Transitional Business Models In A Nutshell

A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.

Tesla: from electric sport’s car to everyone’s electric car

It was 2006, when Tesla, with his co-founder Martin Eberhard, launched a sport’s car which broke down the trade-off between high performance and fuel efficiency.

Tesla, which for a few years had been building up an electric sport’s car ready to be marketed, finally pulled it off.

As Elon Musk would explain Back in 2012: “In 2006 our plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model S is a key part of that plan and represents Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.”


Tesla had to find an effective market entry strategy that would enable it to validate the market.

The transitional business model in a nutshell

When companies like Tesla start to roll out their business models, they go through a phase of what I like to call the “transitional business model.”

A transitional business model is a model used for traction, in a market that doesn’t have to be big, or initially scalable.

If we break down business strategy in three core parts:

A transitional business model is a model that will serve the purpose of gaining initial traction and market validation.

Therefore, it will help for the sake of the market entry and it will help also shape the long-term vision as it gets rolled out. 

A transitional business model might seem obsolete in hindsight, yet that is the same model, which proves the viability of the idea while keeping it alive.

A transitional business model might not be scalable. Yet, that is the model that will help create an initial positioning, and get the funding (revenues, or capital) needed to roll out the scalable business model.

A transitional business model might not have a long-term vision, and yet it will help shape it.

Thus, a transitional business model works in the short-term to validate the market, to enable the technology and its ecosystem to mature while still having a reality check. 

This is the core premise of a renewed business playbook, that doesn’t just rely on growth capital. It moves by (also) securing growth capital, but then it validates the market, step by step. 

There are plenty of examples of transitional business models: 

  • Facebook, a former college social network would open up to anyone just later on, as it gained substantial traction. 
  • Netflix, moved from DVD rental company to streaming platform, only much later. 
  • Google, before building the most powerful advertising machine ever built, it sold advertising through its salespeople. 

Case Studies

  • Facebook:
    • Transitional Model: Initially, Facebook was exclusively for college students, limiting its user base.
    • Purpose: Facebook aimed to validate its concept and gain initial traction within the college market.
    • Evolution: It later expanded its user base to include everyone, becoming the social media giant we know today.
  • Netflix:
    • Transitional Model: Netflix began as a DVD rental service by mail, a model that wasn’t initially scalable.
    • Purpose: Netflix used this model to validate its rental concept and build a customer base.
    • Evolution: It later transitioned to a streaming platform, revolutionizing the way people consume content.
  • Google:
    • Transitional Model: Before becoming an advertising powerhouse, Google sold advertising through its salespeople.
    • Purpose: Google used this model to validate its advertising approach and generate revenue.
    • Evolution: It evolved into the dominant online advertising platform, fueling its growth.
  • Amazon:
    • Transitional Model: Amazon initially started as an online bookstore.
    • Purpose: Amazon began with books to validate the concept of online retail.
    • Evolution: It expanded into a vast online marketplace offering various products and services.
  • Airbnb:
    • Transitional Model: Airbnb started by renting out air mattresses in a small apartment.
    • Purpose: Airbnb used this model to validate the idea of short-term rentals in a sharing economy.
    • Evolution: It evolved into a global platform for booking accommodations of all types.
  • Twitter:
    • Transitional Model: Twitter was initially an SMS-based service with a 140-character limit.
    • Purpose: Twitter used this model to validate the concept of microblogging and real-time updates.
    • Evolution: It expanded into a social media platform with millions of users worldwide.
  • Uber:
    • Transitional Model: Uber began as a black car service for luxury transportation.
    • Purpose: Uber used this model to validate the idea of on-demand ride-sharing.
    • Evolution: It expanded to include various ride options and delivery services.
  • Apple:
    • Transitional Model: Apple initially focused on personal computers, such as the Apple I and II.
    • Purpose: Apple used this model to validate its innovative approach to computing.
    • Evolution: It expanded into a wide range of consumer electronics and services.
  • Microsoft:
    • Transitional Model: Microsoft initially developed and sold programming languages.
    • Purpose: Microsoft used this model to validate its software development capabilities.
    • Evolution: It evolved into a dominant software company, with products like Windows and Office.
  • SpaceX:
    • Transitional Model: SpaceX started with the Falcon 1, a small rocket.
    • Purpose: SpaceX used this model to validate its rocket technology and approach to space exploration.
    • Evolution: It expanded its capabilities and became a leading player in the space industry.

Key takeaway

Strategies take years to roll out entirely, and they might seem trivial only in hindsight. A transitional business model helps validating a strategy, before it starts to get rolled out.

As strategies take years to fully release their potential. Before committing a whole business to the desired path, a transitional business model helps to understand whether that is the right direction.

Key Highlights

  • Transitional Business Model: When launching a new business or product, companies often go through a phase known as the “transitional business model.” This model is used to gain initial traction and market validation in a niche market, even if it is not initially scalable.
  • Purpose: The transitional business model serves the purpose of validating the market entry and idea while shaping the long-term vision for the business.
  • Not Always Scalable: A transitional business model might not be scalable itself, but it helps create initial positioning and secure the funding needed to eventually roll out a scalable business model.
  • Market Validation: The transitional model helps validate the market, enabling the technology and ecosystem to mature while also providing a reality check for the business.
  • Examples: Several successful companies, such as Facebook, Netflix, and Google, started with transitional business models before evolving into their current forms.
  • Strategy Validation: A transitional business model allows businesses to validate their strategies before committing fully to a specific direction.

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Connected Strategy Frameworks


The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.

Ansoff Matrix

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and whether the product is new or existing.

Business Model Canvas

The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Blitzscaling Canvas

The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Blue Ocean Strategy

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Business Analysis Framework

Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

BCG Matrix

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

GE McKinsey Model

The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.

McKinsey 7-S Model

The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.

McKinsey’s Seven Degrees

McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.

McKinsey Horizon Model

The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.

Porter’s Five Forces

Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

Porter’s Generic Strategies

According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.

Porter’s Value Chain Model

In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.

Porter’s Diamond Model

Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.

SWOT Analysis

A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

PESTEL Analysis


Scenario Planning

Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

STEEPLE Analysis

The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.

SWOT Analysis

A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

Read Next: SWOT AnalysisPersonal SWOT AnalysisTOWS MatrixPESTEL AnalysisPorter’s Five ForcesTOWS MatrixSOAR Analysis.

Other strategy frameworks

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