Career Choices and Business Models
Friday, April 29, 2022
There are multiple parameters for choosing between career choices. Popular parameters include the total compensation, the type of work you will be doing, the team and the manager, the title and visible perks, a company’s social status, or even their declared purpose (“we’re the world’s blah”). But we generally overlook what’s underneath all these — the business model. I had to think hard recently about my parameters. The first criteria I came up with relates to the business model.
What is a business model?
I will use a simplified description of a business model here. A company’s business model answers two questions. First, how and where does the money come from. Second, how and where does the money go?
Let us look at some examples.
A company running an online marketplace like eBay, Amazon, Expedia, Airbnb, Etsy, etc., makes money when sellers come to the marketplace to list products and services, and buyers come there to buy those products and services. Aside from building the tech to run the marketplace, the company may have to spend money to get participants, i.e., buyers and sellers, to the marketplace and keep them hooked. Amazon has been doing this for over a decade through capabilities like Prime and Fulfillment by Amazon. Online travel agencies like Expedia establish business partnerships with hospitality and travel companies to bring them to the marketplace. They also incentivize their past customers to return. But a big chunk of the money goes towards acquiring traffic through search and marketing channels like Google. Other e-commerce and media companies have similar customer acquisition strategies and handle associated costs.
Social platforms like Facebook, Twitter, Tiktok, etc., usually make money in two ways — when users see or interact with ads and sponsored promotional content or when the company sells access to the users’ data and insights. To keep this business model healthy and robust, such companies need to bring large numbers of participants (content creators and users) to the network and find ways to increase the users’ time on the platform. The more engaged the users are, the more likely advertisers to promote their content. So, these companies spend vast sums of money on building the best technology possible and then tuning it to bring and keep users on the network. Since such companies depend on getting hundreds of millions of users to their platform to be successful, they provide opportunities to work on solving complex technical problems of scale.
A media streaming company like Netflix’s business model is to keep adding subscribers to watch shows, series, and movies. They spend money to license or produce such media to keep acquiring users to subscribe.
Question 1: Is the business model robust?
Now that we know what a business model is, the first question is whether the business model is robust.
It boils down to learning about (a) what the company has to do to earn more money and (b) what they have to do to spend less to make that money. For example, if a business model requires paying other companies like Google or Facebook large sums to acquire and keep customers, their business is not likely robust. Their customers might stop coming once they stop spending marketing dollars to reach those customers. Such marketing spending is a big problem for many e-commerce companies. Innovating business models to decouple from such spending is non-trivial. Very few succeeded, and those that didn’t become stagnant.
Why is the health of the business model important? Many reasons.
First, when the business model is not robust, you may find it tough to connect the dots between your work and the business outcomes. You work on what is supposed to be the right initiative to grow the business, but you may not see a timely measurable impact. What happens when the critical business metrics don’t seem to respond to your work? You may become lethargic and develop apathy. Status quo wins.
Second, companies with weak business models tend to have poor incentive structures. Companies can’t pay you top dollar when their business model does not justify spending on attractive incentive structures. Though money is not everything, such companies are less likely to win top talent.
In contrast, a healthy business model can afford to create attractive incentive structures for its employees. The math is simple — when the business model is robust, the company will have more money to spend on incentives.
Third, equally important, strong tech companies emerge and remain so as long as their business models are healthy. A robust business model attracts and retains motivated and talented people who will push to improve technology and culture for self-actualization. Of course, courageous and innovative leadership is also essential, but not without a robust business model.
I argue that your first criteria for choosing a company should be its business model. A robust business model has the potential to create a flywheel to bring motivated and talented people, who will then raise the bar on technology and culture and are motivated to innovate the business model to keep it going strong.
But how do you get to learn their business model when you’re interviewing? You research online. You ask the interviewers or others. Understanding the business models of platform companies can be challenging due to the multitude of complicated and non-linear producer-consumer interactions. Still, you should ask and develop a point of view.
Question 2: How is the position connected to the business model?
The next question is how well is the position you’re interviewing for connected to that business model. The answer to this question can shed light on growth potential and incentives. More importantly, the answer can motivate you to work towards enhancing the business model and thus grow in your career. When interviewing, don’t just ask about your team and its peers. Also, ask about how the role can help the business model. If you are interviewing for back-end teams or shared systems, learn how those systems support the business model. Such knowledge over time will help you identify the right problems to solve.
Question 3: What about vision, mission, purpose, values, etc.?
Those usually inform you of the company’s intended purpose and the desired behaviors of their culture. But in practice, their primary goal is to manufacture consent with a business’s stakeholders like employees, partners, and even the society at large.
I’m choosing the phrase “manufacturing consent” without taking a stance on whether manufacturing consent is good or bad. It’s just an effective leadership tool. President Bush manufactured consent through his “axis of evil.” Obama, too, manufactured consent with his “Yes, we can.” So did Trump with his “Make America great again.” You may or may not like what consent they manufactured and what decisions they made based on that consent, and that’s your choice.
For instance, a company with a stated value of being customer-obsessed could keep everyone oriented to improve customer experience and not take decisions that hurt the customer experience. They could also use the same value to bulldoze purportedly customer-centric choices even when those are unfair to other stakeholders of the business model. Examples include arm-twisting suppliers or employing strategies that hurt some common good through externalization of costs, low wages, questionable labor practices, or some other impact on less visible components of the business model. Therefore, my suggestion is to be aware of a company’s stated vision, mission, purpose, values, etc., but not join a company solely based on those.
Question 4: Do you support that business model?
The final question to ask is whether you support that business model. Your response will likely be grey and not a binary yes or no. Here is why.
No business or individual operates independently. All work in a networked economy — producing, procuring, consuming, or offering goods and services. In a networked economy, establishing whether a business model is just or not can be challenging — very few companies escape from doing collateral harm to some segment of their stakeholders. As you peel the layers of any business model, you might discover some uncomfortable parts that may not sit well with your beliefs or values.
Let me take an easy example — Starbucks. Its mission is “to inspire and nurture the human spirit — one person, one cup, and one neighborhood at a time.” You can question whether a cup of a caffeinated drink inspires and nurtures the human spirit. Or you might decide not to support their business model due to their environmental impact. Or you may admire how well they standardized procurement, logistics, and stores to offer quality beverages and serve them in nice-to-hangout locations worldwide while still investing in the growth of their employees. Only you must judge whether their business model is just or not and whether you agree to work for Starbucks or not.
I don’t believe we should shield ourselves from the discomfort of knowing the collateral impact of any business model. You may make a tradeoff to accept some collateral damage. Each of us is making such choices every day anyway, and it is better to make tradeoffs with awareness instead of ignorance.
Probing into whether you agree with the business model or not will help you establish realistic assumptions of your impact on the company’s business model. It will also help clarify that your relationship with your future employer is fundamentally a business relationship and help you become aware of your tolerance of potentially uncomfortable parts of the business model. After all, we all live on the same planet with a shared fate, and our choices have a habit of catching up with us.
To summarize, incorporate the following questions in your search for the next job.
- What is the company’s business model, and is it robust?
- How is the position connected to the business model?
- Do you understand the business model enough to answer whether you support that business model or not?
You might say that the business model is not essential for you compared to the pay, the title, the type of work, etc. That’s fine too, but I suggest that understanding the business improves your career success. You get to know how the company makes and spends money, and as a side benefit, you have a greater chance of becoming a better global citizen.