In the Product blade of the Windmill Theory within Powered By Change (PBC), the first sub-blade is called Candle versus Mirror. The focus on this sub-blade is all about how an organisation offers its products to the market and is underpinned by the relationships with its customers. This decision requires careful consideration as it impacts cashflow and quality control amongst other things. Essentially, Candle versus Mirror is really about the underlying business model. This can change over time and may be different for the different products a company offers. The reason for calling it Candle versus Mirror derives from Edith Wharton (a Pulitzer prize winner), who said there are two ways of spreading light. One is to be the candle and the other is to be the mirror that reflects it. From the PBC perspective, this means that the way a company offers its products is the difference between being more candle like or more mirror like.
In a Candle business model, a company is actually creating something itself and selling it directly to its customers. There is a direct relationship there. A couple of examples are Apple and most banking firms. In this model, a company is monetising directly with its own products and services in a centralised way.
Conversely, a Mirror business model is the opposite. Within this model a company may not necessarily create its own products but rather enable the reflection, or distribution, of what is produced by others and monetise on these channels. Some examples of companies that operate as a mirror are AirBnb, Uber, IKEA and Facebook. IKEA is an interesting one because at first it appears as though customers are buying directly from them. However, the reality is that IKEA stores are franchises that sell IKEA products. IKEA itself is a corporate entity and doesn’t own its stores. It sells and monetises its products through licenced third parties. Such companies often have an indirect relationship with customers.
The Candle and the Mirror are really the two extremes of business models that exist. There are very few companies that would be either a pure Candle or a pure Mirror. In fact, it would be more accurate to visualise the choice of business model as being made along a spectrum. An exclusivity between them does not exist. In fact, along this spectrum, with Candle at one extreme and Mirror at the other, the majority of companies reside. Along this spectrum there are really hybrid business models that combine elements of both the Candle and the Mirror.
A hybrid business model comprises elements of both the Candle and the Mirror models. They have merged versions in the middle between the two extremes. An example of such a company is Amazon. They have their own products that they create and sell. However, they also enable other businesses to operate as a third party on the Amazon platform to sell their own products but use Amazon as a mirror to do so, or as a distribution channel.
The choice between the two, or indeed a combination, is a conscious decision any company can take. There are upsides and downsides to each that do need to be taken into account when making this determination. It is absolutely important to note that depending on the model chosen, the relationship with people in the company’s supply chain will be different. In a Candle model there is a direct commercial relationship with products being sold directly to customers. This enables total quality control and also an ability to control revenue flow due to having the direct relationship with the end-user.
On the other hand, in a Mirror model there is an indirect sales relationship with customers. This means there is a total assumptive guidance of quality control via third parties which are the distribution network. This is essentially proxying quality control through having the indirect relationship. In addition, the ability to control revenue flow will not be as great as in a Candle model as the customer relationship is more removed. However, there are cost and efficiency benefits that stem from such a model that are not necessarily as evident or attainable in the Candle model. In the middle ground there is a Hybrid, in which some elements of the model require a direct relationship and others require an indirect relationship with no customer touchpoint at all. In making a decision about the type of business model to implement, it is vital to think about how near to the revenue stream the company wants to be and how the quality control can be managed if it is in fact a few steps removed. This is in addition to other financial considerations.
The beauty of finding our space in the Candle vs Mirror is to truly assess where the right fit is and the right model is for the range of products and services offered. It may be the company is traditionally more like a Candle with a direct centralised infrastructure and front line access to customers, which suits some products. However, a new innovation may need to be more Mirror like. The choice between Candle and Mirror is also likely to shift over time. So what is relevant now may not be in the future.
In PBC we help to delve into the appropriateness of each of the models and analyse which suits you best now, and also next, to support future growth and ensure you can continue to be effective and powered by change.
- The choice between a Candle versus a Mirror business model is not mutually exclusive. Rather, they exist on a spectrum where elements of the two are blended.
- The ultimate determination of the choice of business model is based on how close a company needs to be to the revenue stream and how it can control quality.
- Different business models may be appropriate for different product offerings and these may also change over time. It’s important to continually look at what is not only best now but what may be best in the future. This allows the company to be powered by change.