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
If we break down business strategy in three core parts:
- Market entry (or go-to-market) requiring initial traction (also in a niche market).
- Growth and market share acquisition, requiring expansion (from niche to broader).
- And business model renewal, requiring integration, consolidation, or innovation (you either acquire, merge, or place bets).
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.
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.
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.
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