The four business model types differ in their ability to both acquire and retain customers.
Black Widows have only a limited number of potential customers. Firms that supply airframe manufacturers, for example, only have two potential customers: Boeing (NYSE: BA) and Airbus S.A.S.
Pigs are unable to market themselves without undermining their credibility. Consulting firms like Accenture (NYSE: ACN) and BearingPoint (OTC: BGPT) cannot directly market their availability without raising the resulting question of how can an expert have an empty order book?
Locusts lose every one of their customers. As donut maker Krispy Kreme (NYSE: KKD) discovered during their much publicized expansion into the northeast part of the US, lost customers don't necessarily return.
The Chicken is the only model-type that can actively seek/acquire and retain customers. The ability to build upon past successes is a powerful type of advantage.
Netflix's (NASDAQ: NFLX) finances illustrate the impact of structural advantage.
| 2008 | 2007 | 2006 | |
|---|---|---|---|
| Subscribers (millions) | 9.4 | 7.5 | 6.3 |
| Marketing | 14.6 | 18.1 | 22.6 |
| Net income per share | 1.32 | 0.97 | 0.71 |
In the three years presented above, the number of subscribers grew at a compound rate of 22% per year while marketing costs dropped at a compound rate of 19.6% per year. Earnings per share rose at a 56.7% compound rate.
Netflix's 10K filings reveal a company that not only understands its current Chicken business but foresees how the demands of its customers are likely to change (and what the company must do to retain them). This company gets it.
Accenture's 10Ks filings are particularly interesting as the company has aggressively embarked upon a global sales and marketing program. As you read the filings, ask yourself: "Are they selling their consulting services or are they selling their various Chicken businesses?"
