Which Model?

Here is something they either ignored or glossed over in your MBA program.

American businesses use an “economic” business model. It attempts to deliver profits to investors on steroids. For the American financial community this is “the only” business model. It differs from the more traditional business model of “sustainability”.

The “economic” business model focuses purely on profits. It has no allegiance to the underlying business.  Layoffs, mergers, sales and even bankruptcy are tools in play to create a constant growth in profits . Once the profit stream dries up they walk away from the wreckage. An analogy of  the “economic” business model is throwing the baby out with the bath water, if there are greater profits in the reality TV rights of this one time action.

The “sustainability” business model is based on growing the underlying business. This model embraces employee retention, training, and welfare as a critical stakeholder in the business. As opposed to employees being merely a liability to avoid in the “economic model”. The businesses using the “sustainability” business model operate on the assumption their core business is the road to success. Their product or service quality and perception with customers is the key.

There are two approaches to the offerings under the “sustainability” business model. First is acquiring larger market share growing the product [as opposed to mergers and acquisitions]. The second is in securing a niche with a significantly better product offering. 

Often tech firms today start out with a “sustainability” business model [other types of companies also might start this way]. The current darling according to Forbes Magazine, that also uses this model, is the company “DropBox”. Wall Street is eagerly waiting the company to offer an IPO and move over to the “economic business” model. Businesses today ultimately metamorphose from a “sustainability” model to an economic model (purely about the money), like “FaceBook”. They become the prizes of Wall Street. Sometimes the change from a “sustainability” to an “economic” model can have a detrimental affect on profits. This has resulted in the recent Netflix plunge.

Which world would you rather live and work, a “sustainability” or “economic” environment?