Changes in the external environment have made managers in the venture capital industry increasingly value the business models of the companies they invest in.
But the business model is actually a very new concept in management. Even most MBA programs only have financial management courses and no business model design courses. But in fact, for venture capital, finance is a lagging indicator and cannot help us judge the future prospects of a company.
As a result, most corporate managers have not undergone formal training in business model architecture and have not mastered scientific methods for designing and evaluating business models. It’s like driving a speedboat without a rudder in the ocean. This leads to a very high failure rate for venture capital investments.
In fact, the business model is a composite concept that connects external markets with internal resources. At the same time, at different stages of the enterprise, the business model is also constantly changing dynamically. To some extent, the architecture of the business model is the top ability of the entire enterprise management pyramid and is therefore often the responsibility of C-level executives.
There are many factors for business success. The barrel theory sees a company as a barrel. As long as there are short boards on the barrel or holes on the barrel boards, this barrel cannot hold much water. That is to say, this company’s development will be limited. For venture capital, it is not easy for a company to succeed by equipping all its boards and tightening its barrels. Therefore, venture capital is inherently risky.
For most startups, funding and talent are common shortfalls. Helping companies solve these two shortfalls is where venture capital adds value. But there is an even more common shortfall: the business model. But this shortfall relies on companies themselves to find solutions and is often not something that venture capital can solve.
But business models are not metaphysical. They are scientific. That is to say, if a company violates the rules of business models, it will definitely fail. Therefore, for managers of venture capital funds, mastering the rules of business models can avoid investing in many projects that are doomed to fail.