This is a response to a post on ribbonfarm regarding the difference between business models and business philosophies.

As far as I understand, in that post “business model” is defined within the context of the reigning, dominant, and almost completely pervasive “business philosophy” of using money (third party transaction) as an intermediate for any kind of production and consumption. That is, “I produce some product I’m otherwise not connected to in exchange for money; I then take this money and exchange it for some product that I have had no part in producing; I then proceed to consume that product.” Within this philosophy all actions are measured by a single quantity called money meaning that everything can be reduced to a single variable called “the price”. A business model within this framework will focus exclusively on “how to produce something that can be sold” because it is the only variable that is tracked within the philosophy.

Other philosophies do not necessarily revolve around redefining money. They introduce different variables. The national happiness index (compared to the gross national product) is one such example. For ERE part of the philosophy is the realization that production has inherent value beyond the received salary or product; that the value of production is not strictly measured in the amount of things you can purchase for the money received. We can introduce a separate value called X (you can think of this as a vector); the business model of the ERE would then be to maximize X, make more of X so to speak, rather than redefining money.

ERE does retain a money component because some things in life, like real estate taxes and health insurance, must still be paid for. However, for ERE the money component of X is much smaller than in the consumer philosophy where everything, like entertainment, tire rotation, and plumbing services, must be paid for. Consequently, ERE requires much less money to pull off than a consumer based business models contained within the consumer philosophy.

I thus consider the distinction

  • A business model is about how to make money.
  • A business philosophy is about redefining money.

to be in philosophical (ha!) error.

Here’s my definition

  • A business philosophy is about defining value.
  • A business model is about how to create this value.

This does not require redefining work to only include “work you don’t like” and other marketing flim-flam (as seen on popular lifestyle blogs). There are multiple philosophies but within every philosophy are multiple models. For example, some [simple-minded?] people often presume that my particular model equals my philosophy, that is, my philosophy is to live in an RV, take cold showers, and eat a lot of beans. However, this is just my model. The philosophy extends much wider than that which is why I kept discussions of my personal implementation to a minimum when I laid it out in the book because I know that few people are interested in a direct bit-wise copy of what I do (but if you are, you can buy an RV and totally become my neighbor; I’ll even show you how to cook beans and switch off the hot water heater).

Originally posted 2011-03-02 16:05:23.