This is one of my favorite business stories. (As told by my husband the economist, the joke’s title is “the dumbest ever graduate of Harvard Business School.”)
A fellow shows up at his 25th HBS reunion. He’s the CEO of a well-regarded company. He’s dressed to the nines, has a trophy wife on his arm, and has made a major, seven-figure donation to the school. Professors and classmates are scratching their heads. This guy was the dumbest person in the history of the school. No one in his class could figure out how he got in, let alone how he made it through.
One of his section mates asks him for the secret to his success.
“It’s simple,” the fellow tells him, “I make this gizmo for $1. I sell it for $5. And I keep raking in that 4 percent profit.”
His section mate just rolls his eyes. How is it that, after tearing apart all those case studies, this dope never managed to learn that selling a $1 gizmo for $5 brings you a profit that’s just a tad bit more than 4 percent…
The moral of the story: you don’t have to be smart to make money. You just have to know how to make money.
Whenever I read about some business model that hasn’t yet figured out that at some point you have to make money, I think about this story. Because, all those unicorns with insane valuations that made no money and then got acquired for even more insane multiples aside, at some point, if you don’t make money, you’re going to go out of business.
My all-time favorite example here is Kozmo. If you recall, their value prop was that they would deliver any object – even something as small and inexpensive as a latte or a Dove Bar – within an hour at no charge for delivery. Needless to say, Kozmo flamed out and became one of the poster children for the dot.com bubble.
More recently, there is (was? soon to be was?) MoviePass.
…an app that offers almost unlimited access to cinemas for $10 a month. The service, called MoviePass, pays cinemas full price for nearly every ticket that filmgoers use. By design, it loses more money the more people use it….
MoviePass has burned far more cash even than its executives anticipated since introducing the unlimited plan in August last year. It has attracted more than 3m subscribers and will lose “at least” $45m this month, according to a filing to the Securities & Exchange Commission on July 10th by Helios & Matheson, a data firm which bought a majority stake in MoviePass last year and now owns 92% of it. (Source: The Economist)
The bad news is that the heavy-duty movie goers have glommed on to MoviePass, while the types who might pay $10 a month for a pass but end up only using it at a break-even (or narrowly profitable) rate of once a month aren’t subscribing in anything that looks like droves.
MoviePass has some tricks up its sleeve, including “surge pricing”, raising its monthly price, and charging the studios to push their flicks, but this past week hasn’t been kind to this big dreams company.
Over the weekend, pass-holders couldn’t book tickets to the latest instance of Mission Impossible. On Monday, some pass-holders weren’t able to book any films at all. Oops! l
I’m writing this post on Tuesday evening, and it’s not clear whether MoviePass is going to last the week, leaving subscribers – some of them having paid for a year in advance – holding the bag. Or an empty tub of popcorn.
MoviePass said there were other ways it could eventually turn a profit. It claimed that it would be able to collect data on its subscribers and sell it to interested parties, something that became less attractive in the wake of Facebook’s Cambridge Analytica scandal. It also claimed that it would be able to shoulder the cost of tickets by selling ads on its service and partnering with studios and exhibitors. These alliances would theoretically give them access to discounted tickets or potentially allow MoviePass to receive a share of concession sales. However, SEC filings last spring revealed those proposals hadn’t prevented the company from running desperately low on cash. (Source: Variety)
If only they’d had a not-so-bright HBS grad on board who could have told them about his 4 percent solution.
No comments:
Post a Comment