Page 29 - The Bootstrapper Bible

ChangeThis rate but your suppliers can raise their prices on you, youʼve just become a very risk-taking middleman. Thereʼs a great cartoon of a mathematician doing a complicated proof on the blackboard. The board is covered with all sorts of squiggles and symbols and then, at the bottom, it says, “And then a miracle happens,” followed by the end of the proof. Business models canʼt depend on miracles any more than mathematics can. Every once in a while a business comes along that creates its own model. I can tell you that itʼs infinitely better to have one before you start. Using my favorite ice cream example, the business just doesnʼt work if implicit in the busi- ness model is the fact that youʼre going to lose money on every ice cream sandwich and make it up by selling more. This sort of wacked-out thinking only works on the Internet, and even there it wonʼt work for long. THEY SHOULD BE PROTECTIBLE. A profitable business, as mentioned earlier, is going to attract 2 competitors. What are you going to do when they show up? If youʼre accustomed to making $1 on every ice cream sandwich you sell and suddenly thereʼs a price war, you may make only a nickel. Thatʼs not good. Itʼs called a barrier to entry or competitive insulation. Barriers can include patents (which donʼt work as well as most people think), brand names, exclusive dis- tribution deals, trade secrets (like the recipe for Coke), and something called the first mover advantage. Blockbuster Video, for example, created a huge barrier to entry when it opened thou- sands of video stores around the country. By the time the competition showed up, all the best spots were taken. As you can guess, this is a pretty expensive barrier to erect. First mover advantage is the fond hope that the first person into a business, the one who turns it into something that works, has an advantage over the next one. For example, if you | iss. 6.01 | i | U | X | + | h 29/103 f