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CHAPTER 7From Fiats to Ferraris

No profit grows where is no pleasure ta'en.

— William Shakespeare, The Taming of the Shrew

Introduction

When we looked at the preparation for the first-order optimisation, we stressed the importance of getting yourself to a good state of mind first. Once you are in a good frame of mind, it becomes a stable footing from which you can start delivering the first-order optimisation.

When it comes to the second-order optimisation and executing the strategies, the reverse is true. It is first important to understand external factors such as consumer behaviour, consumer values, policy and investment environment before arriving at a business model that can scale. In that sense, the business model is something that is largely under the control of the entrepreneur. The third pillar of the second-order optimisation process is the business model.

Over the past few decades, there has been no shortage of thought leadership content about business models. Peter Drucker defines a business model as what a business will and won't do. In my opinion, a good business model enables a firm to create value for itself in the process of creating value for its customers. The role of the management team is to ensure that the value created for the customers and for the firm is balanced.

If customers benefit disproportionately, shareholders might lose value and vice versa. However, if shareholder value is prioritised ahead of value addition to customers, the business model ...