Creating Great Business Models

Creating great business models like BharatPe seem easy but it takes work. BharatPe’s business model is a stroke of genius and BharatPe is an amazing business. Whoever came up with the model deserves a huge pat on the back for a variety of reasons.

In this blog series, I introduce to you a model called The Golden Triangle. Every week, I will bring to you a business model which will either come close to The Golden Triangle model or satisfy some of its qualities. When you encounter a Golden Triangle Business, you can be sure you have encountered a superior business model. Somebody went to great lengths to understand the various problems, friction points, and nuances. They came up with the model after understanding those nuances.

What is The Golden Triangle?

Like the infamous 2×2 BCG matrix, The Golden Triangle is a super simple model for us to analyze whether all the 3 stakeholders of a business model win or only one of them win. In a Golden Triangle Business Model, the customer or user, the supplier or vendor, and the platform or firm or company are all winning.

When all the 3 stakeholders win, it becomes a superior platform and wins in the market while others are scratching their heads on what is going on. The Golden Triangle is a good model to understand how to design a model that looks paradoxical. Paradoxical because it looks like a problem that cannot be solved but in reality, it has been solved. When solved, creating great business models feels like kids’ work

Creating great business models – iTunes

While lots of great business models and golden triangle business models exist, an easy one to understand is iTunes. Beginning with iTunes gives us a simple product to work with – music. Not only is it popular, but it is also an easy one to understand.

State of Music Industry

While a lot has been discussed about this model, we will focus ourselves only on how it fits The Golden Triangle, and why it is such an excellent model. When iTunes launched with the infamous iPod, the music studios were reeling from the near-death blows of file-sharing tools such as Napster. One can argue that the music studios were so beaten down that they were willing to take any deal given to them that brought revenue. Even if that was the case, it would have been short-lived.

Let’s understand a few problems of each of the stakeholders:

Consumers

1. Tasted file sharing sites but lots of negativity.
2. Forced to buy entire albums for a hit single
3. Electronic versions made it easy to share but it was illegal
4. Virus, uploading, maintaining library a pain

Studios

1. High Artiste Fees
2. Cost of production, distribution and promotion high
3. Piracy eating into revenue streams threatening business

Apple

1. Cannot pay huge sums to studios to fight piracy
2. Cannot reduce piracy if availability and ease of use is bad
3. Model should justify costs of user acquisition

When seen in the above context, the genius of the iTunes+ iPod business model becomes evident. Of course, just because there are problems doesn’t mean it’s easy to convince all the stakeholders. This is why it took a giant like Apple to do it.

The Golden Triangle of BharatPe

India’s banking and business ecosystem are notorious for a variety of things. One of them is the slow nature of the banking system complimented by a society driven by cash. This means businesses never had much credit history or turnover to show. This meant that deals had to be made with bank managers to give businesses access to loans when data on paper had nothing to show.

All of this began to change once the digital money revolution took off. The introduction of GST and UPI meant that everyone from large businesses to the street vendor paid and received money using UPI. This created conditions perfect for a business model like BharatPe to emerge.

Before BharatPe, GST and UPI, here is what the problems of the 3 stakeholders looked like:

Merchants

1. Cash heavy business with little to show on the books
2. Access to institutional capital is next to none
3. Forced to borrow capital from informal lenders with high cost of capital

Institutions

1. No access to credible revenue data
2. No dymanic access to credible revenue data
3. Loan book dominated by old world borrowers – auto, mortgage

The BharatPe Hack

The BharatPe Hack is a hack hiding in plain sight. It has several levels of innovations at its heart which is why it meets The Golden Triangle Model

Here are the hacks that BharatPe did and thus ended up creating this amazing model:

1. New UPI ids for merchants aligned with BharatPe – BharatPe made signing up for a UPI id super simple. While the likes of PhonePe had already done this, BharatPe did it for an entirely different purpose – to get access to the payments received by the merchants. It also aligned the hack with a high frequency behaviour – scanning QR codes which was already widely prevalent
2. One QR – Again, while this was not new, BharatPe made it simple for people to pay to BharatPe UPI ids for the merchant. This meant that consumers were not forced to use or download a new app to make the payment to the merchants. This removed or eliminated any potential merchant resistance. This also meant that the age old process of going to a bank and starting a lending application and waiting for months became almost instantaneous.
3. Merchants did not have to go thru a gruelling lending process thanks to the dynamic payments and payment data that they were providing BharatPe
4. Institutions received access to a new base of borrowers and thanks to the BharatPe UPI system, did not have to worry intensely about underwriting

Win-Win-Win for all

This Golden Triangle Business Model as we can see has created an amazing flywheel that continues to create immense value for all the stakeholders. No wonder the company is growing at a breakneck pace. According to Shasvat Nakrani, the company is expected to register 4X jump in revenue this year.

The valuations are perhaps justified as the cost of acquiring millions of merchants was done at a furious pace. Not only would that have taken a lot of time, but would also have perhaps cost a lot more money before turning a dime in profit. The model has turned all of that on its head.

This is not to say that this was easy. A lot behind the scenes has to happen for a model like this to come to life. These challenges include partnerships with banks that are notorious and loath to embrace new models, capital to grow the initial merchant base, capital to have an operations crew to sign up millions of merchants, and other usual challenges that plague the execution of a venture. While the company goes thru this phase of turbulence, if the model stays true to its foundations and keeps executing flawlessly, it can continue to win. See you in the next post with another Golden Triangle Business Model.