it’s core.  Coase.  I have written about Coase Theorem before, but it’s a beautiful economic theory.  It’s elegant and relatively simple. Most powerful ideas are at their core simple. When I look at some of the biggest tech businesses, they have Coase in their DNA.  Uber and AirBnb are great examples of Coase at work.

From 1900-2000, society relied on huge massive systems to deliver goods and services to people.  Institutions.  I see that shifting.  There will still be big institutions.  In some cases, they will be like Amazon and coordinate commerce.  But, I think the internet will enable hyper local businesses to customize solutions for very small niches.  Many of those small niches will be filled by businesses that have Coase in their DNA.

What stands in the way?  Many times it’s government policy.  For example, farming and food is totally messed up by government policy.  It creates lots of production and price problems.  I’d love to see Trump’s administration tackle it because I think food is a place where both sides of the aisle can find common ground.  Everybody eats.  Heck, my Instagram and Facebook is filled with photos of it.


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