Star’s original contribution to the field of strategic management comes from his theory of business model and the strategies proposed to maximize each of the models he proposes.
Star distinguishes four business models arranged in a framework with two axes: (1) transaction frequency—one-shot and recurring; (2) Revenue Contribution –small and large, resulting in "locust business” for the combination "one-shot” and "small”; "pig business” for the combination "one-shot” and "large”; "chicken business” with the combination "recurring” and "small”; and "Black Widow Business” with the combination "recurring” and "large”:
The analogies are straightforward: chickens continuously lay eggs and thus represent regular and predictable revenue streams. The Chicken business model involves "recurring, predictable revenues (akin to eggs) from a number of clients that each make small contributions to total annual revenues” (p. 18). Businesses based on subscriptions to services are typical chicken businesses. Chicken businesses command the highest gross and net margins.
Locusts come in big numbers and are short-lived. The Locust business model thus reflects a model that requires many customers for a business to be profitable. This model also reflects the owner’s intensive work on customer care and attention.
The locust business model involves "transient and anonymous” customers, too many to keep tab on. Some of them may return while others may not return at all. This reality makes customized solutions to customer acquisition and retention difficult. Retail businesses are typical locust businesses. Bars, restaurants, and many stores are locust businesses.
When the Pig is available, it offers plenty on which everybody can feast, but the occurrence of this is unpredictable. The Pig business model involves "large-one-time revenue streams.” For example, a business that responds to disasters or accidents such as one that responds to major forest fires.
When there is such a fire, the business brings in big money, but once the fire is extinguished, that’s all. It will have to wait for another such incident. The business person has to put a lot of effort into winning the Pig business.
The Black Widow analogy refers to the fact that black widows mate with and then kill off their victims. A Black Widow business model refers to a business that wins big with a customer or a few. It is at risk of being abandoned after being provided with sizable cash flows.
The Black Widow business model involves a small pool of customers commonly "one or two key customers and a small number of minor customers” (p. 31). In this case, the customer is so important to the business that it is difficult to say no.
The customer can impose on the business. For example, if a company contracts with a big manufacturing factory to make a part, it is in this Black Widow situation. Black Widow businesses tend to have low gross margins because the customer tends to set the price.
There is a behavioral dimension to these business models. These represent different revenue stream types. Locust and Pig businesses have no ongoing relationships with the same customers while Chicken and Black Widow Business do. In fact, these last two types of models very much depend on these recurring relationships.
With these two models, the business knows the customers and can devise ways of keeping them satisfied and retaining them. The revenue stream is predictable with the Chicken and Black Widow businesses so much so that they can be leveraged as collateral.
With the Chicken and Black Widow models, the businesses depend on the customers and should do everything possible to keep them. It is critical for these businesses to retain current customers, win new ones, and strive to reacquire lost ones.
Major, significant customers in a Black Widow business, however, limit the organization’s strategy management: the customer imposes conditions (including capabilities), sets the price, and can sever the relationship any time.
In the chapter titled "Strategic DNA,” Star rejects the now popular view that "core competencies’ should be the basis of a business model. Instead he proposes a strategic DNA that starts with "identifying the customer” (p. 29) and putting him or her at the top of a triangle whose other angles are value proposition to the right and resources and capabilities (core competencies) to the left.
Customers pay directly to the business when they receive services. They are not to be confused with end users. If you run a restaurant, your patrons are both customers and end users.
If you are a beer factory, your customers are the distributors of your products, not the people who will end up drinking the beers (end users). If you are a toy factory, your customers are the retail stores that sell your products, not the parents who will buy the toys for their children. In this case the end users are the customers of the retail stores.
To be continued….
The writer is a Professor at the State University of New York College at Buffalo
The views expressed in this article are of the author.