04 May Is Your Business Model Broken?
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The U.S. Postal Service could become “a significant burden to the taxpayer” if it does not get needed flexibility to change its business operations.” – Postmaster General Patrick R. Donahoe speaking to Congress, April 17, 2013
Isn’t it amazing to think that even with the backing of the United States government that the U.S. Postal Service keeps losing money? While there are a myriad of reasons that can be attributed to why they are losing $25 million dollars a day, ultimately their business model is broken.
When I meet with new business owners our conversations often start with sales and marketing. One of the first things I ask them is to describe how they make money so I can get an idea of their business model. I get a variety of responses but when a small business owner doesn’t have a good grasp of how their business works I get concerned. It really doesn’t make sense to talk about sales and marketing if the business itself is broken.
I recommend that all business owners read the book Business Model Generation by Alexander Osterwalder and Yves Pigneur. You can get a free chapter from their book here. Their business model canvas provides a framework and perspective that helps an owner gain a strategic understanding of how their business works or in many cases why it doesn’t work. Once the gaps are exposed then it becomes easier to address them.
In the chapter on strategy the authors outline four areas of the business model environment: 1) market forces, 2) industry forces, 3) key trends and 4) macroeconomic forces. I like to focus on the area of market forces since it can impact sales for a business. The authors further breakdown market forces into market segments, needs and demands, market issues, switching costs and revenue attractiveness.
When doing this analysis, the business owner should consider questions such as:
- Where is the market going?
- Why do our customers keep buying from us?
- Where are the biggest growth opportunities?
- What do our customers need that we currently don’t provide?
- Do our products and services maximize our value to our customers?
Analyzing market forces gives the business owner perspective on where the market is heading and insights on how they should adapt or adjust their business strategy and tactics going forward. Because business owners get caught up in the day to day aspects of the business they don’t periodically take time to assess the market forces that are changing around them. I know in today’s world is so easy to get caught up in marketing tactics such as social media, e-mail marketing, search engine optimization (SEO), and search engine marketing (SEM) but none of that makes any sense unless there’s a solid business model and strategy designed to address market realities.