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How good is your Business Model?

How good is your Business Model?

If you have customers, by definition, you have a Business Model. But do you know what it is or how  good it is?

Your Business Model is more than the products and services you offer. It comprises all the elements of the value proposition that your customers perceive as addressing a need /pain point that they have.

It encompasses soft (but measurable ) aspects such as quality of relationship management, flexibility, delivery commitments, reliability, timeliness, after sales support, problem solving services, free elements etc.

So the first step in assessing your Business Model is accurately describing all it’s component parts.

After that you need to answer the following questions :

1. Does the Business Model meet or exceed customer expectations? Can you see ways in which the customer value proposition could be enhanced? Do you seek and respond to customer feedback on the value proposition?

2. How does your Business Model compare to the offerings of current and potential future competitors, not only the attractiveness of the offering/pricing but the efficiency and cost effectiveness of supporting processes?

3. How successful is your Business Model in retaining existing customers?

4. How successful is the Business Model at attracting new customers? e.g. effectiveness of introductory offers in expanding or broadening the customer base.

5. Does the Business Model deliver cross sell opportunities? Is your model extracting the maximum value from your customer base?

6. Is your Business Model sufficiently profitable, and if so are profit levels sustainable? For example, if there is evidence of commoditization and/or downward price pressure in the market segments in which you compete it should sound alarm bells that your current business model may not be sustainable.You should decide on what the core of your offering is and make sure that you get paid for it.

7. Are there any potential game changing threats on the horizon e.g. from technology developments? Established players are often slow to react to fundamental changes in a marketplace. If you don’t have the right technology, market positioning or resources for the future it is all too easy to rationalize away shifts in the marketplace. This is the reason that established players, with all the advantages of an incumbent, often cede ground to new entrants.

8. Is there alignment between all key internal functions, necessary to deliver your Business Model? Is everybody pulling in the same direction? Issues of internal alignment are more likely to arise the bigger the company and the more independent business units there are.

Seek out diverse views in carrying out the above review. An honest assessment of the strengths and weaknesses, and interdependencies inherent in your company’s Business Model is essential to success.

If after reviewing your company’s Business Model you conclude that it needs to be modified or there is an opportunity to develop a new line of business, the question arises as to whether your current organizational structure is capable of delivering a new Business Model.

It may, for example,  be best to set up a separate operation from the core business if future opportunities require a fundamentally different business model e.g.  a move from conventional delivery channels to online or a fundamental repositioning upmarket or down market. A radically new proposition is unlikely to be delivered in a timely or cost effective way through the existing Business Model. This should not be contemplated unless the opportunity is game changing in view of the significant commitment of resources and management time that it will likely entail.

Note : In dynamic fast changing sectors it may not be possible to determine which of a number of potential Business Models will be the ‘winner’, but waiting will mean missing the market and/or giving up significant first mover advantages. In such circumstances experimenting with different models until a clear winner emerges may be the best course to take. This would need the discipline of having clear checkpoints so that resource allocation is tightly controlled during this trial and error stage. Only when a winner emerges should significant resources or scaling up be contemplated.

 

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