Consider how hard or easy it is for your business to grow.
One of my favorite topics to write about and discuss with CEOs is the qualities of a great business model and why it’s essential to have one within your business. A great business model excels in four key areas: a high degree of recurring revenue, healthy margins, low capital intensity, and a sizable market that enables the business to scale.
But I recently came up with another, more visceral way to think about a business model‘s power: What is its gravity? More specifically, is your business model high-gravity or low-gravity?
Let me explain what I mean.
Lifting Off
While it’s easy to take gravity for granted when it keeps you planted in your seat here on Earth, think about what it would be like to visit another planet. There are some planets whose gravity exceeds that of our planet, which would mean every move you’d make would be agonizingly slow. You can’t go anywhere fast.
On the flip side, think about our moon. We’ve all seen photos of the astronauts jumping dozens of feet off the surface, even with their heavy space suits on. That’s because the moon has just a fraction of the gravity we’re used to. You can go a long way with just a little burst of energy.
The same is true in business. If you continue to invest more work, energy, and capital to generate every dollar of revenue, you likely have a high-gravity business model. Everything you do meets with resistance or pushes you backward, which can be frustrating and demoralizing.
Compare that to a business built on a low-cost business model that generates high recurring and profitable revenue with minimal assets to invest in. With this kind of business model, it feels like everything you do propels the business forward with little resistance.
In one business, for every 100 units of energy you invest, you get $10 of revenue in return. On the other hand, that same 100-unit investment returns $90 or more.
Which business would you rather be running?
Gravity at Work
Let me give you some examples of high-gravity and low-gravity business models in action.
A classic high-gravity business model would be a coal mine. There needs to be more recurring revenue, and the price you can sell your product fluctuates with the market, driving down your margins. The capital intensity of this business model is enormous, given all the investments you must make in terms of the land and equipment needed to harvest the coal. There is also a significant risk involved in a business model like this, both from a regulatory perspective and in terms of worker safety. One error could sink the entire operation.
Add all that up, and you can see why the gravity is so heavy when it comes to moving a business model like this forward.
Now contrast that with a very different kind of business: a dating app. Building apps no longer requires a significant investment, and while winning new customers can be challenging, many remain users for a long time. The margins in this business model are also exceptionally high, and the risks associated with errors are relatively low. With this type of business model, every investment you make accelerates its growth even faster.
That’s the beauty of a low-gravity business model in action.
Rethinking Your Business Model
Suppose you’re struggling to move faster in your business. In that case, it may be time to reassess your business model and explore ways to mitigate its impact by identifying sources of recurring revenue, increasing margins, reducing capital intensity, or considering expansion into new markets.
Your goal should be to identify ways to eliminate the sources of gravity holding you back and enabling your business model to take off.
