The critical nature of a business model is lost on a lot of businesses and business people. To answer the title question my guesses are you probably; don’t have any, don’t know what it is or simply don’t think it is important to have a business model. Regardless of whether you are running a successful business, struggling with a venture or about to start one you need a business model just the same way you need a prototype or an architect needs a model of the building structure he or she has designed. This is because it gives you a birds eye view of the important aspects of your business and how to manage it for sustainable returns. One way to have a clear perspective of the concept of business models is to look at your business like a car: The engine and body need to be integrated and in sync to take you to your destination. Like a car, your business model must be designed to adapt to an undulating business climate to be sustainable. The relationship between your business model and your business type/operating environment/sector, should determine how you position your business to respond to PESTEL - Political, Economic, Technological, Environmental & Legal trends so it will be capable of evolving to accommodate the stakeholders it serves and thrive in the times it is operating in.
So, what really is a business model? It is certainly not another phrase for ‘business strategy’ neither is it entirely a summary of your business plan. A business model is the blueprint of your business within which your business strategy is contained and your business plan is anchored. One of the many ways of illustrating the concept of business model is put forward by the Bank of Industry, Nigeria as ‘a unit analysis of how the business of a firm works. Specifically, the business model is often depicted as a concept that takes notice of how the different components of a business are constituted and puts them together as a whole.’
A Business Model basically looks at who you want to produce for, what you want to produce (or serve), how you want to produce and the value of the products/services to the bottomline.
In perspective, your business model is a replica or mock-up of how your real life business answers to the: (1) Partners you need and have, (2) Activities the business carries out for profit & the (3) Resources required to run the business, (4) Value Offerings (or propositions), (5) Relationship to your Customers & the (6) Channels you adopt (to serve and reach your customers), (7) the Customer Segments you serve, (8) Cost Structures and the businesses (9) Revenue Streams.
These nine units make up your business model canvas and can be classified under three broad categories of Enterprise Positioning, Enterprise Strategy and Enterprise Design - both Internal and External.
In Enterprise Positioning you might want to consider elements like your brand and brand identity, the enterprises differentiation strategy and unique offerings, corporate values and generally how it should influence the perception of the business in the marketplace.
Under Enterprise Strategy, a fundamental issue to clarify in your business model will be how to translate your set mission and values into concrete action. How you plan to coordinate the various functions, inputs, roles and departments to work synergistically towards the achievement of the enterprises’ SMART strategic goals.
Before we discuss the third classification of the business model, let me explain what design is: According to Charles Eames, 1969 - Design is a plan for arranging elements in such a way as best to accomplish a particular purpose. Understanding this, Enterprise Design should adopt a Shelf-Life Principle to build evolving or morph capabilities within the organization. ‘This means acknowledging that an enterprise has shelf life in a particular foam and can last only so long before it becomes obsolete.’ In preparing the business for adaptation, the alignment of the internal assets with the external environment in which the business is created to exist in becomes a continuous process. The internal assets include resources (products, services, processes, culture, structure, systems, people, performance measures) required to run the business and pursue its strategy. The external context of the business model focuses on the customers, partners, suppliers and competitors. A business model designed to keep an eye on trends will also help to prepare the business to compete with an edge in the marketplace.
Now, if you are still unclear at this point in the conversation you can take a hint from the business model patterns of existing companies by analysing their various combinations of who, what, how and value propositions to get started with developing your own business model. Common Business Model patterns in the enterprise space are the - low income model, ‘pay as you go model’, Subscription model (where you charge a fee to gain access to a service) and the ‘Freemium model’ both practised by the Benue Business Incubator (Freemium Model offers basic services for free and charges for premium services). Other business model patterns are ‘product to service model’ (which rather than sell the product directly you sell the service that the product performs), ‘Franchising model’, ‘Reverse Razor/Blade model’ (offers low margin items below cost to encourage sales of the high margin companion product), ‘Leveraging Customer Data model’ (more like what Google and Facebook does).
So I will ask you again; what is your business model?
Mr. Msoo Mee is an Enterprise Design Consultant. He consults for Private & Public Sector Enterprises, Development Banks and Individuals in Africa & Europe.
