Your Business Model – Design or Default?

As a business consultant, a longstanding mantra of mind stresses the importance of shifting from a reactive to proactive stance, whether looking organization-wide, at the departmental level, or even at one’s own role. it’s all too easy to slip into a reactive mode, and the busier you get, the harder that is to avoid.

Shifting gears is not something that happens on the fly. It takes conscious effort and discipline to step back, get away from the hubbub, and reflect. Unfortunately, that’s more and more of a lost art in the frenetic business world of today.

Yet, nothing is more important to your long-term success. Moving from reactive to proactive is about taking a firmer hold of the reins – gaining better control over the resources and processes you have to work with, and thereby over your circumstances. It’s about achieving a homeostasis between your organization and its surroundings.

I’ve looked at this from a variety of angles including mission and vision, strategic planning, management process and marketing. Here, I want to tackle it even more squarely, by addressing the matter of your business model, itself.

Your business model is at the core of your organization – the template that defines who you are, the principles you operate by, what you do, how you do it and for whom. It is a mosaic of sorts, made up of a number of components that ideally work together to create a unified whole. That’s the way you maximize your returns. Your business model can galvanize your workforce and help you move forward cohesively and with greater confidence.

That is, if it’s well done.

Ask someone to define his or her business model, and you may get a blank stare. It’s just not something we’re accustomed to thinking in terms of. Most leaders can cite some elements of it, but not many can paint a complete picture. With employees, even less so. I think a chief reason is that the business model tends to be taken for granted – out of sight, out of mind. So, not many organizations have gone through a deliberate process of unpacking it and examining its parts. In fact, most have not even written it down.

But, you see, business models are a lot like personalities: You have one whether you realize it or not. It it’s not by design, it’s by default. The latter is inevitable when a business stays in a reactive mode for too long. It becomes a byproduct of its surroundings, and the result is a puzzle whose pieces don’t quite fit together. Money slips through the cracks in between, and the resulting performance is anemic compared to what it could be.

So, how do you begin to get a handle on this? What are these core components?

In their book, Business Model Generation, authors Alexander Osterwalder and Yves Pigneur argue that, at its root, a business model consists of nine key elements:

• The customer segment(s) you serve
• Your value proposition – not just what you provide but what it does for customers
• The channels through which you deliver your value proposition
• The nature of your customer relationships
• The nature of your revenue stream(s)
• The key resources required to produce & deliver your value proposition
• The key activities in which you engage
• Your key partnerships
• Your cost structure

Admittedly, many of these elements are complex, in and of themselves. Still, the less purposefully you design any given element, the more it will take on a shape of its own. And, to the degree that you don’t address the elements together, they will not hang together well.

There is a variety of approaches and techniques that can be employed to arrive at or modify your business model. In broad terms, however, a basic approach might look like this:

The place to begin is with your Vision & Mission Statements and your strategic plan. By their nature, they define certain elements of your business model – your customer segment(s), your value proposition, and possibly parts of other elements. The strategic plan also establishes your long-term goals, which makes possible a comparison between where you are today and where you hope to be in the future.

Next, examine the other elements of the business model. Is your approach to each component optimal, or is there a better one? How (and how well) do the components harmonize and reinforce one another? When completed, the business model will provide a set of standards against which to evaluate current activities, to optimize your application of resources and assure that you don’t stray too far off course.

Now, tackle your operational planning, which is shorter-term and more tactically oriented. This is where your strategic plan takes shape in the present, and where the elements of your business model are given voice.

How you approach these steps and how long a time period they span will depend on your corporate culture, where you are at present and other factors. They can be accomplished fairly succinctly, or may span a longer period. Certainly, operations can and will continue during this process, and in fact, it’s best to wait until the process is completed before embarking on new courses of action.

Even if you’re not able to tackle a process like this in its entirety, any formal attention you pay to your business model or its particular components will increase your understanding of your operations, and thereby move your from reactive toward proactive.