Mistaking the Wood for the Trees

The business model is how you get paid, but the business is why you get paid

AT first glance, business and charity appear quite different. Many business professors and executives will tell you that business is all about increasing sales, reducing costs, and creating future growth. Charity, on the other hand, is about voluntarily giving help to the needy.

Taking a broader perspective, however, business and charity actually appear remarkably similar. The underlying raison d’être for both types of organisation is to identify problems in the community and provide solutions. The difference is often just the business model used to sustain and scale the solution.

Business leaders run into trouble when they confuse the business model for the business. The business model is how you get paid, but the business is why you get paid. A business model is the system used to generate revenue, donations or sponsorship, whereas the business is the organised and sustained effort to solve people’s problems.

This confusion has led many business leaders to miss once-in-a-life-time opportunities to solve existing problems in new ways. Take the book industry for example. Although Borders and the other big book retailers could have built online book-stores in the early 2000s, they didn’t do it. It wasn’t part of their business model. They got paid for selling books in bricks-and-mortar retail stores, and not via the internet. So, why should they bother learning a new technology? Well, they were in the business of giving people access to books, knowledge, learning, wisdom and erudition. And they missed a key opportunity to help people in a new way.

Mistaking the wood for the trees can be a costly (billion dollar) mistake. In 2001, Borders Group outsourced its online store to Amazon because its own fledgling online efforts were seen as a distraction from its core bricks-and-mortar retail business. The executives had mistakenly believed that the bricks-and-mortar stores were “the business”, when in actual fact they were just “the business model”.

Having passed up the chance to help people in a new way, Borders Group was ultimately denied the right to help people in any way whatsoever. The company filed for bankruptcy in 2011 – the same year in which Amazon reported 41% year-on-year growth and $48 billion in revenues.

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3 Replies to “Mistaking the Wood for the Trees”

  1. Very insightful post, Tom! (I expect no less).

    One point of confusion though, is with the use of the word “business”.

    When you say “business is why you get paid” or “Business leaders run into trouble when they confuse the business model for the business”, I understand “business” to mean the activities being undertaken to support a stated mission.

    But when you say “business and charity actually appear remarkably similar”, I understand “business” to mean the organisational form adopted by firms that want to carry on a particular trade for profit.

    It is no wonder that business leaders confuse the woods for the trees when the English language is so nuanced.

    Sally xx

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