It pays to run a check on one’s business model for flaws

livemint.com:

Indian startups don’t make it past the first 5 years and even fewer the next five. As part of a few startups that survived these two milestones, we can tell you how important it is to constantly look at your business models and make corrections while staying lean all the time. Some business models are inherently more attractive than others.

Yet, oddly, stakeholders often don’t ask the obvious questions. This may be because it is perceived as either complicated or too much work. For those looking for a quick overview of what makes one model superior to another, here are some key questions.

Are we able to create switching costs once we have customers?: Some of the most powerful business models in use today depend on the fact that it is inconvenient, expensive or time-consuming for customers to switch to another provider. Look at how Microsoft and eBay modelled their businesses for long. Network effects raise switching costs.

Once all friends and family are on a social network, for instance, moving elsewhere is painful. Of course, switching costs can be undermined by adroit competitors. Wise, a fintech firm formerly called Transferwise, undermined switching costs for foreign exchange transactions by lowering barriers faced by customers, weakening the dominance of banks.

Instead of actually transferring money from one place to another, this business model works by brokering transactions of funds within geographies, making low-cost, low-effort transactions available to customers. Are we transactional or relational?: Business models that are based on ongoing relationships of some kind tend to be more profitable than those that are purely transactional. A fascinating field in which this is playing out today is food delivery,