The Tortoise and the Hare: An evolution of the business model.

An essay on business models and banking referencing an example project called The Good bank a concept for a new bank that would open in Brazil.

Since communication began in prehistoric times, the bartering of goods and the beginnings of trade, each new technology since has bred new business opportunities – During the renaissance period the world bore witness to tremendous development of technologies which enabled astute entrepreneurs to create new businesses. The Industrial Revolution gave rise to opportunities in textiles, food production and the expansion of canals and railways allowed for better trade. And so it goes on in this current climate, which is sometimes referred to as the Information Revolution. Business models are always changing – The most ingenious minds are always using new methods and approaches to support the transformation of businesses. So if this is nothing new, then what we should ask is what type of business do you have to be to survive right now and moving forward?

The age of Tortoise and Hare

“Once upon a time there was a hare who, boasting how he could run faster than anyone else, was forever teasing tortoise for its slowness.” 1

Aesop’s Fable ‘The Tortoise and the Hare’ tells us a tale of the Hare, who is fast and nimble but impatient and presumptuous, characteristics displayed in many of the companies from The dot-com bubble from 1995 – 2000. The most widely documented dot-com bubble failure was Boo.com whose concept was to sell branded fashion apparel over the Internet. Boo.com has been written about many times as it provides the archetypal specimen.

“Boo.com became the country’s first high-profile internet collapse. With it went more than £80m of cash from investors.” 2 -Richard Wray

Boo.com were not doing anything that doesn’t now exist, in fact many companies, like asos, who are utilising the same business idea are now flourishing. Boo.com’s problem was that they were too far ahead of the technology and what people wanted, they spent millions on developing systems that not enough people had access to, they were too presumptuous and arrogant.

“At the time Boo.com launched, 20% of UK households had access to the internet but they were using slow dial-up connections that quickly ground to a halt when anyone asked Ms Boo to show them around.” 3 - Richard Wray

“We were too soon and trying to do too much, but those were the times” - Ernst Malmsten of Boo.com 4

Put succinctly by Saul J. Berman in his book ‘Not for Free’- a new revenue model needs “customers who are ready to abandon their old ways of doing things.” 5

In contrast we have the Tortoise who is slow and patient but unadventurous and haughty like the established institutions who have managed to continue with their tried and tested measures. In 1958, the average length of time a company remained on the S&P 500 was 57 years; by 1983, it had dropped to 30 years; in 2008, it was just 18. 6

The publishing companies are a typical example of this, many see them following in the footsteps of the music industry and with good reason. The publishing company Random House was founded in 1925. Now owned by German Printing company Bertelsmann and can be viewed as our typical ‘Tortoise’, they walked blindly through the 1990’s never seeing the potential of the ebook market: In 1979 Douglas Adams saw the potential for many books you could carry on one device when he wrote about ‘The Hitchhiker’s Guide to the Galaxy’. Or even in 1991 when The Voyager Company (CD-ROMS) where investing in research into how books could be presented on a computer screen, The project was called ‘The Expanded Books Project’. 7

Getting the Book Invented from Gavin Edwards on Vimeo.

Random House had to be coaxed into the ebook market they certainly weren’t the first to embrace it, In February 2012 “Random House, threw caution to the wind and announced they’d struck a deal with libraries: It was going to raise the price of its ebooks to library wholesalers, but once a library had bought the book, that was it. They could loan it out as many times as they wanted and never have to pay for it again.” 8
They were the “world’s largest publisher, with a market share of 17.5%.” 9 If they had realised the market place they had was not ‘printing’ books but simply ‘publishing’ them, with arguably a 15 year (more realistically 4 year), head start on Amazon and a 17.5% Market share, Random House could have developed the ebook along with a suitable revenue model for them and for the future. But their failure to think past their current model has left them at the coat-tails of Amazon. They remained true to their Tortoise mentality and it could prove costly. In January 2011 Amazon announced it’s ebook sales overtook sales of printed editions for the first time: “For every 100 paperback books Amazon has sold, the company has sold 115 Kindle books.” 10

Today is the age of Tortoise & Hare, Business in this current climate can neither afford to be the Tortoise or the Hare, they are going to have to be both. No quicker can a business get established than a new technology emerges which creates chaos within its revenue streams. For example, song sharing site Napster, in five months “went from having 1 million to 10 million users. Eleven months later, it had 80 million users – the most successful technology introduction of all time. And then it essentially went out of business.” 11

An excellent example of a company whose business model resembles characteristics both from the tortoise and the Hare is Amazon. As well as being a very impressive example of The Long Tail model, Amazon practice a process of small incremental improvements to their website and services, slow and steady like The Tortoise but they also undertake transformative steps like developing and releasing the Kindle, steps which are fast, relevant and sure of themselves like The Hare.

