We are all aware of the pace of change surrounding businesses and of the many different drivers of this. It is one thing to acknowledge change however, and quite another to reach clear conclusions about what it means for your business and what you need to do in response, if anything. In this blog, we’ll consider how you might begin to form answers to both these questions by taking a fresh look at your business model.
Let’s start with the core concept: your business model. An excellent tool to both understand and explore your business model is the Business Model Canvas, originally developed by Alexander Osterwalder in 2008. Mr Osterwalder defines a business model as: ...nothing else than a representation of how an organization makes (or intends to make) money.
Business Model Canvas: A Starting Point
The Business Model Canvas offers a template that enables you to capture, consider and refine your business model, working from the premise that it consists of nine blocks (or elements) that can be shown in relation to each other on one sheet of paper. It is applicable to all businesses from start-ups to much larger concerns. We highly recommend this as a great place to start when reviewing and thinking about your business model.
Signs That Your Business Model May Be Obsolete
If any of the following are true for your business, it may be time to review your business model:
- It is getting harder to earn healthy and sustainable margins
- Prospective clients are imposing more and more onerous procurement processes
- The market feels increasingly saturated with competitors
- New entrants are driving down margins where we used to make money
- The way we charge for our services is no longer a realistic reflection of the inputs and required nor their respective value in the end product
- Technology is replacing core capabilities that have formed the bedrock of our business to date
- It is getting harder to demonstrate our superior capability and experience versus new entrants
The Importance Of Brand - What Do your Customers Think of You?
In their book entitled ‘Brand. It ain’t the logo* *It’s what people think of you’, Ted Matthews and Adris Pone offer the following definition: ‘A Brand is what people think of you’. If we work with this, it prompts a simple yet powerful question: what do any of the instances described above, or others that you may be experiencing, suggest about your customers and prospects' perceptions of you and your business?
Your customers’ perception of the value you are offering may have shifted in the light of new alternatives open to them. Technology, for example, may have given them access to new value propositions and channels (two of the nine blocks in your Business Model Canvas), meaning your once scarce skills are now commoditised.
As the markets we operate in continue to evolve, it is vital that we understand how our customers’ needs and perceptions of value have changed also. When was the last time we checked? This is a great place to start challenging whether your business model is becoming obsolete.
Assumption Is The Mother Of All Mistakes
It is easy to assume that our customers’ perception of the value we provide is the same as it was when they started working with us, and that they are happy to continue paying according to the customer relationship and associated pricing model (two more blocks on your Canvas) we have always used. These are dangerous assumptions, which are sometimes only exposed after it is too late - when, for example, the invitation to re-pitch arrives, a new tender is published or notice of termination is served.
It might feel risky to open up a conversation with your clients about what they most (or no longer) value about your services, how you charge for them and the sort of relationship they want with you: the findings may affect your team, their careers and your own feelings about your business. What if your clients no longer value what you feel you do best? What if the answers are uncomfortable, or unexpected? What if they try to use this conversation as leverage to renegotiate terms?
Ignorance Is Not Bliss
The answer in all cases is that the sooner you know how your customer feels today about your business and the value it adds, the quicker you can do something about it (if that is your best response). By asking the question, you demonstrate your determination to continue to deliver value, and your willingness to flex how you do that, if required.
Rather than creating a problem, the ensuing conversation may unearth new openings to work with your clients to tailor-make aspects of your offering to best meet their evolving needs, transforming a business risk into an opportunity for growth or at least sustained revenues. A simple example might be that by restructuring how you charge for your services, you achieve a closer alignment with the way your client’s budgets are now organised and committed, making it easier for them to work with you.
Competitors May Become Allies
You may discover that your client would be happy to pay a premium for what you do best (in their eyes), in exchange for the opportunity to outsource aspects of what you have done historically to alternative suppliers who can now better meet their needs. In one move you might be able to reinforce your positioning in their minds as the pre-eminent supplier of certain services, reduce the risk of being exposed to a competitive pitch, increase your margins on core services and remove a frustration (and cost) for your client that may otherwise have undermined your whole relationship with them.
Former competitors may become allies in this scenario. You may both be better able to secure your mutual client’s loyalty by actively collaborating to provide a better overall solution. This model may be something you could both replicate with other clients: by playing to your respective strengths you each become a business development channel for the other’s complementary services. You may both then have the confidence to make investments to consolidate your respective advantages, which will equally benefit both of you by enhancing the overall solution you can now deliver together.
Systems & Processes May Become Assets
To continue the example above, the client may be prepared to pay a premium because of the speed at which you can deliver your core service. This might be because of a system or process you have developed in-house, which now begins to look like an asset that you might be able to package up and offer elsewhere. Perhaps you have a really slick sales estimation tool, or a client reporting portal that others would be prepared to pay for?
A Systemic Perspective
In summary, considering your business through the lens of your business model allows you to step back and review the whole system that you have built - not only to earn money (which is where we would diverge slightly with Mr Osterwalder), but also to fulfil your purpose. The Business Model Canvas is a great tool to do this: it strips back the apparent complexity and prompts some very simple yet powerful questions that every business should confront periodically. Doing so may transform potential threats into opportunities and open up new visions that offer a sharper positioning in the market, more sustainable margins and more fulfilling careers for your team. You may also discover that on your journey to date, you have created some assets that others would gladly pay for.