I’ve always thought that the BBC show The Property Ladder provided the perfect illustration of how bubbles worked. The show ran from 2002-2006 and it was hosted by Sarah Beeny. The show profiled aspiring property developers who bought properties, renovated them, then tried to sell them for a profit.

If you’ve never seen it, this will give you a flavour of how it worked:

That show that included Sian Astley – who was atypical in that she went on to become a successful property developer. The normal pattern in the show is that the developer-to-be buys a property, then spends most of the show ignoring the advice given by Beeny (because otherwise it wouldn’t be nearly as interesting).

Inevitably, the projects run way over time, and way over budget. Nevertheless, the properties always ended up selling for a substantial profit, and they nearly always ended with the new developer planning to move on to their next development project.

The reason that it’s the perfect example of a bubble is this: the reason that the properties always made a profit is not that the developers did a great job, it’s that the UK house market was red-hot throughout the time the show was made, so every house went up in value. In fact, running over time helped the developers out, because it gave the properties more time to appreciate.

What happened to all these “property developers” once the GFC hit? There’s a hint in that the revised series is now called Property Snakes & Ladders. I suspect that unlike Astley, nearly all of them went bust.

Here’s the problem: if you start a business in a bubble, it’s easy to make money, but it’s very hard to define the value that you provide. If you fail to provide clear value, whenever the bubble bursts, you’re out of business.

I ran into two examples of this in conversation today. The first was talking with Nancy on our drive in to work. She recently joined the board of directors for an association that for years made money from their conferences. How? By getting lots of sponsorship from drug companies. Now that the pharmaceutical sponsorship bubble has burst, they have no idea how to make up the lost revenue.

But their real problem isn’t how to make up the revenue – it’s that they don’t appear to have any idea what value they actually provide to their members. If they could answer that question, then they could figure out how to make up the money.

The second example came from an energy consultant. He told us about all the companies that formed in New South Wales to take advantage of the government subsidies designed to get people to switch to compact fluorescent lightbulbs. While the subsidy was in place, they all made money. When the subsidy disappeared, so did they.

Again, they didn’t have a clear value proposition.

If you don’t have a clear value proposition, you can’t build an effective business model. Without the value proposition, all the other business model factors are incoherent.

This is one of the reasons that more successful firms are founded during depressions than they are during bubbles. To be successful when times are tough, you have to have a clear value proposition.

Don’t just surf the rising tide. To figure out how to last, figure out how you provide value to people. This is the first, essential step to building a successful business model.