Potential Fatal Flaws of Business Models

Potential Fatal Flaws of Business Models
                   Two fatal flaws can render a business model untenable from the beginning: a complete misread of the customer and utterly unsound economics. Business models that fall victim to one of these two flaws have lost the race before leaving the starting gate..

                    In plain terms, a product must have customers to be successful. In the previously mentioned WebHouse example, the savings that were possible by bidding on grocery store items just weren’t large enough to make it worthwhile for a sufficient number of paying customers to participate. A similar misread of the customer sank Pets.com, a high-profile e-commerce flameout. Although it was convenient for consumers to have pet food and supplies delivered directly to their homes, the orders took several days to arrive—too long for customers who have access to the same products at the grocery store and at pet superstores such as PetSmart. Pets.com didn’t realize that fast delivery was essential to its customers.

                    The second fatal flaw is pursuing unsound economics, as shown by the failure of many e-Bay drop-off stores, as illustrated in Chapter 3. The idea behind eBay drop-off stores (like iSoldit and QuickDrop) was that nearly everyone has something they’d like to sell on eBay, but many people don’t want the hassles associated with setting up an eBay account, listing an item, following the auction, shipping the item to the buyer, and so forth.7 While there are still some eBay drop-off stores still open and presumably making money, most store owners couldn’t make the business model work. Their profit margins were just too small to justify their time and investment.