Friday, 23 October 2009

Ebberods Bank = "Financial success"

There is an old movie and play called Ebberöds Bank with an interesting business concept.

In the small town of Ebberod a bank is started. This is the first bank in town. With some clever PR and marketing the first customers are attracted. And the business is excellent - they lend out money at 4 percent interest rate but gives 8 percent on the savings accounts.

How is this possible? "It is all about volume", says management.

The bank gets very popular and everyone wants to loan money and immediately put them back into a saving account. And since the bank is attracting so many new deposits and everyone continues to put money into saving accounts the bank has plenty of money...(Like a pyramid game, of course, a bubble that will burst one day....)

Everyone is happy! Business is excellent!

Everyone is happy except for a larger bank in the big city nearby. All their customers are leaving to put their money into Ebberods bank. Eventually the big bank is forecd to buy Ebberods Bank. Which means that the owner of Ebberdos Bank gets money for the bank and gets rid of the problem of a faulty business model. And a lot of soon-to-be unhappy customers...

Stupid? Well, the larger bank got into panic mode. Seeing all customers run away. And seeing a new bank with a business model they could not understand. Maybe thinking "They cannot be giving away money - so they have someting that work".

Ethical? Sustainable? No. But it is interesting that a business concept that do not work still can be a financial success for the "creative" person.

And I bet there are real Ebberod Banks out there. Business models and operations that seems to work in the short run. But are doomed to collapse. We need to figure those out, instead of getting into panic mode. Think twice when you see something very "succesful" that you do not understand. Questions to ask: "Is that sustainable? Sound? Ethical?".

I like that movie!

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