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Prostitution, Drugs, Pornography, Gambling, and Religion

Silicon Valley is obsessed with business models. It’s one of the first questions we ask about any new venture: “What’s the business model?”

When I was teaching Entrepreneurship in High Technology at Stanford in the early 1990s, and later working as a strategy consultant with SDG, I started wondering just how new any business model could really be. After all, we have thousands of years of business experience behind us–are we really still inventing new models?

So I started categorizing businesses according to some basic characteristics–mostly around what they were selling and how.

I found that some companies were based on people (e.g. services companies), some required a large up-front investment, but had low marginal costs of delivery (such as software), and so forth. I also noticed that people who were good at managing one of these business models often had trouble understanding or working in the others; their instincts were all wrong.

As I grouped them together, I noticed a pattern–and it struck me how old some of these business models really are.

The basic business models I identified were:

  • Prostitution
  • Drugs
  • Pornography
  • Gambling
  • Religion
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Three Essentials for Healthy Entrepreneurship

A few weeks ago I was meeting with a woman at Stanford.  She is a Visiting Scholar, from Kyushu University where she studies innovation in the Japanese automotive and semiconductor industries.

Over coffee at Bytes, she shared with me her model of innovation.  In it, large companies hire teams of researchers to develop new technologies and businesses–in other words, to innovate.  As with any innovation, sometimes they are successful, sometimes not.  But in her world, the best innovators are in large companies, and everyone else wishes they were in large companies too.

This is not my world.

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