Business Models for a Local Economy

Whether you want to go into business within the global economy to satisfy customer wants in markets around the world or a local economy to meet the needs of community members close to home, an effective business model is essential. However, a business model that applies in the global economy is different than one in a local economy. Why?

Two Economies:

The global economy is driven by people’s insatiable desire to have more than what is required to sustain their lives. In contrast, a local economy is focused on meeting the basic physiological (food, water, energy, housing, and clothing) and safety (security, education, and health) needs of its immediate members. In the former, I can live without it, whereas in the latter, I can’t.

In a global economy, customers have two choices: first, do they want something, in general—a car, for instance; and second, do they want a particular item within that general category—a specific car by make, model, year, and other specifications. Any number of factors influence customers in their decisions to buy at all and, if so, which ones. As a result, in the global economy, customers rule.

In a local economy, the market is automatically defined as all who live in the immediate area. The common factor is that everyone must have food to eat, water to drink, air to breathe, shelter as protection from the elements, energy to heat and cool the home, and clothing to wear outside. In addition, everyone must have a reasonable measure of security, means to manage their health, and access to education opportunities so they can better care for themselves and contribute to the sustainability of their local community. The capacity of a local economy to sustain community members predicts how well and for how long those members can participate in the global economy. As a result, in a local economy, the community rules.

Two Business Models:

Given the emphasis on customer choice, a successful business model in the global economy is one that:

• Anticipates customer readiness for proposed products and services
• Strengthens company readiness to deliver to customers
• Adapts quickly to customer reaction and responses to what’s delivered
  

The net result is to establish and maintain a competitive edge among countless others who want the same outcome for their companies.

For further insights on the development and use of adaptive business models in the global economy, consider Steve Blank (@sgblank) an excellent resource. Steve brings his extensive firsthand experience in building early stage businesses to bear through informative posts about entrepreneurship, start-ups, and applied business principles on his website. Business models is one topic he treats particularly well. In his posting, “What’s a Startup? First Principles,” he describes what is a business model and how to apply it. He also contrasts it to business plans, an analysis he carries forward in a later posting, “No Plan Survives First Contact with Customers – Business Plans versus Business Models.”

In a local economy, community members can choose to source their needs from suppliers far afield from their community. However, to do so puts at risk long-term sustainability due to interrupted supply lines. As a consequence, business models for a local economy offer attractive choices to members so they can meet their needs from local sources.

Although its emphasis is primarily on food, the report, Why Local Linkages Matter: Findings from the Local Food Economy Study, sponsored by Sustainable Seattle through a community development program, Building the Local Food Economy – A Call to Action offers insight into business models within a local economy.

Key characteristics of business models for a local economy include the following:

• Universal participation by community members
• Initial focus on meeting the needs of community members without fail
• Integration across all value-added steps from the point of consumption back to the points of production
• Utilization of community assets and resources without reliance on outside funding
• Application of performance metrics that deepen the resolve to establish a fully functioning local economy, spur creativity and innovation to find business solutions, increase the rate and degree of adaptiveness, and significantly improve the odds of long-term sustainability
  

As indicated by these qualities, business models that deliver the basic needs of community members within a sustainable local economy are quite different than those that satisfy wants of customers throughout the global economy. Given the importance of these local economy business models, they warrant further attention. Look for more details in future postings.

Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Sunday, August 29, 2010