Is the “good enough” business model still good enough?

 

[Boris Badanov*]

When I visit Los Angeles, I stay at a motel that has nothing fancy about it. It has a small lobby, lacks a restaurant or bar and “boasts” a view of Ventura Boulevard. On the other hand, the room is large, comes with a comfortable bed and faces the parking lot, i.e., no noise. This motel is also half the price of the hotel chains and is run by a very friendly and helpful couple. In other words, the motel is not great but is a good enough for me.

On a larger scale, one of the classic and most successful business models of 20^th century was mass production “good enough”. Consumers were more than satisfied by a product of medium quality if they received it quickly and at a relatively low price. The best examples are in the fields of cars, food and housing. Of course, specific conditions created the perfect environment for the massive success of simple and inexpensive products. Curiously, the original appliers of this strategy have long dropped it, raising the question whether the approach is valid in this century.

The concept of a producing a standard product inexpensively and quickly was successfully implemented in cars, food and housing, among other fields. The Ford Model T simply dominated the market. Customers could buy better-built cars with more options but chose the pedestrian Ford black Model T because of its price and functionality. Likewise, hamburger restaurants had existed for decades but the original, massively successful McDonald’s concept was to provide a decent, standard hamburger quickly and inexpensively, reducing costs by simplifying the menu to basic items that could be produced in a few minutes without the need to customize each order. The post-World War II building boom opened the door to prefabricated housing using woods, drywall and cement as countries and private companies built millions of units of affordable basic housing for growing and sometimes homeless populations. They were not fancy or even sturdy but were grabbed up as soon as soon they were finished. While none of these products were fancy or even particularly well made, they were undoubtedly huge financial successes in their time.

The reason for this success was a combination of expensive alternatives, growing demand and customer expectation. In 1919, the alternatives to the Model T were unreliable internal combustion cars, expensive electrical vehicles and awkward steam-powered vehicles while the early McDonalds thrived in the face of non-chain, full-service diners with much greater costs. As for housing, traditional urban housing construction used mainly brick, wood or stone, which required more time to build and, thus, was more expensive. Growing demand clearly fed the demand for these markets. Americans fell in love with the automobile and the freedom it created. The post-war economic boom created the discretionary income to allow people with average income to eat at restaurants on a regular basis. Various government subsidies and discounted loan rates allowed young couple to purchase their first flats and houses. As for expectations, the first generation of buyers was thrilled to receive a reasonable product at a reasonable price and could not afford the luxury options. Thus, the “good enough” model thrived in a fertile market.

Most interestingly, most companies that took off using this approach subsidies have evolved in the opposite direction. For examples, even the most functional types of vehicles, vans and pickups, come with numerous options, free or at additional cost. No automobile manufacturer advertises “we have one model: take it or leave it”. Likewise, the fast-food chains, from McDonalds to KFC, boast complicated menus even in their specialty. It is hard to understand and pick which hamburger or chicken option to order due to the incredible range of options. In housing, the term “cookie cutter” today is derogatory and implies that a given house is similar to countless others. Many buyers now seek “character” (which in the UK seems to mean wooden beams in the ceiling). A 2-bedroom bungalow circa the 1950’s is considered undesirable by many. In fact, it is quite difficult to find any company today applying the simplified approach used by leading companies in the 20^th century.

Looking at the conditions that created the success for this pioneering and successful approach, I am convinced that some enterprising small company will use the same technique in the future to create an empire. Clearly, many basic goods are priced very high for low and even average income consumers. At the same time, world population and, even more important, the number of people with disposable income will likely increase. The major issue is how many consumers will be satisfied with a functional project without bells and whistles. It is clear that expectations of aesthetics, performance and status influences buying decisions. Somehow today having the same car, eating the same food and living in the same house layout as all your neighbors are considered undesirable. There may be such a product out there but I was unable to think of any.  It will be interesting to see how this innovating entrepreneur will overcome the current sentiment that good-enough is bad-enough (as Bullwinkle would say).

* Caption pictures to help the blind fully access the Internet.

Picture from the Wikipedia site.