New fast emerging companies like Dropbox have seen the past failures of the dot-com bubble and the current successes of Amazon. They have an extremely clever and forward thinking business model of progression. 29 year old Drew Houston, cofounder and CEO of Dropbox says his mission is to “build a fabric that ties together all your devices, services and apps.” 12 Drew highlights here the most important part of how their business is run and it is that they see themselves as bigger than the sum of their products, they have a market space which allows them to develop and diversify, cleverly relevantly and, more importantly, respectively of the current climate.

What Drew also sees is the need for integration. Integration Needs to happen and will happen more and more within businesses utilising these new digital tools - web apps and smart devices… We want our fridge to talk to our phone, and our TV to talk to our fridge and our watch to talk to them all… More and more systems will need to be provided by one overriding provider – Which potentially could be Apple, Google, facebook or Amazon they are the biggest bearers right now of all our content, our likes and dislikes and therefore best place to create integrated systems and move into other industries – The other holder of all our personal data and our spending habits are the Banks who if they are not careful will be left behind in these times. We need only look at the worlds hunger for apple devices to understand that people attach great value to Integration and ease of use. Drew also states:

“People want everything to be compatible. That’s the problem we solve. We keep the experience simple.” 13

Dropbox will soon have a permanent integration into android phones and if they carry on their current model the simplicity and the integration of platforms has potential even to shake Apples stranglehold on the market.

The conclusions drawn from these examples are:

  • Businesses will have to be the Tortoise and the Hare.
  • Businesses have to be constantly innovating - Leading not following to not only survive but outlast.
  • People are looking more and more for Integration of services.

The good bank project

These conclusions are not enough to learn how businesses can, not only survive, but move forward in the current climate. An experiment and an application of theory is necessary, so let’s look at a project.

The Task

To develop a new business idea or transform an existing business sector.

For the experiment we chose the industry the public are most dissatisfied with right now and also most institutionalised in their methods – The finance sector. A poll in 2009 showed “only 19% of Americans surveyed expressed confidence in the integrity of bankers, down from 41% in 2005” 14

So we created The good bank project.

To tackle this we firstly examined a single customers relationship with finance from cradle to grave – By looking at the bigger picture and plotting out a persons ‘growing moments', Our big life events like university, marriage, buying a home, having children or retirement. This was extremely valuable as we were able to see the many possible gaps within the support of the financial services within a persons entire life. And what we found was a lack of knowledge at the most crucial moments, our ‘growing moments’.

The key components of The good bank – and how they differentiate from current banks.

Strictly Digital. The good bank is solely online, utilising ATMs and Post Offices for cash deposits. The only physical thing the customer needs is the debit card, they will also be able to utilise contactless payment.

No Account fees. Some typical financial products that charge fees are checking accounts, investment accounts, and credit cards. Banks refer to these fees as “administration charges” though maintaining these accounts costs banks very little. And they cause the most annoyance to the public. We believe charging no account fees would improve the public’s perception of us as a bank greatly.

Higher earnings rates. We can be a very profitable company whilst offering a higher percentage of return that the competition as we wouldn’t be paying staff based on the current system employed by banks. This is also possible by our no administration charges – that money going into the interest customers earn.

User Experience. Our interface utilises what we have named ‘The jars concept’. We allow people to organise their money in jars of savings and current expenditure. Customers can have jars for any goal they are saving towards or any regular payment from transport to mortgage payments, even lunch. Allowing people to lock jars they don’t want to spend and to track all their money as they spend via an app and alert system.

Knowledge Platform. If the public are struggling to understand money when they most need to, who could be better placed to educate them than their own bank. And there are many great reasons to be part of the online learning surge right now. Professor Sebastian Thrun says, of his Standford elearning platform ‘Knowlabs’

“I am against education that is only available to the top one per cent of all students. I am against tens of thousands of dollars of tuition expenses. I am against the imbalance that the present system brings to the world. I want to empower the 99 per cent.” 15

We are suggesting The good bank partner with elearning institutions to help us deliver a platform of ‘good bank knowledge’ with relevant courses for the public and small businesses and entrepreneurs. We would deliver via blog and video content. The knowledge platform will grow exponentially and because we have knowledge of what people are saving for via their jars we can offer appropriate content at the growing moments.

