The Pixie Dust Equation

What is Pixie Dust?

In every business, there are 'secrets' to success. Things that the experts do that may never be verbalized or written down but are essential for success in that industry. The Business Model should help you find out what those 'secrets' are.

In Dell's business model, their secrets are deceptively simple- Dell's Business Model is: a) make-to-order, b) cash arrives (i.e., they are paid) before the product is built or delivered and c) produce custom results from standard inputs. A lot of the work that goes into designing and customizing individual systems for consumers is reversed out to the client on the Dell web site-- folks can customize their order to their specific needs using the Dell self serve site-- this gives clients a customized product (from standard inputs) and a higher level of service but notice a lot of the work is reversed out to the client.

This is the 'pixie dust' that makes their business model work so that a college drop-out (Michael Dell) can build the biggest PC manufacturer on the planet. The differentiator is the pixie dust. We need an algorithm that will show where the pixie dust is!

Even IBM Uses Magic Pixie Dust (circa 2002)

Servers Fixed by Spinkling of Biodegradable Pixie Dust

Part of Amazon's pixie dust is their use of their relational data base: "Do you want to see what others who bought this book are also buying?" Obviously that is an up sell pitch for Amazon but also an incredibly useful research tool for harried university professors who can put the millions of Amazon customers to work for them doing research.

A Canadian University's pixie dust is its monopoly power to confer degrees.

Dell's is as described above- making money before ordering any inventory or production.

For most people, their 'pixie dust' is simply having a J.O.B. (also stands for Journey of the Broke!) that pays them every two weeks.

Walmart's pixie dust is simply automated and integrated inventory management (integrated with POS (Point of Sale) systems)- having suppliers send (directly) basketballs to Nashville and hockey skates to Kanata in the right quantities and at the right times.

Cisco's pixie dust is outsource everything.

The NHL's pixie dust or the NFL's is the right to grant local hockey or football monopolies.

The Corel Centre's (and the Sens) is outsource everything except for key customer (i.e., season ticket holders) and sponsor relationships and hockey management (i.e., how to put a winning product on the ice).

There is something 'magical' in most businesses that allows them to really make money. If you get the Business Model right, the harder you work, the more money you make. If you get it wrong, no matter how hard you work, you just end up losing more and more money. And the 'pixie dust' is what differentiates your business and gives you leverage in the marketplace. The Business Model is supplanting to some extent the Business Plan.

The Business Model is defined as the engine of the business-- it is where the rubber meets the road--

1. where and how the business acquires cash from clients,

2. how it uses its cash (tracks cash streams from clients and customers to the business and throught the business to its suppliers),

3. how products and services flow from suppliers and the business to clients and customers in the reverse direction and, finally,

4. there is an orthogonal dimension that shows how the business connects (through sales and marketing channels) with its clients and customers.

The Business Model should be one page; it should be, at least in part, diagramatic; it should summarize the technological, technical, marketing and other pixie dust advantages of the business. The Business Model should then form part of the core mission of the business-- if new initiatives don't fit the Business Model, well then, maybe they aren't such a good idea for you to undertake. Focus on a core mission is critical to successful new business formation.

Notes and comments based on material from Professor John R. Callahan, Professor Tony Bailetti, Mr. Scott MacKenzie and Dr. Bruce M. Firestone, Carleton University, Ottawa, Canada. October 1, 2001.

Pixie Dust Results So Far

Dramatis Personae