Business failure is always a real possibility, even for companies that have been successful in the past. It is important to learn from mistakes and use that experience to avoid making them in the future. What can be learned from the case of Silicon Valley Bank (SVB)?
For banker and president of Miami CEO Advisors Robert J. Argüell, SVB had a bad business model that sooner or later would lead to bankruptcy. All of his clients were start-ups that raised capital on the capital markets, which they deposited entirely in the bank. They invested them in long-term bonds – more than 10 years – at very low interest rates. When interest rates rose from 2% to 6%, the principal of the bonds fell, predictably, causing losses equal to the bank’s capital. When the buyers realized this, they went to collect their deposits. In one day, the bank lost 40 billion of its 170 billion deposits.
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These facts lead us to think that companies should deeply analyze the sustainability of their business models, short-term and long-term risks, market forces and others that could affect it, and make decisions based on this. A business model is nothing but a way to create, deliver and capture value for the client, generating revenue. Or, more practically, the system of elements and stages that make it up and which are the basis for creating wealth today and in the future.
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These facts lead us to think that companies should analyze (…) the sustainability of their business models…
Alex Osterwalder and Yves Pigneur have revolutionized the way companies around the world understand their business models. They suggested that each business model should answer 10 interrelated questions: Who are the customers and end users? What problems does the company solve? What products or services does it provide to its customers and end users? Do customers and end users know and receive products and services? What is the relationship with customers and end users to retain and encourage them to grow? How to monetize products or services? What actions does the company take to create value?, what are the necessary resources?, what are the main allies and complements for the business to be sustainable?, what are the necessary costs for the business to operate and be sustainable?
A business model conceived in this way is the soul of every company, whatever it is, regardless of the sector in which it operates. Without a profitable and competitive model, a company is doomed, no matter how brilliant or innovative its products and services are.
The SVB case serves as a clear warning to all companies about the importance of maintaining stable funding sources, looking ahead to changes in the context and focusing their decisions on sustainable growth. The crisis could have been avoided if the executives had designed their strategies based on an understanding of the business model in which the raw material is money, and the key factor in creating value is its availability. (OR)
Mario Twitchell is an accomplished author and journalist, known for his insightful and thought-provoking writing on a wide range of topics including general and opinion. He currently works as a writer at 247 news agency, where he has established himself as a respected voice in the industry.