We bring Venture capitalism to the Long tail. Part of the person’s knowledge gap revolves around investments, there is a new trend for micro investments and crowd funding with companies like Kickstarter which is empowering people to choose where they invest and learn about how and where. But we can do more to help people realise that generating wealth from investments is something everyone can do. We will help them invest in startups and sustainable funds that are trying to impact positively in society. Making our customers co-responsible for the good performance of these companies as both investors and consumers. It will generate wealth from both customers and companies. At the same time, we are building a huge network with specific data about our customers goals that these start-ups can use to sell products and services, to generate more wealth. “The cycle impacts society in a healthy way, spreading sustainable behaviour among people and startups with The Good Bank right in the centre of it.” 16 Creating sustainable growth.

Integration. The key to The good banks success will be it’s integration, It is not just a tool to help you save money or a platform for knowledge or a way to invest money it is all of these things. It shouldn’t be necessary for people to have multiple bank accounts. People should be able to create an account which suits them instead of buying a preordained package from the bank. Also we will encourage invites and referrals to the bank through social media which will be kept fresh by customers using their social networks to engage with and promote the companies they are investing in. Even more importantly the bank is flexible to new technologies, our aim is to be constantly developing the service based around our customers and developing for the future.

Franco Bifo Berardi, Italian Philosopher talks about unbound capitalism and the prospect of society no longer being able to resist the devastating power of financial accumulation, he says:

“We have to disentangle autonomy from resistance. And if we want to do that we have to disentangle desire from energy.” 17

This goes somewhat to explaining the intentions of The good bank project. That we could find a way to educate people, to fill those knowledge gaps, allowing people to see that the energy they put into being skilful and confident with their money they could live a better standard of life.

The good bank - A Hyper Island project. from Katy Jackson on Vimeo.

Conclusion

How the lessons from the beginning were applied to the good bank:

  • Businesses will have to be the Tortoise and the Hare. The initial concept is transformative and the good bank practices incremental changes: The good bank grows with its customers, an account is for life.
  • Businesses have to be constantly innovating, Leading not following to not only survive but outlast. The bank is flexible to new technologies, our aim is to be constantly developing the service based around our customers and developing for the future.
  • People are looking more and more for Integration of services. Bringing together current, savings and investments accounts, knowledge and control, together with social media and support for smart devices. The good bank are empowering people to have a better relationship with their money.

The good bank project was quite revealing, ** with a little under two weeks to complete our task we showed that a ‘good’ bank is a feasible proposition, even though it was apparent that our revenue models where a naive** without the time needed to really develop them with financial experts but the essence of The good bank, its principals and exploring potential different revenue models the good bank could easily lead to a more substantial project.

We also saw with our research that with a rise in use for credit unions and projects like Kickstarter, Kiva, Currency fair and other crowd funding and peer to peer financing companies emerging online, there is a real threat to the traditional banks, A market or something new is waiting to be taken and the existing banks would benefit from opening their eyes to the Information revolution, taking a good look at their business models and ethics because they are not in the position of power they once where. They need only look at the American start up ‘Bank Simple’ to see the future. Like other industries the online competition is going to overtake them, the only question is when?

Written in 2013 - for credit in my masters degree.

Sources


References

  1. Aesops Fables. http://goo.gl/Y6hll 2 ,3 & 4. Article The Guardian http://goo.gl/FVFzY
  2. Saul J. Berman. Book – Not for free: Revenue strategies for a new world.
  3. Mark W. Johnson. Article – Bloomberg businessweek – Amazon’s Smart Innovation Strategy -By Mark W. Johnson http://goo.gl/Vm0Eg
  4. Douglas Adams. Video http://goo.gl/KJwgb
  5. Dennis Johnson. Article -Melvile House – Random House makes history, says it will sell books to libraries with no restriction on number of loans http://goo.gl/1GESU
  6. Bharat N. Anand & Peter Olson The Random House Response to the Kindle Harvard Business School – Case Study: N1-710-444
  7. Amazon Press release http://goo.gl/A8i1o
  8. Seth Godin. Fast Company – Survival Is Not Enough DECEMBER 31, 2001 http://goo.gl/jekz5 12 & 13. Drew Houston. Article – File Transfer protagonist – Wired Magazine – MAY 12 2012
  9. Nathaniel Popper. Article -Banks begin image repair over financial crisis. http://goo.gl/nT4bS
  10. Professor Sebastian Thrun – of KnowLabs – Article – University just flipped – Wired Magazine MAY 12 2012
  11. Good bank team. The good bank business plan.
  12. Franco Bifo Berardi – Book – Political Therapy. The art of mass disassociation.