If you’re building a business, you need a business model. It’s really that simple. It’s not negotiable, you can’t “sort of” put a business model together. You’re either in or you’re not. And I’m hoping you choose the former. Because a business model is not just necessary, it can literally take your business to completely new levels of success. And when you do that, it’s usually through Business Model Innovation.
What is a business model?
Let’s first get through the basics. What is a business model? The best definition I’ve come across describes a business model as the the logic of the business. It describes how the business operates and how it creates value for its customers.
In other words, a business model describes how your business intends to function.
That means there are a few things that need to be articulated when talking about your business model.
Surprisingly, there isn’t a standard definition of what those things are. Some definitions say you need 3 things and others say you need 9 things as part of your business model. So I’ve put together my own definition which I think is the most useful (I might be biased)!
A business model should cover or answer the following:
- Who is your customer?
- What are your customer’s needs?
- What is your value proposition, and how will it fulfill the customer need?
- How will you deliver the value proposition (including any requirements for people/skills/teams, technology, processes etc)?
- How will you make money? This is sometimes looked at in term of revenue, and at other times, in terms of profit. To keep things simple, I prefer to use revenue, and then apply an average profit margin to the numbers.
How to create a strong business model
Your business model should align with your business goals. If you create it in this way, you will create reinforcing flows within your business model. What this means is that value across your business model circles around and continues to create increasing amounts of value.
Let’s use my business and business model as an example.
Business Vision: My business goal is to create value for entrepreneurs to do what they love and in turn deliver high value and benefits to people and societies (through their products/services and through any charitable/non-profit “pillars” within their businesses).
Customer: Frustrated entrepreneurs looking to build or scale their businesses.
Customer needs: Clarity on what to do and how to do it.
My Value Proposition: I run group programs that cover the 4 major areas that entrepreneurs struggle with when building or scaling a business – validating the idea, brand strategy, business strategy and customer strategy.
Delivery of my Value Proposition: Through group programs, which take place online across 6-8 weeks.
Revenue Model: Revenue is generated through my group programs.
As I deliver more value to my customers (entrepreneurs), I am able to attract more of them to join my group programs. This in turn results in more success within their individual businesses, which leads to them delivering more value to their customers and more benefits to give other organizations they support. But then, as more people become the recipients of either the value provided by my customers or by the organizations they support, more opportunities are created across societies for more people to become entrepreneurs. And that increases the pool of potential customers who are able to then join my program. It’s a cycle. You put more in and more comes around which then allows you to put even more in, and so on.
What is business model innovation?
Business Model innovation arises from challenging the different parts of your business and designing an ecosystem that gives rise to a new business model.
New business models arise out of a variety of reasons. There could be new technology available that you can capitalize on, or perhaps you absolutely must find a way to maintain your market share after new businesses start popping up in your industry or area of specialization. Perhaps you’ve uncovered some new customer needs or new potential customers to serve. All of these would require you to look at your business model and figure out new ways to profitably deliver value to solve a problem that your customer is facing.
When you take the time to do that, you will be looking at business model innovation.
How do you develop an innovative business model?
The most straightforward way I have come across to do this is to ask the question “How can I/we do [the opposite of what is happening]?”.
Think of all the innovative businesses (and services) we all know and use these days. At some point in the design of their business models, they would have had to ask themselves:
“How can customers rent movies without having to pick up a DVD/video?”
“How can customers rent a car without coming into the car rental office?”
“How can customers check into their flight without going to a check-in counter?
“How can people look at their photos without printing them?”
There are many other ways to develop an innovative business model, but this is by far the easiest.
And it’s important to remember that this same technique leads to great services which don’t have to be ground-breaking innovations, but can make a big difference for your business. For example:
“How can customers feel like they’re in our restaurant when they’re eating delivery?” has lead to high-end restaurants offering decor, candles, cutlery and more with their food delivery, particularly during COVID-19 lockdown periods, in order to replicate the restaurant ambiance.
Developing an Innovative Business Model for Your Business
So let’s go back to my definition of a business model. How can you challenge different parts of your business model in order to create business model innovation?
Ask yourself “how” at each stage.
How can you address your customer needs in a different way?
How can you address your customer’s needs at a lower price?
How can you address your customer’s needs without going through an intermediary?How can you deliver more value without charging more?
How can you deliver your product/service without acquiring the person/skill needed?How can you make money without charging your customer?
You can go as deep as you want to. It is only by asking these questions and exploring options that you’ll be able to find a solution that is different from what is currently available. And that, in turn will lead to a business model that is different from those available in your industry. And that’s what we’re all looking for, isn’t it?
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