08 Jun Answer These Three Key Questions to Successfully Reinvent Your Business Model
An established business can easily mislead themselves into believing that they have a sustainable business model. After all, they have managed to keep the doors open and may even be making a profit. Why break what’s working?
However, the reality is that markets evolve, customer needs and behaviors change, and there are always new competitors entering your markets. Here are 3 questions you can ask yourself to determine if you still have a viable business model:
- Do I understand the market demand and how my product fulfills that demand?
- Do I know who my key target customers are and do I have a cost-effective approach to finding them?
- Have I been able to continually make a profit and scale my business?
A “No” or “I don’t know” to any of these questions is a warning sign that you may no longer have a viable business model. More than likely, you need to re-evaluate the assumptions your business is operating under.
“In a startup, the founders define the product vision and then use customer discovery to find customers and a market for that vision” – Steve Blank and Bob Dorf, The Startup Owner’s Manual
In The Startup Owner’s Manual, Steve Blank and Bob Dorf explain the Customer Discovery and Customer Validation processes that define Customer Development. I’ve summarized the four phases below with the perspective of an existing business versus a startup.
Phase 1: State Your Business Hypothesis
Develop a hypothesis for each component of your business model. Use the Business Model Canvas (BMC) which has nine different areas to capture your hypotheses (assumptions). Write a one-page brief for each area of the BMC. Next, design tests you can execute to validate your hypotheses. All tests should be clear and measurable metrics.
Phase 2: Get Out of the Building to Test the Problem
Because you are an existing business, this phase may be easier since you already have customers you can reach out to and test your hypotheses. Start with understanding what problems they are trying to solve. Does it match your customer problem hypothesis? What are the key features they like about your product? Is there a high correlation to your Minimum Viable Product (MVP)? You may be surprised by how many of your hypotheses are no longer valid. More importantly, you will have deeper insights on how to re-invent your business model. Once you are done, be sure to go back to the Business Model Canvas and update the information.
Phase 3: Get Out of the Building to Test the Solution
At this phase, you should have a better vision for the product and the business. The only way to validate the solution is to go out and try to sell your MVP (which may be new or revised) to your target customer (which may also be new). The feedback whether good or bad, can be used to improve the business model. In the best scenario, you will have a good close rate and profit margin on your solution. More importantly, you should be able to validate whether there is enough market demand for your product to continue to grow your business. Again go back and update the Business Model Canvas with your validated learning.
Phase 4: Verify the Business Model and Pivot or Proceed
You may be worn out after testing and re-testing your hypotheses and repeatedly updating your Business Model Canvas. However, all your efforts has given you a great assessment of your business model and you now need to take a long hard look at what it means going forward. The big decision is whether to pivot or proceed (Eric Reis uses the phrase “Pivot or Persevere”). This very often a difficult and painful decision to make since it will require changing things that you and the organization have been comfortable doing.
Should You Reevaluate Your Business Model?
Customer Discovery is the foundation for Customer Development which forms the foundation for your successful and scalable business. If you haven’t gone through these processes recently, then there is a high probability your assumptions are wrong because change is constant. It needs to become part of your business planning activities. Depending on your situation this could be good news or bad news. Its good news if your business is generating sufficent cash flow to give you time to make the necessary changes. It’s bad news if your business is not doing well and you need to figure things out immediately.
I highly encourage reading The Startup Owner Manual which goes into great depth on how to do this. Doing this will take significant time and effort but the benefits to your business will be huge because in the end wouldn’t you rather have a great business versus a good business?
If you are looking for other great resources, then visit https://leapinnovation.com/resources2/.
Donovan Ray Hardenbrook works with organizations to solve their most difficult business challenges. His consulting firm, Leap Innovation LLC, provides expertise in lean startup, new product development, digital marketing, and quality management. Donovan can be reached at email@example.com.