Don’t Confuse Your Strategy with Your Business Model


If you want to read about business strategy you probably do not need to look very far. Vast amounts of articles, blogs, tweets, and books have been written about the topic, some credible and many not. As most of us have probably noticed, strategy has become a bit of a buzzword in recent years and throwing it into conversation suddenly makes your point credible and valid. It has become an excellent “name-drop” of sorts in business conversations.
 
So, what is strategy? How is it related to your business model?
 
A watered-down definition of business strategy is, the actions taken by a firm to gain and sustain greater performance than their competitors.
 
A business model defines how a firm intends to make money.
 
How do strategies and business models differ? First and foremost it is important to understand that strategy is relative. While a business model determines how a firm will make money, a business strategy determines how a firm will make more money than its competitors. In this sense a business model does not directly factor into responses for external factors and precede true strategic initiatives such as first-mover advantages, differentiation, and cost leadership. At the end of the day, the business model is a tactic or supporting player in an overall strategic initiative.
 
Netflix is a good example of the differences between business models and strategies. Netflix began in the late 90’s as a DVD rental company which would mail movies to your home for a flat rate each month. Their business model was built around high availability and low-cost distribution. Essentially they made money by increasing subscription sales and creating a better distribution method which was more convenient for movie renters. Now their strategy has evolved over years (as any strategy should) but let’s focus on their most recent strategic initiatives. As of late Netflix has been a leader in transition to instant streaming video, leading a strategy to be a first-mover and cost leader. But what is most fascinating is Netflix’s response to match such competitors as HBO. Netflix has begun to create its own original TV shows which are available as live-streaming and all episodes are available at once instead of releasing new episodes each week or so.
 
The business model has not changed. Netflix still is making money through subscriptions but how are they seeking superior performance to competitors? They have created a strategy of getting away from DVD rentals, focusing only on live-streaming capabilities, and innovating through technological advantages and superior content availability. This is represented by the move to make its own original TV shows and making itself available on multiple devices with higher quality software capabilities. What has not changed is its strategy to remain a leader in easy distribution.
 
Netflix exemplifies evolving strategies while maintaining a relatively constant business model. As stated before it is important to recognize the relationships that exist between business models and business strategies and that they are not the same thing. Confusing your business model you recently developed for a viable strategy can be disastrous for business but a great business model implemented as part of an overall strategy can lead to amazing results.

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