The gold rush of 1849 made many miners rich. However, for every miner that struck it rich, there were thousands of failures. A far more lucrative business than mining for gold was selling picks, supplies, housing, and banking services to the anxious miners.
Companies like Wells Fargo and Levi Strauss were born as service companies to gold rush miners. After all, money is no object when you are about to strike it rich. We recently saw a modern-day example of this during the home equity gold rush. Mortgage brokers, home builders, and real estate gurus all benefited from the gold rush mentality of buyers. These modern day "pick sellers" made far more money that the home buyers and sellers.
Taking an obsolete process and annihilating it with technology can be a great business model. For example, look what bar code scanners did to the grocery industry. Craig's List, EBay, Cars.com et al destroyed the publishing industry. Google stole tons of revenue from the Yellow Pages. Hewlett Packard desktop printers directly stole business from commercial printers
To best capitalize on this business model, find a huge market plus a method to forever change it with technology.
Until the recent recession, consumers seemed ever-willing to have upscale everything. Why just feed Rover his usual Puppychow when he can have a hand-crafted dog biscuit? Why buy a $3 sandwich when I can buy a $9 artisan sandwich?
This business model adds a new definition to the top end of the market. Typically, this top-end is high profit. Occasionally, this top-end niche grows to be a large niche as well. Examples include Starbucks, Panera Bread, and Coach bags.
Donald Trump has derived his entire living based on this business model. Trump enters a market with the highest-end product, no matter what the cost (e.g.
Done correctly, this tactic can be the most powerful business model. Low cost can be obtained through operational excellence ala Wal-Mart or UPS. Low cost can also be obtained through a streamlined offering such as Southwest Airline's use of only 737 aircraft. Access to low-cost vendors could result in low-cost provider status. Vertical integration or controlling the distribution channel could result in low-cost provider status as well.
Take note, it is not a good business model to simply sell for less. Under-cutting competition results in lower margins which destroys a business model. For the low-cost provider model to work, margins must be maintained. Focus on low cost of good and low cost of deliver, not lower margins.