One of the key elements of successful business model generation is to align the incentives with the customer and/or users’ desired outcomes. If we stop and think about services that we like and come back to then it’s highly likely that the performance that we enjoy is underpinned by incentives that align with our desired outcomes. Yet, many new business models that we see fail in this aspect.
There was an example on BBC’s Dragon’s Den this week, where the pitch was a new approach to estate agency. There’s no shortage of people who believe that the current model where the seller instructs, and pays, after close, for an agent to sell their property, and in return pays a % win fee based on the price achieved. Despite the criticisms of the model, one thing that it does have is that the incentives align with sellers’ desired outcomes – to sell the property, in a reasonable timescale, for the highest price possible.
The pitch was a service to support owners selling their own properties by providing potential buyers to view their properties. Sellers would pay per viewing arranged, and it was obvious that there had been some thought into the pricing model, as the price was capped at a number of viewings, 12 from memory, after which additional viewings were provided at no cost. The pitch offered, that for a lower, capped cost, sellers would be given access to the market of potential buyers.
Whilst the pitch was a confident one, it came unravelled on a number of counts. Firstly, if the desired outcomes are to sell your property, in a reasonable timescale, at the highest possible price, then the model didn’t incentivise this. To maximise profit, the 12th viewing had to provide the buyer, and irrespective of the price they offered. After this point the company would be in effect working for free, or in reality, free minus the marginal cost of providing viewings, which is never a great incentive for performance.
The next issue was that whilst the headline was a lower, capped, cost, the concept of value comparison wasn’t really transparent. Whilst with the current model we can understand the fee we pay for an end to end service, in the private market, access to buyers is only a small part of the real cost, as for example you have to be available to perform viewings yourself, and you have to negotiate the price, and close the deal. Again the model proposed didn’t link to the desired outcomes of selling the property as the seller had to pay, irrespective of successful close.
There is undoubtedly an opportunity to re-engineer the property selling model, and with an increasing private market for property sales, and providing access to the market is a key element of the process where sellers need support. On this occasion though the main issue wasn’t the service offering, but the business model, and with a few well thought through adjustments to the business model better alignment with sellers’ desired outcomes could be achieved.
It’s an example of the increasing importance of investing in not only your product/service but doing so in a holistic way with the business model generation.