What are the steps to audit your business model?

Your business model should be a reflection of both your industry best practices and value proposition (including differentiation factors). It should be validated Before you launch a business. If you are auditing your model after the fact, then something is wrong. Additionally, when in doubt about the value of your model, sales is one validation method, assuming you have adequate awareness amongst your target audiences.

Here are the key assumptions to identify when evaluating your business model: 1. Assumptions about your customers: Their needs, preferences, and behavior. 2. Assumptions about the problems your business solves. 3. Assumptions about the effectiveness of your solutions. 4. Assumptions about the channels you’ll use to reach customers. 5. Assumptions about your pricing strategy. 6. Assumptions about your competitors and their strategies. 7. Assumptions about market trends and their impact on your business. These assumptions serve as the foundation for your business model and should be clearly defined and testable to validate your overall strategy.

One of the best ways to identify your assumptions is to try to raise money - even if you don't need to. A 30 minute coffee with a potential investor will be enough to identify obvious assumptions you're making, and give you an unbiased perspective on what you're building. Crucially, this investor needs to be someone you don't know, not a friend or family member. Have enough of these conversations and you'll see where the potential pitfalls are. When we raised our first ever angel round, this process really helped us improve our model. One example, it helped us recognise that we needed to control the flow of payments; we used to have customers pay in store and then need to collect money every month, now it all flows in reverse.

Auditing your business model is a critical process for evaluating its effectiveness and making informed improvements. Start by defining clear objectives and gathering relevant data. Analyze your value proposition, customer segments, revenue streams, and cost structure. Review distribution channels, key activities, and resources. Assess partnerships and stay informed about the market and competitors. Conduct SWOT analysis and gather customer feedback. Use financial analysis and scenario planning to guide decisions. Set improvement goals and implement changes, monitoring and adapting as needed. Communicate changes effectively, and make regular business model audits part of your ongoing strategy to ensure long-term success and adaptability.

Auditing your business model is a crucial process to ensure that it is effective, efficient, and aligned with your strategic goals. Here are the steps to audit your business model: 1. Define Your Objectives and Scope: Start by clearly defining the objectives of the audit. What specific aspects of your business model do you want to assess? Consider factors such as revenue generation, cost structure, customer value proposition, and competitive advantage. 2. Gather Information: Collect all relevant information about your business model, including financial statements, market research, customer feedback, and operational data. You'll need this data to evaluate the various components of your business model.

PRETOTYPE AND TEST LIKE TESLA As innovation facilitator of 100+ projects, I like to share how Tesla interested buyers for their first car. In 2003, the founders of Tesla had an ambitious idea (an all-electric 2-door sports car). In order to convince potential buyers to order its car, Tesla created a pretotype of what the car would look like. Lotus supplied Tesla with a ‘glider’ Elise - which was filled with models of key components. This was not a prototype, because the vehicle didn’t function. Tesla was able to show buyers a close proxy for the final design. Tesla asked “Will you put down a $5,000 deposit to have it built to order? From this test Tesla secured several hundred deposits, a non-trivial result to reassure their Investors

3. Analyze Your Value Proposition: Assess your value proposition to ensure it meets the needs and wants of your target customers. Consider whether it is unique, compelling, and competitive in the market. Analyze customer feedback and market trends to make informed judgments. 4. Evaluate Revenue Streams: Review your revenue streams and pricing strategies. Are they profitable, sustainable, and scalable? Analyze the diversity and stability of your revenue sources to identify potential risks. 5. Examine Cost Structure: Analyze your cost structure to identify areas of inefficiency or excess. Are your costs in line with industry standards? Look for opportunities to reduce expenses without compromising quality.

In a business model audit, examining customers is vital. It provides insights into critical business questions, especially your model's effectiveness. By evaluating your performance in customer acquisition, retention, and loyalty, you can assess how well your business model aligns with your initial assumptions. Customer behavior and feedback serve as invaluable indicators of your business's success or areas needing improvement. Therefore, it's imperative to evaluate the effectiveness of your customer-centric strategies. Your customers undeniably represent one of the most critical factors, and their feedback and actions can guide essential adjustments to your business model.

First, know the customer. That is the core of any business. With my magazine and current business, the core was and is the immigrant. That has to be fiercely protected against ideas like 'teach them gardening' which comes from individuals with a lack a lack of knowledge of core customer journey or behaviour. All our Ambassador advisors are immigrants, instant identification through common experiences. That is when you get a loyal customer who drives everything else like revenue, acquisition, loyalty etc. With Immigrant Networks, over 80% of our membership comes from referrals - customers who saw value and invited others. An old fashion idea really but one that works whether it is a niche market or mainstream like Starbucks or Nike.

From my experience, auditing a business model starts with a rigorous evaluation of performance. It's imperative to juxtapose actual results against anticipated outcomes, using both quantitative and qualitative metrics. I believe that benchmarking against industry standards and competitors gives invaluable insights into one's standing in the market.

When we audit business models, we can often forget about ourselves. Perhaps as the founder/CEO, or the core team that is in place. We look at businesses as black and white, always trying to justify our decisions with trends, market data, revenue, performance. It's a weakness to have a team that doesn't back the business goals. How can you ensure you are going after the right thing that excites you as a founder, but also the team as a whole?

1 thing is important here: to not have “watered down” points. When evaluating strengths and weaknesses don’t just look at external factors, also look within. Hint: you’ll probably get a lot more concrete data points there. Why? Because it’s something you can typically control. Then make sure you account for that.

Auditing a business model requires a proactive approach to innovation. It's essential to identify both strengths and weaknesses, and from there, brainstorm actionable strategies to elevate your business. I believe that leveraging tools like the SCAMPER method, coupled with seeking feedback from stakeholders, ensures that improvement ideas are both inventive and grounded in reality.

Decision-making is the thread that runs through every step of the business model auditing and improvement process.Prioritizing the most impactful and feasible improvement ideas is a key decision-making challenge during implementation Decision-makers must be able to monitor the changes (well defined KPIs) and make adjustments as needed. This requires ongoing assessment and adaptation based on real-time data and feedback.

THE most important thing we need to do as business owners is to ensure that our businesses are rooted in innovation. Instead of wasting time on competitive analysis and thinking of incremental improvements to our competitors’ business models, we need to adopt the blue ocean strategy approach: create our own business models from scratch. And then fighting complacency and status quo by retaining the innovator’s mindset.