Is the Business Model Efficient and Sustainable? Reconfigure the Business Model

Abstract

A business model should be capital efficient, cost efficient, risk mitigating, and sustainable. A venture’s return on investment is the product of the operating leverage, the capital leverage, and the operating margin. The business model design can be reconfigured to enhance the operating margin, operating leverage, and capital leverage to provide a higher return on investment. An increase in the operating leverage widens the gap between the unit price and the unit cost of the product, enhancing competitive advantage and generating sustainable positive cash flow. The four attributes of the business model design—namely operating efficiency, supplier and customer lock-in, product market complementaries, and differential advantage—can enhance the operating leverage and provide sustainable scale economies. Several strategies are discussed regarding how to reconfigure the business model and value chain to enhance the competitive advantage and scale economies. Leveraging digital assets can provide high operating leverage and significant scale economies, enabling startups to compete more effectively with larger companies. With digital assets and high customer switching costs, a startup has strong incentive to be a first mover.