The Promise and Perils of Pattern Matching

Jen van der MeerBusiness Model Practice

How can organizations quickly and effectively gain support for new business ideas?

The Promises and Perils of the Hollywood-Style Elevator Pitch

Hollywood wheeler-dealers are famous for pitching new movies to studios with a formula that combines two successful old movies. Robert Altman’s 1992 comedy The Player fictionalized pitchmen who proposed such fantastic ideas as “Out of Africa meets Pretty Woman” and “Ghost meets The Manchurian Candidate.”

Technology companies are also prone to ridiculous-sounding analogies when touting their potential. A recent survey of startups on AngelList, the angel investment platform, brought up these combinations:

Slack meets Kickstarter

Yelp meets Tindr meets Instacart

A Spotify with Pandora on top

eBay + Soundcloud

Think Flipboard and Hootsuite in one

The aim of these formulas is to simplify a complex idea and at the same time fasten it to the outsize growth and wealth-creation potential of wildly successful former startups that pioneered new business models.

Investors are just as likely to latch onto this kind of business-model combination when giving advice. If they’re trying to grasp your idea quickly, then they too have to lean on shorthand descriptions of its power and growth potential. They call this skill “pattern matching.”

Startup-technology-company value is driven mostly on this “comp”—the comparison between a company that has yet to show any revenue or profit and similar ones that have already unlocked massive growth potential. (“It’s like Netflix meets Pinterest.”)

Even big, fearless, world-changing public companies get prompted by large investors to mash up their business models. Morgan Stanley Equity analyst Adam Jonas recently increased his Tesla stock price target $280 to $465 by predicting how Tesla could become another Uber. He even gave the concept he envisioned a name, Tesla Mobility, an “app-based, on-demand mobility service.”

Jonas’s “Tesla meets Uber” idea would allow the carmaker “to conceivably more than triple the company’s revenue potential by 2029.”

Jonas’s analysis came after a question of his went unanswered during Tesla’s most recent second-quarter-earnings announcement call with analysts:

Jonas: Hey, Elon, Deepak. First question. Steve Jurvetson was recently quoted saying that Uber CEO Travis Kalanick told him that if, by 2020, Tesla’s cars are autonomous, that he’d want to buy all of them. Is this a real—I mean, forget like the 2020 for a moment—but is this a real business opportunity for Tesla, supplying cars to ridesharing firms, or does Tesla just cut out the middleman and sell on-demand electric mobility services directly from the company on its own platform?

Musk: That’s an insightful question.

Jonas: You don’t have to answer it.

Musk: I think—I don’t think I should answer it.

Jonas: Okay. Let’s move on. Second question is, there’s been—sometimes you can tell more from the non-answer than from the answer.

Jonas’s idea is far from crazy. After all, Tesla has a software expertise that positions the company well ahead of other automakers; it’s in the process of figuring out the complexities of electric charging and fleet management; and it is run by Elon Musk.

But what’s maddening to public-company executives and startup founders is the brazenness and the oversimplicity of these mashups:

Tesla meets Uber

Netflix meets AngelList

Quirky meets Zirtual

Still, as ridiculous as this shorthand may sometimes sound, it can be extraordinarily powerful—and thus extraordinarily frustrating to a company whose successful business model has been reduced to a clever portmanteau.

What’s valuable about business-model combinations

Clear and persuasive elevator-timeframe communication

By coming up with a quick description that compresses a complex idea into an understandable analogy, you open the door to a deeper, more nuanced discussion when time permits. The biggest benefit of an elevator pitch is that it gets you invited to explain more.

Business-model combination and replication

The growth of the Lean Movement and the widespread adoption of Osterwalder’s Business-Model Canvas have fueled the thinking of a new generation of entrepreneurs focused not just on product/service innovation but on novel business-model approaches as well. Large companies that have advanced far beyond startups engage in business-model combinations when they launch new services and acquire new companies. In fact, 90 per cent of all business-model innovations recombine existing ideas and concepts from other industries. (St. Gallen Business Model Navigator Survey. Gassman, Frankenberger, Karolin. 2014).

By creating a shorthand way of thinking about business models, innovators quickly demonstrate how a new business-model combination might unlock new value.

What’s frustrating about the Hollywood-style elevator pitch

Comparing an already successful company to something that doesn’t exist yet

Reducing business models to mere company mashups can mislead investors. The most often cited companies—Netflix, Amazon, Google, Facebook—are successful because they have a huge customer base, a well defended competitive advantage, and a profit formula that works well for them.

But each of them began business-model formulas that are completely different from the ones that describe them today.

Looking at business-model combinations vis-à-vis where you are today

So don’t just say that you want to Netflix your business, or that you’re worried that you’re about to be Netflixed. You need to be more specific. The company is a world-class business-model experimenter that’s constantly combining new business models with its already proven and successful original model.

Netflix started with a direct-to-consumer subscription model, delivering its goods in the mail. It then cannibalized part of its business when its switched to streaming video, frustrated customers with a change in the pricing model, but later weathered the storm and continued to grow. Netflix uses its enormous data-collection capabilities to optimize further sales—“If you liked My Little Pony, then you’ll like Strawberry Shortcake”—and to enhance its predictive algorithms as they apply to its original-content business (“House of Cards meets Orange Is the New Black”).

Every one of the company’s new business-model combinations creates further lock-in with the customer base.

So when your boss or board asks, “Have you thought about a model that’s more Netflix?” make sure that you know which combination of Netflix business models you’re being requested to consider. When a startup describes itself as “Kickstarter meets Spotify,” it may not fully comprehend the hurdles it will encounter starting a two-sided marketplace plus a social network plus an advertising model.

At Reason Street we’ve launched a Business Model Library for people who want to build their knowledge of how businesses work. Has someone told you to go Netflix or Spotify or to Uber your business, leaving you struggling to understand how? What business models are you thinking about? Let us know what business model or company you want analyzed, and we’ll add it to our growing library. We also conduct business-model-combination workshops to free up your thinking in constructive ways and put you on the path to business-model innovation.

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