Why Complexity Matters in Business Models

During the session “key technology frontiers” in EBN in Brussels last week where I had a presentation, it was mentioned that “3D printing makes complexity no matter“, meaning that 3D printing makes complexity not important on construction phase, only on the design phase (a relative nice article in TechCrunch).

This phrase made me think about complexity in general, and how people are used to hate complexity. Tag lines like “think simple“, “make it simple” or “simplicity matters” has made us think of products and services in a matter of users, where we need a simple UI to achieve our goals (i.e. for a good reason when you design an interface). This simplicity has been present in marketing also for years. When we have to convey a message or some information, we need to be clear and simple, and then allow the recipient to ask for clarification if needed (read this if you want to see the power of a simple message). In this post I will describe why and when complexity matters in business.

When complexity matters

Technically speaking, a solution in many cases needs a complex structure abstracted through simplified interfaces to the users. In hardware:

  • First Mac computers by Apple put great challenges on engineers to fit a architecture into a small box. And they still do trying to become smaller and decrease need in user input.
  • iPod made it simple to carry on your digital music, but think how difficult it was for a device to run for hours without two AA batteries… Sync with your media player and have only 2 major buttons (instead of play, stop, forward, backward, power, radio/tape).
  • Your MacBook has prolonged battery life, but it needed a complex architecture to achieve this.

This simplicity is also important in software, where UX and UI books and courses try to make it a science to build simple interfaces:

  • The first Google search algorithm took into account connections with referring nodes, thus it used networking properties to improve indexing in search results. Initially such an approach looked impossible to respond in time.
  • All the image and video analysis systems are based on complex neural networks that have been developed for years.

Even in business, we are accustomed to say that every successful company makes revenues from one offering (i.e. the Pareto principle), but we forget how complex enterprises choose to be in many cases:

  • Microsoft had both Windows and Office as offerings, and Office helped them penetrate a market where IBM was a leading hardware player. Lately it makes profit mainly from business solutions.
  • Apple boosted its revenues and rebooted with Steve Jobs when iPod was combined with iTunes and Mac computers.
  • Google is well-known for its multisegment business model, but it has formed a complex ecosystem of services that drive search to their main search engine, and constantly improve results. And initially it succeeded because it could sell ads effectively.
  • Multisegment and Freemium business models are complex business models and have screwed up many entrepreneurs. Many books, including Business Model Generation, state Google and Skype were such great success because of their business models. But few are able to replicate such business models as effectively as they did.

When simplicity matters

Of course, there are cases that a business or people must think simple and act properly:

  • Personal communication: Everyone hates to find out or think that you may hide something in your collaboration. Colleagues, managers, board of directors etc. The message must be clear and straightforward.
  • Presentations: I will not write much on this, just read Presentation Zen.
  • Execution: It is a matter of the product/project manager to make it clear to her team members how they must execute each task, in order to accomplish the team goals. It is a matter of each team member to perform as well as possible, to produce unique, complex, modular components that have simple interfaces with other components and can be easily integrated and reused.
  • Marketing: The brand, the product, the ad, must be clear what value it adds to the customer. This simplicity allows customers to match needs with solutions and become more loyal to brands.

When simplicity took over everything

Lately unfortunately I see this trend appearing  in startups; there are many people that do believe and reproduce the motto “keep it simple”. I have heard pitches like “our idea is simple“, or “choose a problem and bring an MVP fast, you don’t have to build something complex“.

In some cases such statements  may be useful and accurate, but in my view they destroy some other very important factors of creativity and success: uniqueness, imagination and vision to make great impact. As you can read in Zero to One, in some cases you should dream big to build a “monopoly” based on some “magical” technology. Unfortunately I miss this magic in many startups I follow lately. Of course you may have to deliver simple tasks up front to test your idea, where human tasks hide AI or technical complexity because humans are still better in some tasks, but at the end think of what you want to deliver should include a level of complexity, otherwise everyone will copy you and you will move into a state of full competition, where you try to define what you “make different” than others.

Why I believe this trend of oversimplifying has taken up so much popularity? I would say because of two main reasons:

  • The Lean Startup (interpretation): When you are an engineer and you want to predict and control how things work, sometimes if you cannot understand how the business world works, you choose to go simpler in a business level. And modern startups are technically driven mostly, so their business model or structure is quite simplified. Lean talks about testing every hypothesis on the market and the product; it does not refer to oversimplified business models, but it talks about tested and validated business models. MVP is not about a prototype, and it includes price, promotion and channels testing in many cases.
  • Business Schools: Over-simplification brings up the “one golden rule” that MBA and business students “must” remember to succeed in their life. When a manager does not know the complexity of her business she works in, she cannot handle this complexity. So, business schools prefer to say their graduates to make their business focus on one thing, and they will succeed. No no no. Managers should know how to handle complexity and make everything look like being simple. Just think how many people love to hate Steve Jobs for doing nothing in his life, while they forget how challenging it was for him to change the tech landscape… and he needed to fail miserably once to achieve it.

In brief, when an entrepreneur lacks some capacity, she should choose the right moment to hire someone with this capacity, to make complex things look simple. Neglecting to build the whole business in a proper way upfront, even if this structure is going to change sooner or later, creates an unbalanced venture and thus it is more risky  to collapse.

To sum up

In the initial steps of a company, of course, it makes it easier for everyone to focus on a unique offering, narrow down in one problem, and execute. If this is not the perfectly timed idea that meets a need, and builds a community and a customer-base fast, if it is not located in a trend that is not a hype yet and will be soon mature enough to become mainstream, this simplicity in business will not drive a startup for long; Soon, a meaningful business model will be needed to make the business distinct and self-sustainable. And someone that copies the idea but can create the proper business model will have more chances to succeed.

Someone may reply that making something complex increases the risk of failure. Or she may talk about the lifecycle of a business, where complexity comes later in the life of the venture. The answer is “yes, if you don’t know yet how your business works, you go with a simple business model and you test everything“. But lately, cloud computing makes the cost of production much less costly, lean management allows teams to run tests faster and all these references (blogs, books etc.) give a prior knowledge to anyone that starts up; so starting a digital business is more easy than ever before. So, most of us can do simple things easily nowadays, but the ones that can handle complexity (or get lucky) faster will succeed.

Overall, simplicity should hide complexity and make something look magical. My position is this:

If you cannot raise money fast and launch a business based on a simple idea even faster, invest some serious time and start reading books that will allow you to build the proper business complexity that will give you a strategic advantage.

Do you want to start building an interesting, innovative business model? Read the “Ten types of innovation“.

Do you want to handle complexity in business? Read the “Design thinking for strategic innovation“.

Photos by: Unsplash


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