The Two Types of Business Model Risks


Amar Pandit
A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

November 11, 2022 | 2 Minute Read
There is a wonderful book “The Risk Driven Business Model” written by my Wharton Professor Serguei Netessine and INSEAD Professor Karan Girotra. The book is about how the key choices you make in designing your business model with either increase or reduce two types of business model risks.
The first one is Information Risk.
The authors write, “Defined simply, information risk is a feature of a business model that requires you to make decisions without sufficient information.” We will never have complete and perfect information. We need to learn to make decisions in the absence of such (complete and perfect) information. This is a skill that we all need to build.
Remember the “Why I Succeed” Nano.
Hint – I succeed because of the shots I miss.
And how do you build this skill?
By making as many decisions as possible without sufficient information.
The tool that I use starts by asking this question “What’s the worst that can happen if I were to do this?” I have even written a detailed post on this.
The objective when you make such decisions is not to be right but to be less wrong.
The second one is Incentive-alignment Risk.
This arises when the incentives imposed by a business model lead to actions that clash with the broader interests of a value chain.
The regulatory actions that we have witnessed since 2009 is a direct consequence of this risk. I am sure you understand this broadly. But understanding this foundationally and deeply is so critical for the future of your firm. Sadly, most experts in our industry/profession don’t understand this deep enough from a strategy and business model innovation perspective. They are still stuck on irrelevant things whereas these two risks are responsible for most, if not all, problems with existing business models.
What are you doing about these two risks in our business model?
Similar Post
Nano Learning
Premium Offering = Premium Clients: An Insightful Approach for You
Do you have a premium offering for your premium clients? If not, it's time to consider why and how you can develop one. In today's competitive financial landscape, having a premium ....Read More
9 August, 2024 | 3 Minute Read
Nano Learning
Being Wrong
There is a brilliant David McRaney quote that I read recently... I can guarantee meditating, reflecting, and seeing how it applies to you (professionally and personally) can be a s ....Read More
27 October, 2023 | 1 Minute Read
Nano Learning
Are you getting your Expensive Questions answered?
I truly consider asking meaningful questions as a Key Skill that all of us need to develop. However, I see a lot of focus and sometimes obsession on asking only technical question ....Read More
3 July, 2020 | 1 Minute Read
Nano Learning
Signing Up versus Showing Up
Signing up is easy but Showing up every day is the most difficult part and drives your performance. For example, Signing up for the gym is easy but showing up every day at the gym ....Read More
28 August, 2020 | 2 Minute Read
Nano Learning
The Magic of the Discovery Meeting
The discovery process is a crucial phase in any real financial professional-client relationship. By the way this is different from just a data gathering or fact-finding meeting...
21 June, 2024 | 2 Minute Read
Nano Learning
Dare to Succeed
Stephanie Harrison, Founder of The New Happy shared a powerful visual along with some insightful thoughts. “Old Happy: I am not strong enough to face my fear. New Happy: I've fac ....Read More
17 May, 2024 | 3 Minute Read
- 0
- 0
0 Comments