Business model architecture

(upbeat music) - One of the areas of strategy that I think is most interesting and, honestly, least understood is the importance of business model architecture. That's about making sure that the way you charge for your products aligns your interests with your customers. The reason this is so important is because where we started, that strategy is about creating as much incremental value for the world as possible. And so when your interests are aligned with your customers as you grow your business, you're able to invest more and more in creating value for them. And you want to create a situation where when your customer wins, you win too. I actually think this is one of the reasons why many tech companies are some of the most valuable companies in the world. Of course, technology is playing a larger and larger role in our life, but a lot of these organizations have adopted commercial models like subscriptions that really align their interests with their customers. And let's compare that to how technology sales used to work. So if you were buying factory software 30 years ago, you probably bought a license. You bought the license to use a piece of software for as long as you wanted. And so if you were a company selling software, then what mattered? You really need to figure out how to communicate the value of your product to your customer. But once the transaction was complete, it was really in the customer's hands to figure out how to make sure that they were leveraging the technology to their fullest extent. And then if you were in the R&D team of that software company and you thought about, "Where's the next place to invest another dollar?" You were trying to figure out how to get that company to buy another thing. Or you might even were thinking, "How do I make sure that at the end of a few-year period, "that this customer would buy the next version "of the thing that you already sold them?" So you might think about holding back certain value to make sure that that future sale could happen. There's a lot of places in this relationship where the customer's interests and the company's interest just really aren't aligned, which leads to less value being created. Now let's compare that to a subscription relationship. For a subscription product, now you still need to learn how to communicate value effectively, but you know that a lot of the economics of your relationship with the customer come from them renewing their contract every year. And so you want to make sure that they onboard successfully to using your product. You want to make sure that when you think about what your R&D team is focusing on, making the core product better, will help you build a longer and longer relationship with your customer. In fact, if you make your product so good, you can raise price over time to share in the upside of the value that you're creating for your customer. Because ultimately, the businesses that scale the largest mountains are the ones that are creating the most value. And when your commercial model, when your business model aligns to help your customers also get value, then that is the makings for an exceptional business.