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The Model Isn’t the Economy

March 7, 2018

The map is not the territory. Maps, Models and Filters:

There’s an old admonition that “The map is NOT the territory.” I say (and I’m sure others before me have said), “The economic model is NOT the economy.” We all view the world through our mental filters.

We can certainly get ourselves in trouble if we do too much visualization of the territory based on a map. There are lots of reasons why this is true. The territory can change due to environmental action. The actual terrain can be much more severe than we might visualize from the map. The point is, this saying is a metaphor for the fact that what we believe about the world is not the reality.

Likewise, the economic model we use, the financial reports we read and trend analysis we may perform are NOT the economic reality. Contrary to conventional wisdom, humans are not rational consumers. So how do you propose to predict their actions? And to add insult to injury, technology is totally disrupting markets and models. Nothing is left unchanged.

Lean Startups:

I spend a fair amount of time working with entrepreneurs and startups. Today, most startups and investors spend no time writing in depth, huge business plans. Instead, they use the “Nail It Then Scale It” (NISI) process. How this ties into our discussion is that the NISI process forces the entrepreneur to forget conventional wisdom. They have to forget their “great solution” and actually find out if there is any user friction to alleviate. That is to say, all assumptions and mental models for how the world works are thrown out. Instead, the entrepreneur is required to actually listen to the customer prior to doing anything at all about a Minimal Viable Product (MVP) or prototype.

Comfortable:

Businesses leaders get comfortable. We believe we know our market and our customers. In the past, that assumption could be true for long periods of time. Not so today. The mental models we construct of our customers and our markets do not approximate reality nearly as long as they used to. We are, as they say, living at internet speeds. Consumers are fully informed. They no longer need the vendor, manufacturer, distributor or retailer to educate them about products or services.

Technology to the Rescue?

Can the very technology that so drastically changes our model of the global economy be the solution? I like to think that the answer is yes. There is a caveat, of course. The technology is NOT the solution, but it can help us find solutions. We need to ask lots of questions. Basic assumptions have to be validated or thrown out. Our models must be fluid, adaptable. What if . . .

Bottom Line:

We are not going to stop the advance of technology. Business models and economic models will therefore be continuously disrupted. Running our countries, businesses, organizations and personal lives based on outdated, rigid models will ensure failure.

All businesses and organizations, large and small, public and private, for profit and not-for-profit alike must build the NISI process or concept into their every activity. I see no other way. Do you?

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