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The Collapse of Complex Business Models

August 7th, 2010 · No Comments · Ideas


Big ideas:

  • It is much easier to add complexity than to simplify.

  • Overly complex societies or systems eventually collapse.

Clay Shirky has another brilliant post with two amazing insights. The first which I will cover in this post is about the collapse of complex business models. Shirky’s entire post is a must read buy I will try to condense his ideas with these quotes.

In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness…

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites….

Dr. Amy Smith is a professor in the Department of Mechanical Engineering at MIT, where she runs the Development Lab, or D-Lab, a lab organized around simple and cheap engineering solutions for the developing world.

Among the rules of thumb she offers for building in that environment is this: “If you want something to be 10 times cheaper, take out 90% of the materials.” Making media is like that now except, for “materials”, substitute “labor.”

37Signals has been one of the best and most successful advocates for simplicity in business. Their focus on rapid development of limited feature web services have made them Web2.0 role models. Feature creep can delay product launches and make products and services prohibitively expensive to create and use. Intuitively, simplicity makes sense but it is often much easier said than done.

The success of Apple computers can be largely attributed to design and simplicity. Design is obvious; beautiful laptops carved out of a single piece of aluminum are art worth paying a premium for. As consumers, we still don’t value simplicity in the same way as physical attributes, features or price.

Apple computers are easier to buy with much better service. Try choosing a PC among dozens of vendors and dozens more configurations. By the time you make your final decision it is quite likely new technologies and configurations will be on the market.

There is huge value in purchasing simplicity. It is easy to buy a Mac. With Apple your computer decision is based on four criterion: portability, monitor size, cost and speed. Do you need a power house with a huge monitor or do you want a tiny computer that you can take to a cafe? There are compromises in between but anyone can make the decision quickly and easily.

Simplification is all but impossible for larger bureaucratic organizations. Complexity requires people and time. That means more jobs.  Workers at all levels of organizations instinctively resist simplification because it puts their own job and control at risk. In traditionally structured organizations pay and span of control depend on more procedures, systems, features and rules. In the ideal, simple organization employees would not be needed. That is a hard sell for people struggling to hold on to their jobs.

Action Items

Can you simplify your business or idea to a single concept? Simplicity reduces costs and therefore prices for consumers. The greatest benefit of simplification efforts is that your target market will better understand your offering and will more easily communicate this value to others. How many websites have you visited where you have no idea what they sell?

Simple is cheaper, faster and offers a clearer message that can spread.

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