What’s your Business Model?
“Luck is not a business model”
- Author, Anthony Bordain
Business models define the conscious (or sometime unconscious) choices a business makes around its strategic focus - for example on certain market segments, products and services and distribution channels, its core capabilities - for example sales or marketing and an operating model that integrates people, process and technology to make it all happen.
Winning businesses are typically anchored by a clear sense of purpose – a compelling sense of why?
In my experience, winning business models address five key criteria:
1. They have a clear sense of purpose that engages and motivates their people.
2. They make compelling offers to a clearly defined segment of the market.
3. They make themselves competitively distinctive in either what they do and/or how they do it.
4. They build a business model within which individual elements fit and align together.
5. They are profitable over the long-term.
Based on my experience across many industries, I’ve identified what I believe are the four fundamental elements of a well-considered business model:
Purpose: what’s our business why?
As made famous by Simon Sinek, winning businesses typically have a clear sense of purpose that engages both the hearts and minds of the organisation about why they do what they do each day.
For example, Apple wasn’t focused on being “the world’s best or biggest computing company”, instead, it was focused on “thinking differently”. A sense of purpose that permeated everything it did from marketing, through to product innovation and into distribution and service. In addition, it adopted a purpose that didn’t constrain it into any category. In fact, Apple now makes more money in categories that didn’t even exist a few years ago than it does in traditional computer hardware.
Strategic Focus: Who are we targeting, what do we offer and how do we engage customers on their journey?
Winning businesses make very conscious choices about the types of customer they serve, what they offer those customers and how they engage those customers along their journey.
For example, Ryanair, one of the world’s most enduring and successful budget airlines, is only seeking to serve customers who want the cheapest fare from A to B. Those customers are not defined by demographics, wealth or other buying habits but simply by their fundamental need for the cheapest fare.
And, everything that Ryan Air does, from marketing through to sales and most importantly their product, is focused on providing the cheapest fare. No expensive campaigns, no face-to-face sales, no premium airports, no meals, no baggage etc. It’s all about cost and therefore price.
Conversely, the graveyard of corporate failures is littered with businesses that lost their focus: Virgin Airlines lost its focus on budget, domestic travel and strayed into business class, lounges and long-haul flights. Myer lost its focus on providing a premium shopping experience and strayed into discounts. Retail Banks lost their focus on transactional banking and strayed into wealth and advice.
Business Capabilities: What do we need to do?
Business Capabilities describe what needs to get done and have clear business outcomes. Some capabilities are customer facing e.g. Marketing, Sales & Service whereas others and more operational e.g. Logistics, Production and Operations. In addition, some capabilities are focused on the management of the business e.g. Finance, HR, Strategy etc.
Importantly, not every business has the same set of capabilities and not every business needs to do everything themselves i.e. they can outsource or use partners, but winning businesses are very clear about what capabilities are core to their success. In addition, it is the combination of these capabilities that is often unique to a business and cannot be easily replicated by others.
For example, to enable IKEA to sustain its design-led, low cost leadership strategy it has developed distinctive capabilities in supplier management, procurement and product design.
Alternatively, to enable Apple’s design and innovation focus, it has built deep in-house expertise on product design but outsources manufacturing to partners. This doesn’t mean that manufacturing is not important – the very opposite is true – but it recognizes that design is core to its strategic focus whereas other partners can manufacture at the scale and quality they require.
Operational Model: How do we organize ourselves?
Once the business is clear on Purpose, Strategic Focus and Business Capabilities it can then enable these via the Operating Model.
The operating model serves as the blueprint for how resources are organized and what gets done. It encompasses decisions around skills required, number of resources, organization structure, accountabilities, ways-of-working, business processes and supporting technology platforms.
It also starts to define some of the soft skills such as norms and behaviors.