The traditional business model is dead if you want to deliver value and make good profit

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Remember back when buying something you wanted was such a hassle?

It wasn’t too long ago. You wanted a specific item, but you didn’t know where to get it. So you had to leave the comfort of your home, drive to the city or the next town, jump from store to store, and deal with salespeople who don’t seem to know what you’re talking about... only to go home empty-handed.

That’s a lot of precious time wasted for nothing.

We’ve all been there; to me, shopping at some point became a troublesome chore. So it’s no wonder that in the past decade, there was a surge of online shops opening everywhere. Even those with physical stores created Facebook pages and other accounts on various platforms.

This was a game changer for the retail industry. Not to mention, it’s a wise use of available technology as it continues to advance at a very rapid pace.

Now, customers have a better experience with shopping. They don’t need to physically go to a store (especially one that’s far away). They get to filter what they browse through websites and pay via debit or credit cards. Then, they’ll find the package on their doorstep a few days later.

This applies to most businesses we have today. During these trying times where social distancing and staying at home is practically mandatory, it’s the online businesses that have an advantage.

While the customers benefit from this set up from a practical perspective, I assure you, business owners benefit from it just as much.

Scratch that; I’d say business owners benefit even more.


What is a traditional business model


The term “business model” has a myriad of definitions from different business personalities. Michael Lewis, in his book The New, The Thing, describes it as “a term of art”. I agree. Just as art can be interpreted, understood, and created through various lenses, so can a business model.

In its basic sense, a business model is simply “a company’s plan for making a profit”, according to Investopedia. “It identifies the products or services the business plans to sell, its identified target market, and any anticipated expenses.”

Basically, it answers all the hows of your business operation.

The traditional business model is what we’ve been used to for most of our lives (at least, for millennials and older). It’s the typical buy and sell set up where customers have to go to a physical store to buy what they want and need. E-commerce was not a thing back then.

Do you remember having to hire DVDs at a video store instead of streaming movies via your paid Netflix account? Or maybe buying CDs to listen to your favorite artists and bands rather than purchasing their music on iTunes or downloading it on Spotify Premium?  These were more traditional ways of accessing media sold to us through these older business models.

These examples were certainly the best offers for their time and they still exist today (although most laptops don’t even have CD players anymore). But as we all know, times have changed and will keep on doing so, and with everyone getting busier by the day, people gear towards methods that are convenient wherever possible.

But convenience is something that I believe the traditional business model no longer achieves, for both buyers and sellers.

And for sellers and business owners, not only is it inconvenient. It’s not as practical for both your time and money as well.


Why traditional business models are dead


In the modern world, non-digital ways of doing things are becoming obsolete.

It started with factory laborers being replaced by machines. Then came the movement to go paperless in offices. With everything being filed neatly in an online database, employees rarely have to go to a room with a landslide of documents with fading print, or worse, lose everything in the occasion of a natural disaster.

The dawn of e-commerce was not a surprising turn of events.

As much as we’ve depended on these models for centuries, there are simply a lot of disadvantages for business owners, compared to the business models for online businesses.

First, renting or buying an office is very expensive. The cost of infrastructure is too high for traditional business models, especially here in Australia. Just imagine how much you’d save by simply setting up an e-commerce website instead!

Second, the location of your store matters tremendously. It takes a lot of careful planning to choose the correct place - from the city down to the specific block- for your store. It has to be very visible and accessible for your potential buyers. Not to mention, your buyers will likely be limited to people who live around or visit the area a lot. Meanwhile, anyone on the internet can find your business, so your sales will not be limited to your immediate locality.

Third, where there’s a locality limitation, there is also a time limitation. Traditional models run their businesses for a limited time only, such as nine-to-five on weekdays only. Digital business models allow users to view or even purchase from your store 24/7.

Fourth, the traditional model requires you to hire staff for sales, accounts, management, security, and etc. Modern business models favor AI. Simple and recurring tasks can be automated, which helps you save a lot of money instead of hiring individual staff members who will only be tasked to do mundane and low-skill work.

