Complex Startup Business Models , Charlie Munger & Occams Razor


Mike88
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After a few crazy conversations about convoluted business models in the last few months I felt compelled to write this post….

Ocaams Razor

Occams Razor is a theory ascribed to a 1300th century Philosopher which paraphrases (the original was in latin)

“When two alternatives produce the same result always choose the simplest alternative”.

That is its always better to aim for simplicity instead of complexity.

Too often I see experienced and new entrepreneurs making things more convoluted than they have to be, failing to take the simple path and I wonder why.

Unnecessary Business Model Complexity

Picture this,

  • New cloud based technology+
  • Needs to be integrated with Hardware +
  • Its own App (iOS and Android) +
  • Content Licensing issues with 100s of owners
  • Multiple Parties wanting to cash in on advertising
  • 4 other parties in the commercial negotiation all with valid reason to stop this working or make it commercially unviable
  • Tenuous connection to an advertising business model
  • Its not clear who pays and who is the customer

What could go wrong?

I see this a lot with inventors and inventions as well, in my day job I have to review a lot of inventions and patents (over 500 in last few years), the moment I see multiple parties in a complicated relationship where its not clear who pays or who’s problem it is, Im out. 

If you can’t explain clearly who really needs the solution, how you get paid when you are in idea stage, its not going to get better when its a startup.

Solution in Search of a Problem

You might recall my approach to startups and inventions is to make a decision whether I believe the problem is real and who really cares about it. If it’s not real then you are already headed in the wrong direction.

I believe these complicated models occur because the would be entrepreneur has developed an interesting (to them) technology solution in search of a problem.

To make this solution work, entrepreneurs invent a customer usage situation to try to force fit the solution into a problem somewhere.

That there is a tenuous connection to reality is irrelevant, that no one can think of a situation where a user would find the capability compelling also doesn’t seem to bother anyone.

With every man and his dog making an IoT device or solution I hear a lot of talk of selling advanced analytics to their customers about all sorts of shit.

They mistakenly believe customers will actually pay any attention to a set of convoluted analytics, let alone pay for them.

I purchased a Fitbit and a Jawbone over a year ago (did a bakeoff) and wore them both for months. The only thing I paid attention to was the number of steps. 

Same with Apple HealthKit, the only thing I check is distance covered and steps. I might want to see data for a few weeks, but I certainly don’t want anymore detail than that.

Most people really only buy products and apps for a few key capabilities, dozens of additional features and complexity hurt your solution not enhance it.

Your product and business only has to do one thing really well. 

Most people want the key measurement at a glance or key functionality executed well and thats it.

I know Fitbit has a stack of detailed measurements and other health related parameters you can input, but I lack the attention span to spend an hour looking at detailed stats for my wearables.

Adding complexity to the product doesn’t help and creating a complex business model to fit an imagined problem is nuts.

An Example

There is a product called Intercom.io, it looks great and I want to use it, I have seen the functionality used well on other sites, I have heard their CEO on a number of interviews and read their books on software product management (which I recommend), I have mentally purchased the product, however their pricing model stumps me.

They have 5 different packages with pro and standard for each package combined with a per user count, but I cannot for the life of me work out which one(s) I need, after looking at all the packages with various overlaps I think I probably need them all, but I feel like they might have easily helped me and said you need it all.

To quote the CEO in a recent podcast “The customer rarely buys what the company thinks they sell”.

There are about 8 dimensions to this pricing model and it makes me feel dumb because I don’t know what to do.

It would have been much better if they just made it 1-2 packages with a per user count and I would probably be a paying customer by now.

A few points about complexity

  • A validated user problem stated simply, cuts out a lot of crap
  • Simple beats complex most times
  • Most people can execute on simple, they just can’t work out what simple should be.
  • People have a tendency to introduce more complexity, they struggle to say no to features.
  • Simple is harder to define but is easier to build and implement
  • Simple is easier to explain to everyone, investors, team and most importantly customers.
  • Complexity prevents you acquiring customers, if you have to personally explain a complex business model for a customer its a surefire conversion killer.
  • Customers have bullshit detectors as well and subconsciously vote with their feet if it doesn’t make sense.
  • If multiple planets/moons have to align for your business model to work, you probably won’t get paid.
  • There is nothing wrong with a simple business model, i.e. we sell stuff or we charge for a service.

Don’t Believe me? Listen to the Billionaires

Warren Buffet and Charlie Munger sum it up best, 

Simplicity has a way of improving performance through enabling us to better understand what we are doing.

If something is too hard we move onto other things.

People underrate the importance of a few simple big ideas – the chief lesson is that a few big ideas really work. 

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