Open Business Models II

This posting (critiquing the business models of the firms in the RSS search space) is another way to think about the provocative idea of open business models. The lesson here is that if your highly visible other people will go to work cracking open your business model for you.

Or consider this quote from a venture capitalist: “Good ideas often arise in more than one place. If we sign overlapping nondisclosure agreements, it can become impossible to work with a company without violating covenants with someone else.” Most VC communities are running an odd highly competitive open business planning consortium. it’s weird because most of the knowledge exchange is bracketed insulting the idea being transfered.

To me the two fundamental barriers preclude open business planning. The first is that small emerging businesses are not consistent, they are light on their feet. The business plan is only there, as I like to say, “so everybody knows the plan from whence we are deviating.” If you make it public it get’s harder to revise it fast and often.

The second reason are the typical reasons why full disclosure is rare in markets, why middlemen thrive. Each exchange demands that the seller and buyer’s model of value are different; that the buyer sees more value than the seller does for the good exchanged. In that context it is insane for the seller to reveal his model of the value. Since selling the company is always an option for a firm it would be very weird for the firm to be extremely open about it’s model of the business.

If these are the more common reasons for holding your business model close to your vest then it helps to explain why the leaks are so common. Framing the leak as gossip allows the actual plan to change without having to go back and rebind the leaked detail. Framing the leak as a secret plays frames it nicely as part of the on going valuation process.

That said I think there are some very interesting possibilities where industries are more aggressively open about their business models.

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