Lastly, The office space will limit the chances for a business expansion in the future.

What are new business models that work 


Businesses that are following or shifting to modern business models are thriving, even amid the current pandemic.

With this being our “new normal”, and with people getting used to doing everything through the internet like Zoom meetings and online purchases, I don’t think we’re reverting to the traditional methods anytime soon.

But while the new business models are generally doing much better, it takes time to understand and plan out which one/s will work for the product or service that you want to offer to your customers. 

Some of these new business models include: 

  • Outsourcing

I’m a fan of outsourcing. I’ve been doing it for years, and it’s been very efficient. If businesses were to be done online, who’s to say that you can’t be more inclusive and have employees can’t be from other countries? 

Previously, I talked about the benefits of outsourcing, and how with the right planning and decisions, you can save up to 82.5% when hiring staff members. Through outsourcing, you’re not only saving massive amounts of money, you’re also giving opportunities to people all around the world.

  • Subscription

Youtube, Spotify, and Netflix are examples of servitisation or subscription businesses. This method ensures a steady income since you’re being paid a fixed amount monthly, regardless of how often or not you use their services. This is especially beneficial for businesses revolving around the media, because you’ll be able to accurately monitor the hits and misses of what you roll out (e.g. How many people liked and viewed a certain video and those relevant to it).

  • Platform-based

Facebook, Uber, and Airbnb are examples of this. These businesses allow you to form a network to facilitate direct connections among people and build a community. The platform gets incredible insight into these communities. 

  • Customer value-obsessed

All businesses should incorporate this model into theirs. Businesses are meant to solve a problem, do things better, and improve other people’s lives. And while “the customer is always right” is a myth (and not to mention toxic for you and your staff), it goes without saying that your customer is your priority. Incorporating personalised options for your customers is a great way to keep them happy and feel like they matter to you. This is especially great for retail businesses.

  • Tech-based

Apple, Google, Microsoft, Amazon, and Facebook are among the world’s most valuable companies right now. What do they all have in common? They’re all tech businesses. To say that technology is advancing rapidly has become an understatement. Everyday we find a tech innovation being featured online, and several times a year, we find those that become groundbreaking. You can’t go wrong with a business that lends a hand in the advancement of AI, virtual reality, and the like.

How new business models make good money and keep owners happy 


With new businesses going digital, they no longer need massive overheads to keep operational. As mentioned, you no longer have to spend on infrastructure for one and this further maximises your profit.

The new business models are also usually more flexible and employee-centric. With a healthy working culture and environment, you’ll have more personal time and an overall better lifestyle. 

Modern business models allow you to have more time to spend with your family and loved ones, and even still be able to easily check up on your business while you’re out on a holiday (but only if you need to). 

In addition, keeping your number of staff small obviously makes you more money through saving a lot. Automating your processes saves your business from needing unnecessary roles. With properly trained staff doing their part in keeping your business running, you’ll find that a small yet nimble team is more efficient and cost-effective than a large but less productive and team with no proper mentorship.

In a Wharton interview, Baba Prasad, author of Nimble: Make Yourself and Your Company Resilient in the Age of Constant Change, said that a nimble business is one that isn’t stuck with one approach to solving problems, but rather, it is one that can have multiple approaches. He also said that agility is not just a reactive response, but it is also a strategic response.

Methods that have proven themselves effective in the past aren’t necessarily effective today. While empirical evidence keeps us sticking with the tried and tested, we have to understand that there is nothing more constant than change.

With change happening so quickly and drastically, it is our duty as entrepreneurs, current or aspiring, to adjust to and plan around it instead of thinking backwards.

Traditional business models have been effective for centuries, but with newer, more convenient and cost-effective methods made available for us, it’s about time we accepted that the older models have served their purpose.

It is essential that you embrace change as you move forward in growing your business. And that means leaving behind traditional methods that are becoming obsolete and adopting business models that give you, your staff, and of course, your customers the best business experience.

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