Trigger Events and Business Models

Bill Gross of IdeaLab gave a small interesting TED talk titled ‘The single reason why businesses succeed’. He analyzed 200 successes and failures. The following was his answer to ‘the single reason why businesses succeed’.

12 Bill gross.png

Very interesting results. But wait. Can there be some possible overlap between the above factors? Let us consider this combination possibility – can timing help a business model succeed?

I believe that some scenarios or events that I call ‘trigger events’ greatly help in the success of a business model. At the very least such trigger events lead to quicker widespread adoption of a business model.

For example, I think the 2008 recession in the United States led to faster adoption of the cheaper AirBnB and Uber business models. In the case of AirBnB, it would have helped on the demand side. Customers and travelers would want to spend much lesser than in traditional hotels and willing to compromise on the unreliable environment of AirBnB residences (at least when it initially started). In the case of Uber it would have helped on the supply side. Stagnant and lost wages would mean more drivers taking up the opportunity for part time employment via Uber.

Let us consider college education. When will new business models arrive in college education to relieve students of the unbelievably high prices? The technology is here. Far better business models can be constructed right now. But it won’t be possible in the highly protected and regulated environment. I believe only a trigger event will allow creation and quick adoption of new business models.

My bet is that the trigger event will be automation of entry level services jobs post college education. Advances in Big Data, Machine Learning and AI have allowed computers to start eating into services jobs. Symantec Clearwell’s eDiscovery Platform analyzes and sorts more than 570,000 legal documents in just two days. It uses language analysis to identify general concepts in documents. It is clear that the software can be used for pre-trial research, save months of para-legal work and replace hundreds of them and can augment the capabilities of a lawyer. A reminder that this ‘discovery’ from 570,000 documents can be done by just one lawyer.

IBM’s famed Watson is being deployed in healthcare, finance, retail and other sectors to ‘simplify’ service jobs. If you are a consultant or an analyst and want to be scared about losing your job, watch this video on Watson’s next generation project called CELIA.

Machine grading of essays have become at par with expert human grading of essays.

Check out the following article that appeared in Forbes.

Wall Street is high on Moody’s, expecting it to report earnings that are up 6% from a year ago when it reports its second-quarter earnings on Friday, July 24, 2015. The consensus estimate is $1.19 per share, up from earnings of $1.12 per share a year ago.

The consensus estimate has dipped over the past three months from $1.23. Analysts are expecting earnings of $4.61 per share for the fiscal year. Revenue is expected to be $899.4 million for the quarter, 3% higher than the year-earlier total of $873.5 million. For the year, revenue is projected to roll in at $3.54 billion.

A year-over-year dip in revenue in the first quarter broke a three-quarter streak of revenue growth.

Profit slid in the first quarter, breaking a two-quarter streak of rising net income. Net income fell 28% in the first quarter while the figure rose 14% in the fourth quarter and 17% in the third quarter.

The majority of analysts (56%) rate Moody’s as a buy. This compares favorably to the analyst ratings of two similar companies, which average 43% buys.

That was written by an algorithm not a human being. I rest my case on automation of entry level service jobs for now. For a thorough argument read Martin Ford’s Rise of the Robots.

When a lot of entry level ‘intuitive’ jobs are automated, the tuition fee though very eagerly backed by student loans would become highly unreasonable. This will catalyze new business models in college education. Students will get an equivalent education at far less cost. I expect the change in MBA education to be drastic.

I would give some more examples of possible trigger events and their effects on new business models without going into great detail.

The below is the approval ratings of US Congress. People cannot put off getting things done indefinitely with a stagnant Government. People would use the internet and mobile in new ways to overhaul politics or bring in more peer-to-peer citizen solutions circumventing the Government.

11 Gallup

The hangover from the Iraq war and the costs of the great recession of 2008 would have a big reluctance to put boots on the ground and will ensure that UAVs or drones will become better and better as Government investment flows in.

Growing worldwide consensus on the threats of climate change would push new investment in new energy sources. But the whims and fancies of the Government would favor certain politically safe technologies like Solar and Wind over other technologies like Nuclear Power.

Privacy will be a greater concern in the future than it is now. A sizeable portion of people will look for alternatives to less privacy friendly alternatives. The search engine DuckDuckGo has privacy as its USP. This is its growth.

10 DuckDuckGo.png

The cultural differences between Millenials and previous generations in the United States will have huge effects on ownership of assets like home and cars. Millenials in the US are preferring a more nomadic lifestyle. Add to this fact that about half of United States are in zero savings or net debt.

Healthcare spending in United States has increased from 7% of GDP in 1970 to over 17.5% of GDP now. The US Healthcare spending is now $3 trillion or $9523 per person! 75% of those costs were related to chronic diseases like Diabetes.

Diabetes Increase

This will catalyze cost effective business models that try to prevent such diseases rather than cure them after the fact. A startup called Omada Health tries to solve this problem using Software and very clever design. The design includes a social element with peers having similar diabetes problems, peer pressure, rewards, habit reinforcement methods etc. Due to the high healthcare spending on Diabetes and related diseases, it will be easy for companies like Omada to sell to not only Individuals but also to companies as well as they will benefit from lower health spending per Individual.

Will be updating this post on other possible trigger events.

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