“A tiny cause which escapes our notice determines a considerable effect that we cannot fail to see, and then we say the effect is due to chance. If we knew exactly the laws of nature and the situation of the universe at the initial moment, we could predict exactly the situation of that same universe at a succeeding moment. But even if it were the case that the natural laws had no longer any secret for us, we could still only know the initial situation 'approximately.' If that enabled us to predict the succeeding situation with 'the same approximation,' that is all we require, and we should say that the phenomenon had been predicted, that it is governed by laws. But it is not always so; small differences in the initial conditions may produce very great ones in the final phenomena. A small error in the former will create an enormous error in the latter. Prediction becomes impossible, and we have the fortuitous event.” — Jules Henri Poincaré (1854–1912)
Marketplaces are, in essence, chaotic systems that are influenced by tiny changes. This makes it difficult to predict the future, as the successes and failures of businesses can appear random. Periods of economic growth and decline sprout from nowhere. This is the result of the exponential impact of subtle stimuli—the economic equivalent of the butterfly effect.
Preparing for the future and seeing the logic in the chaos of consumer behavior is not easy. Once-powerful giants collapse as they fall behind the times. Tiny start-ups rise from the ashes and take over industries. Small alterations in existing technology transform how people live their lives. For example the iPhone. Fads capture everyone’s imagination, then disappear. The modern hula hoop was invented in 1958 by Arthur K. “Spud” Melin and Richard Knerr. They manufactured 42-inch hoops with Marlex plastic. With giveaways and national marketing and retailing, a fad was started in July 1958; twenty-five million plastic hoops were sold in less than four months, and in two years, sales reached more than 100 million units. The hula hoop craze swept the world, dying out in the 1980s.
The Business Model
Brian Chesky, founder Airbnb speaking at the Start-Up Class “I had quit my job and was living in LA. One day I drove to San Francisco, became roommates with my friend from the Rhode Island School of Design, Joe Gebbia. I had one thousand dollars in the bank, and the rent was one thousand one hundred and fifty dollars. So that weekend an international design convention was coming to San Francisco, all the hotels were sold out, so we decided to turn the house into a bed and breakfast for the conference. I didn’t have a bed, Joe had three air beds, we pulled them out of the closet and called it The Air Bed and Breakfast. That's how the company started. By solving our problem, it became the big idea.”
Brian Chesky didn't invent a new product. “The Motel Inn (originally known as the Milestone Mo-Tel), located in San Luis Obispo, California, is the first motel in the world. It opened on December 12, 1925, and solved a problem. Longer trips requiring an overnight stay often left travelers looking for places to pitch a tent or to sleep in their automobile if arrangements hadn't been made ahead to destinations and stopovers that also happen to have hotels or inns.” reference: Wikipedia. The first hotel opened in AD 707 and has been operated by the same family for forty-six generations the Hoshi Ryokan, in the Awazu Onsen area of Komatsu, Japan.
Airbnb developed a different business model. In place of a motel room customers of Airbnb stay at homes suggested by Airbnb. Customers use an Airbnb app to locate a room or a house in the area where they want to stay. Hosts can earn money by sharing their room or home with travelers from around the world. Airbnb receives 3.5% to 5% for booking your room or home. Besides facilitating the connection between the host and the traveler Airbnb provides trust for both parties. They provide ratings for the host and the traveler.
Alex Osterwalders‘ Business Model Canvas reflects systematically the business model, and to your real business components. The following list and questions will help you brainstorm the precise idea for your next business model innovation.
The Business Model Canvas
- Key partners Who are your key partners/suppliers? What are the motivations for the partnerships?
- Key activities What key activities does your value proposition require? What activities are the most important in your distribution channels, customer relationships, revenue stream?
- Value Proposition What core value do you deliver to the customer? Which customer needs are you satisfying?
- Customer Relationship What relationship does the target customer expect you to establish? How can you integrate that into your business in-terms of cost and format?
- Customer Segment Which customers are you creating values for? Who is your most important customer?
- Key Resource What key resources does your value proposition require? What resources are the most important in your distribution channels, customer relationships, revenue stream?
- Distribution Channel Through which channels do your customers want to be reached? Which channels work best? How much do they cost? How can they be integrated into your and your customers’ routines?
- Cost Structure What activities create the most cost in your business? Which key resources/ activities are most expensive?
- Revenue Stream For what value are your customers willing to pay? What and how much have they recently paid? How would they prefer to pay? How much does every revenue stream contribute to the overall revenues?
A business model is a tool for startup entrepreneurs when designing their business or shoring up their company or for entrepreneurs looking to disrupt an industry. In the case of Airbnb, they recognized an opportunity for a new distribution channel and to lower infrastructure cost and provide improved value to travelers.