Wednesday, 18 April 2012

7 questions to assess your business model performance

Your business model is the complete system of how your business satisfies your customers' needs and makes profit. In an earlier post I described what a business model is, and how new techniques can be used to design more successful and higher performing business models.

But how do you know if your business model is working well, or needs improving?
How do you know it is time to innovate your business model?

Moving beyond the product-market oriented business

These days having an excellent product or service that meets a well-defined customer need might not be enough. Even the best products and services increasingly struggle to achieve and sustain a competitive advantage. That's where your broader business model steps in. Innovating your business model is increasingly how you can compete and succeed beyond an excellent product-market fit.

7 questions to measure how well your business model is performing

By asking the following simple questions about your business you can start to understand whether your business model is fit for purpose.
1. Is your business model scalable?
2. Does your business model produce recurring revenues?
3. Does the cost of switching prevent your customers from moving to competitors?
4. Do you earn before you spend?
5. Do you get others to do the work?
6. Does your business model provide built-in protection from competition?
7. Is your business model based on a game changing cost structure?
How does your business model perform?

Each question gives an indication of whether your business model is giving you a competitive edge.

If you answered a strong yes to the majority then your business model is giving you an advantage.  If you answered no to the majority of questions, or only a tentative weak yes, then it could be time to try to rethink and redesign your business model.

The benefits to your business 

Looking at your business model takes you beyond looking at individual ideas and initiatives for your business. It takes you beyond product-market fit considerations which is all that most companies compete on. It's about looking at your whole interconnected business and how it fits together. It can be a blueprint for your business success.  

Ultimately business model innovation is about improving your competitive advantage, driving growth, achieving better margins, and perhaps even working less hard.

I'm excited to be working a number of clients in this area, many of whom are selling time - their own time and their staff's time. Many consultancies, agencies, professional services firms, and advisers are still using the same traditional model of day-rate fees and project-based billing. This is my business too and it's changing.

Ask the 7 questions of your business and see how it performs.  I'd love to know how you get on.

James

The '7 questions' have been adapted from work by Alexander Osterwalder 2011 - an inspiration to me on business model innovation.

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