Sometimes a great business model hits a snag. These pitfalls can damage or even destroy a once good business model. In this article, I will discuss three business models with significant potential pitfalls.
Energy drink business model
As more and more incidents of overdosing on energy drinks surface, the push for government regulation intensifies. Energy drinks like Rock Star, Monster Energy, and Red Bull currently enjoy outstanding sales and profitability. Any type of government involvement significantly detracts from the business model. This government regulation could come in the form of regulating the drinks like a drug, prohibiting consumption of the drink based upon age like alcohol, limiting consumption to one per day, adding a tax, or simply banning them. Any of these would be disastrous to the industry.
Energy shot business model
Viewed as a healthy alternative to caffeine, energy shots such as Five Hour Energy have skyrocketed in popularity. However, reports are now appearing which state excessive use of these energy shots may be unhealthy. Just like energy drinks, the threat for energy shots is government intervention. It doesn’t appear likely energy shots would be regulated similarly to alcohol or taxed. The most likely detriment to the business model would be treatment as a drug. Imagine the added cost of FDA approval for these items or the diminished sales if they were removed from the impulse buy section.
Penny auction site business model
Personally, I can’t believe the feds haven’t stepped in on these. Congress seems to have all the time in the world to worry whether baseball players take steroids. However, Congress doesn’t seem to care that these sites are at best an illegal lottery and at worst downright deceptive. Here’s how these sites are deceptive; they delude people into thinking they have purchased an iPad for $10. They even advertise on television that you can buy an iPad for $10.
Most of these sites sell bid increments for around fifty cents. Conveniently, these bid increments are called pennies and are denoted just like money ($.01). So when you bid on an iPad, you raise the selling price one penny just like a bid on eBay raises the price. The difference between eBay and these sites is that a penny bid on eBay cost me a penny and not fifty cents. Making people by pennies for $.50 then convincing them that they bought an iPad in increments of pennies is intentionally deceptive.
Eventually, the government will get around to fixing this issue. The solution is quite simple; make the penny auction sites remove the dollar sign. If the $ is removed, these sites are no longer deceptive. Of course the bigger problem is that their business model probably disintegrates as people realize they’re not really buying an iPad for $10 they are buying it for 1000 bids. It’s just not quite as fun to buy an iPad for 1000 bids as it is for $10.
If these sites are forced to remove the dollar sign, it’s likely they won’t be able to net $17,739 for an iPad anymore and their business model will be damaged beyond repair.
The lesson for the rest of us is to keep an eye on the sustainability of our business model. Unfortunately, business models don’t last forever. Just like these companies, we need to consistently innovate our business model to keep it viable.