Model‐based management in start‐ups: A retrospective on the role of models in building new financial businesses

The paper's aim is to share honest insights into how one management team used model‐based management to establish new businesses and products.

The paper shows the approach used for each business, why its area of operations may have changed the preceding processes but the functional form remained the same then eventually finding expression in the viable system model (VSM).

The paper finds that regardless of proper innovation and profitability, without a holistic approach to capital management the dominant logic of the market place will: subsume good start‐up businesses believing that established ones will go on forever; risk‐pricing in the capital markets will continue the boom/bust tradition; system boundaries must be carefully chosen thereby implementing appropriate controls at each recursive level; and avoid moral hazard emerging through ill‐considered rules that allow people to “game the system”.

This paper informs regulators and business managers of the advantages of a functional management model based upon the protection of core capital.

The paper validates the principles of systems management of the VSM and sensitivity model in a modern idiom and suggests methods for the better control of insurance and capital markets institutions.