I must admit, I am an addict of business models. I dissect companies on a daily basis as if they were a science project from junior school, but one I actually enjoyed. Reason being is that understanding the business model of your company is an integral part of your company’s success. As I have been helping businesses understand their models, there’s been a few things that have struck me lately that I’d like to share which may help you better your business.
1. Know the advantages and constraints of your business model.
Knowing these two things allows you to then focus on properly leveraging your advantages while planning ways to minimize the impact of your constraints.
For example: It’s not uncommon for a company to be utilizing an employment model that is lands their business near universities in an effort to get new, fresh talent on the cheap. It’s a smart way to keep certain overhead costs low. The downside of that, however, is that if you’re staying true to your business model, there is going to be star talent that slips through your fingers. But understanding that as a constraint of your model means you can plan effective ways to get to the talent as they’re becoming talent.
2. Manage your casfhlow (know your revenue model).
Part of understanding your business model is understanding how your cash flow works. If your business isn’t based on recurring revenues, then you need to develop a sales cycle and process that ensures you have consistent cash flow (IE: Apple makes its products obsolete at least yearly). If you do have a company that is based on recurring revenues, you need to make sure you know all the factors that play into the length of the contract and what your average contact length is. Which leads me to my next point.
3. Be driven by your data.
While not the case for every business, those that are driven by their data are those that have a high probability of success. Sales data ought to be your indicator of the necessity for new hires and on important lead generation times.
With data like the average length you have a customer, or the customer average value, you can work to predict scenarios that help determine whether you need to spend an extra amount of time generating leads for the contract expiration month, or whether you can reduce the overall cost of your product to bring in more sales because you know the average worth of your customers.
Obviously these are just a few of the many steps around business models and business. Do you have anything to add to my list above?
Edit: Good gracious. Apologies on the spelling/grammar mistakes. I ended up re-writing this and apparently remnants from the initial version still made it in!