Business models based on greed and exploitation

I talk a lot about Business Models in my training workshops.  I reject the Business Plan fetishism indulged so myopically by the likes of Business Link.  Business Plans have their place in some trades – but usually way down the list of ingredients for success.   Getting your Business Model right, however, is near the top.

Business Modeling is something you do in your imagination, and using few words.  A Business Model is a working mental model of the key relationships you have inside and outside the business.  It's the fundamental story you tell yourself about what you do – and tell others if you only have a few sentences.

Slide Rule

I usually illustrate this with the story of the British slide-rule manufacturer who thought they were in the business of making slide rules.  They weren't – and when the electronic pocket calculator came along it wiped out the slide-rule business almost overnight (because, people below a certain age need to know, a slide-rule is, in fact, a pocket calculator).   At about the same time an unremarkable American manufacturer of office calculating machines and typewriters lit on the understanding that they were actually in the business of processing information.   That company was IBM, and they went on to become the biggest computer company in the world.

These stories relate to the impact of changing technology, and the importance of seeing what you do from a customer's point of view, but at their heart is the basic Business Model question: what is it, exactly, that we do?

I've been doing a lot of training workshops with people engaged in social care recently, and I've started kicking them off with a little word association game.  I say things like 'Winterbourne View', 'Blackstone' 'Castlebeck' and 'Southern Cross' – and of course the participants respond with words like 'disgraceful', 'cruel', 'inhuman'.  But there is a Business Model issue at the heart of this too.   Blackstone owned both the Southern Cross operating company and NHP, now Southern Cross' biggest landlord.   Blackstone's Business Model mainly involved selling Southern Cross care homes to NHP and leasing them back on exploitative terms, and indeed tampering with existing leases so that Southern Cross became committed to 2.5 per cent rent rises every year for 35 years.  Having 'created' all that future 'value' in NHP, Blackstone promptly sold it for more than twice what they paid less than 3 years earlier.  And they sold Southern Cross for more too.  Needless to say, it was the public sector care purchasers that were primarily supposed to pick up the escalating rents that made the whole deal work.  So more tax for us – or less care for our elderly and disabled people.

Now I hear Blackstone is in the running to buy a portfolio of debt that includes £60m used to finance the purchase of care homes by London & Regional.  Which care homes? - why the Southern Cross care homes they purchased from Blackstone in the first place!

Blackstone attempted a spirited defence of their involvement – which I was astonished to discover parts of the UK press reprinted word for word - though others are busy unraveling it – including the claim that their business model was not based on legal/financial manoeuvrings but on building an excellent care provider.   Sure.   In a couple of years.  While selling the family silver.

The murky details of the Winterbourne View / Castlebeck situation are if anything more appalling, partly because they involve filmed personal ill treatment as well as financial exploitation.  Perhaps for this reason, much of the press coverage of these cases has focused on the failure of regulation – did I mention that amongst all the legal//financial shenanigans Southern Cross were also making a mess of providing care? - but for me this does not go to the heart of the problem.   Indeed, some aspects of regulation – around procurement, for example, which tends to favour large remote ownership structures - actually help create the problem in the first place.

For me, it is the Business Model issue that is the key.  One local authority care worker said in one of my sessions the other day: “It's wrong to make money out of vulnerable people”.  She didn't mean it's wrong to make a living, of course - she meant it's wrong to base your Business Model on greed and exploitation.

What we know in social enterprise – what we all prove every day - is that it is perfectly possible to base your Business Model on doing good and making money.   For years Cafédirect built an exemplary fair-trade model while consistently taking market share away from much larger and greedier multinational companies.  Social enterprise is perfectly capable of doing good work and doing good business.

You won't get as rich as Blackstone, for sure, but you can make a decent living, and help make a more decent world.