One of the major things most small and medium businesses give little thought to, and which can have a major impact on their financial outcomes is their business model.
There has been much written over the years, huge volumes of academic and consultant driven tomes , full of jargon and long words. Mostly, the owners of small and medium sized businesses, starved of time as they are, have not read or absorbed this stuff, and even if they have, the day to day struggle has taken over.
The options open to construct a business model vary with every business, and every set of circumstances. Trying to copy what somebody ese is doing will only go so far, the great value is in tailoring the elements to best suit your objectives, resources and competitive circumstances.
Thinking about it in this business model framework can be enormously valuable.
Most recently, Alexander Osterwalder wrote a book called ‘Business Model Generation‘ that outlined a framework that simplifies all thing you need to think about, without the jargon.
That framework has 9 elements
Customer segments. Any successful marketing is dependent on defining your primary customer segments. These days you can go further, and in my view need to go further for SME’s, to having a detailed customer persona, perhaps several of them, to better enable the direction of marketing communication directly to the needs of very finely defined customers.
Value proposition. Defining the value you add to your target market is fundamentally important. If you cannot articulate the value, why would you reasonably expect anybody else to understand it? Value comes in many forms, simplicity, performance, design, degree of customisation, risk reduction, and many more, including the default, Price. However, if you define your value proposition in terms of price, you have already lost.
Channels. How do you communicate with your customers and potential customers, and then deliver on your value proposition? This item is a combination of the logistics and operational side of the business, with the marketing and sales sides.
Customer relationships. What type of relationship do you have, or want to have with customers, and how might they want to deal with you. Are they intimate and personal, or automated over the web, collaborative or purely transactional? The choices will be driven by the alignment with your value proposition and customers.
Revenue streams. No business can survive without revenue, it is perhaps the only constant of business as well as the public and non profit sectors. Determining the best way for you to be paid for the successful delivery of your value proposition to your customers is a major item in the model construction. Is it purely cash, or licencing, franchising, what sort of trading terms will apply, are you seeking recurrent income as for membership?. Obviously the price you charge is a major decision, but prices should be driven by the model, and your competitive profile, not by costs, or a guess.
Key resources. Every business requires resources of many types to grease the wheels of the business model. Defining what they are and how they interact is really fundamental, as they are the enabler of the value proposition, and without alignment to the value proposition you will have sub optimal performance. The key resources can be physical, human, intellectual, financial, whatever is required to deliver on the value proposition.
Key activities. There will also be a few key activities. Things that simply have to be done to make the business model work. Production operations if you are a manufacturing business, problem solving if you are a consulting business, and stock management if you are a retailer. They make the rest possible.
Key partnerships. These are the networks of suppliers that make the business model work. Who they are, what they contribute to the value proposition, how they how yoou choose to interact with them all make a significant difference to the manner of business model performance.
Cost structures. Finally, what are the costs incurred to operate and sustain the business model, those that are fixed, those that are variable, and how they might swing between these two. What are the economies of scale and scope that may apply under different circumstances?
I have used this canvas, and some of the iterations that have evolved in workshops with medium sized businesses with considerable success.
What you realise very quickly is that there is no right answer, and no easy path. There are cause and effect chains that operate across the board, changing one thing always has a string of impacts. The best way to manage all this and come to some actionable conclusions is with a directed brainstorm that records the ideas and cause and effect chains, followed by an experiment or research of some type that involves real customers.
What I call “getting out of the building”