What is a business model? The label, the phrase, the term, the expression - is a vague term that refers to how a company makes money, or more precisely, how it manages the balance of revenue, margin, and share. A great business model can compensate for many shortcomings, but a flawed one can also hinder a business.
Consider this framework to address business model-related issues: Business Model = SKU x Go-to-Market (GTM). SKU refers to bundling features into distinct product offerings at specific price points under particular terms and conditions. GTM pertains to the sales strategy and distribution mechanisms.
Adjusting your business model is not a one-time event, nor should it be changed frequently. It should always be a priority but only revised when exceptional circumstances arise. To optimize your business model, follow these four tips:
- Avoid confusing model changes with price discounts: Address pricing issues directly rather than using model adjustments to mask them. Refrain from letting internal problems, such as incentive structures or scorecard metrics, lead to one-off model changes. If you need to offer a discount, do so transparently or stick to your pricing if the value proposition justifies it.
- Don't split features across SKUs: Product packages should balance economics and marketing. Avoid dividing key messaging elements or value propositions when assigning features to SKUs. Instead, use research to understand the most valuable combinations and market them coherently for maximum impact. I suggest using conjoint and maxdiff analysis to understand packaging.
- Steer clear of excessive terms and conditions (T&C) bloat: Keep your primary agreements simple, covering only essential aspects of your product or service. Focus on the core attributes of your business model, and resist engaging in lengthy disputes over non-essential terms. Overly complex legal documents can slow down sales and implementation.
- Don't conflate push and pull models: B2B companies often have two distinct sales motions – direct sales push and pull marketing. It is common for businesses to think about each motion differently. They ensure that the packaging, messaging, and price points work for both models, accounting for differences in customer interactions and relationships, such as direct engagement or partner-led models. It is less common for companies to successfully integrate their strategies by addressing the question, "What are my push and pull business models, and do the SKU mix and price points effectively serve both?"
Understanding and optimizing your business model is crucial for long-term success. By considering these strategies, you can better refine your business model, ensuring it works effectively for your company.
