Does Your Business Model Suit Your Business Today?
I’ve been reading and implementing ideas from a book called Business Model Generation recently. It’s amazing that even though many of us have been in business for so long we don’t take the time to sit back and reflect on what we are doing in our businesses and whether or not all of these things are still relevant.
Today I just want to briefly touch on the 9 building blocks which comprise your business model and show the logic of how a company intends to make money.The business model is like a blueprint for a strategy to be implemented through organizational structures, processes and systems.
1. Customer Segments
This defines the different groups of people or organizations we aim to reach and serve. This raises two important questions, for whom are we creating value and who are are our most important customers?
2. Value Propositions
This describes the bundle of products and services that create value for a specific customer segment. The focus here is to determine what value we deliver to the customer, which one of our customers’ problems are we helping to solve and what bundles of products and services are we offering to each customer segment?
This describes how the company communicates with and reaches its customer segemnts to deliver a value proposition. Communication, distribution and sales channels comprise a company’s interface with customers. We need to ask ourselves through which channels do our customer segments want to be reached, how are we reaching them now, which one works best and which ones are the most cost efficient?
4. Customer Relationships
This describes the types of relationships a company establishes with specific customer segments.A company needs to clarify the type of relationship it wants to establish with each customer segment. These relationships can range from very personal to automated. They will be driven from the the motivations of customer acquisition, customer retention or boosting sales.
This represents the cash a company generates from each customer segment. If customers comprise the heart of a business model, revenue streams are its arteries. By successfully answering the question, “for what value are our customers really willing to pay?”, we can generate one or more revenue streams for each customer segment.
6. Key Resources
This describes the most important assets required to make a business model work. These resources allow an enterprise to create and offer a value proposition, reach markets, maintain relationships with customer segments and earn revenues. Resources can be physical, financial, intellectual or human.
7. Key Activities
This describes the most important things a company must do to make its business model work. For Microsoft, key activities include software development, for Dell it would include supply chain management and for consultancy McKinsey it would include problem solving.
8. Key Partnerships
This describes the network of suppliers and partners that make the business model work. Companies create alliances to optimize their business models, reduce risk or acquire resources. A business needs to ask, who are our key partners, who are our key suppliers and what key activities are these partners performing?
9. Cost Structure
This describes all costs incurred to operate a business model. Naturally enough, costs should be minimized in every business model. However, low cost structures are more important to some business models that to others. Therefore some cost structures may be cost driven while other might be value driven. It’s a matter of where we wish to position ourselves.
I hope that you enjoyed the overview (although not as brief as I had led you to believe!) and look forward to sharing some more insights into keeping your business model relevant.