|Building a sustainable business model
Posted Date: 27/05/2012
By Dennis Price
The death of every business is seemingly inevitable.
Companies do it. Jobs do it. Industries do it. For every start-up, there is a failure. For every Google, there is an Enron, for every Walmart there is a Valu-Mart.
No industry can break from the circle of life: arrive, grow, and die; and neither can so many jobs. The general store and the CD store have gone the way of the farrier and the draughtsman. The telephone operator is as defunct as a roll of film.
Changes in these industries have a significant ripple effect on the whole value chain. The music industry is impacted from individual garage band through to the retail shop on a five-year lease in a shopping centre.
Change is inevitable - but is death? The death of a technology or a shift in demand does not have to spell death for the organisation.
There are two relevant attributes that define an organisation: Very simply, a company is a bunch of people doing stuff.
Firstly, it is a bunch of people (with skills, knowledge etc) who are all working together in a co-ordinated way.
Secondly, there is the ‘doing stuff’. This is described by the organisation’s business model, which is the framework that the people are working in and working on. The processes, the products, the technologies – these are all the elements that constitute the ‘stuff’ that people are working with.
Companies can’t run out of people, so that won‘t be the cause of failure.
But they can run out of ideas. The only possible ‘cause of death’ is a broken strategy/business model - or lack thereof. (Not ignoring the fact that part A (the people) are the ones ostensibly responsible for developing strategy.)
How do you develop a business model that is structured and defined in such a way that it is a sustainable business model that will, bar completely random events, become a self-perpetuating business model?
In my view, a viable business model framework includes at least three components: · Definition of Business. (What business are you in?) · Positioning. (How customers think of you?) · Competitive advantage (or what I prefer to describe as ‘white space’.)
The rationale for using these three concepts is, in simple English, this:
For a business to be successful it must conduct its business in such a way that customers choose to fulfil their needs with you rather than with your competitors.
Let’s consider the strategic requirements that this implies, as well as the concomitant reasons why we may fail. (I will pick only one reason – add your own into the mix.)
What is required #1?
The business of the business is fulfilling a demand for products/services that are based on actual, recognised needs. Understanding these needs at the fundamental level is the critical factor, because wants change, but needs don’t. (‘I need food, I want a hamburger.’)
If you define your business on the ephemeral description of a current ‘want’ you are doomed to failure. (‘We are in the hamburger business.’) The business definition is the logical point of departure as it sets the parameters of how everyone in the business thinks about the business. (Conversely, to say ‘we are in the food business’ is too broad to be useful as a starting point.)
But we fail because… we want to sell what is familiar or sell what we like and know. Or in the worst case, we want to sell what we have always sold.
What is required #2?
The offer must be clear and valuable enough for a sufficient number of customers. The world being what it is, and people being what they are, a proposition can only be understood well if it is clear, distinguishable and valuable to the extent that it will satisfy a need – as recognised by the customer (not you.)
But we fail because… we dilute our core proposition by adding bits and pieces over time – chasing that elusive marginal dollar. Add the lollies to the counter (metaphorically speaking) may seem like an extra buck, but it is often the beginning of the end.
What is required #3?
This proposition can only be made in an environment where competition is limited or at least manageable. Sustainable success is only possible if a company’s resources are directed towards building and growing, and hyper-competitive spaces have many more victims – and only a few winners.
Constantly seeking and finding ‘white space’ to make your offer to customers is a good sign because it shows that the company is in a healthy pattern of constant progress. Just like trees grow tall in the forest because they chase the light, so companies will too.
But we fail because… we are afraid to innovate. We don’t want to risk what we have. We embrace incrementalism instead of disruption. We fear failure so much that we would rather die slowly than accept radical treatment. You have to give up on selling more CDs before you can find a new channel, a new product and a new future.
If you re-read the reasons we fail together, a common theme emerges. (Can you see it?) Just because we know it does not mean we are immune to its lures.
We are trainers because we think there is a fundamental need for people to learn why and how. We constantly innovate with new delivery mechanisms, new formats and new technologies. We practice experiential learning and collaborative learning. And sometimes learning doesn’t even look like learning. Our retail bootcamp made the cover of a national magazine. We offer short learning bursts, or year-long qualifications.
Despite that, we fail often. Maybe because of that, we fail often.
Not everything works as intended. Not everything works first time. Not everything works forever.
Eighty percent of our revenue comes from services & products that did not exist five years ago. This year alone we have launched three new products, two of which did not have sufficient interest to be continued. That is, they failed.
If you are selling a product you may think it does not apply, but:
Not everything works as intended. Not everything works first time. Not everything works forever. What are you going to do about it?
- When was the last time you changed your product mix?
- Re-positioned your business (e.g. move upscale or downscale a notch)?
- Experimented with new price points?
- Tapped into different markets?
- Tried a different selling technique?
- Ran a promotion that you never run before?
- Explored a new channel?
- Attempted a partnership?
- Added a new service? Introduced a new technology?
Whatever you do, don’t quit on the big picture.
Ganador helps retailers and their retail supply create high-performance businesses through innovative learning & development technology and programs. Email Dennis with questions.
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