Understanding your business model

Understand Your Organisation’s Business Model, Today

Understanding your organisation’s business model is more critical today than it ever has been. We are operating and running businesses in a volatile, uncertain, complex and ambiguous (VUCA) world. We’ve seen companies that we grew up with, disappear overnight. Disrupted by technology start-ups; impacted by negative external forces or by their inability to understand the changing needs of their customers.

 Working primarily in the entrepreneur community, we often come across start-ups and entrepreneurs who start their businesses without taking the time to strategically think about how their service or product solves a problem or meets a need (the value proposition) and how it will make money (the business model). This is largely driven by this problematic thinking “if you build it, they will come” which is also seen in larger organizations. This thinking can be very costly for any organization.

Understanding your business modelStrategyzer, the organization behind the business model and value proposition canvas, quotes a 2014 study by Simon-Kucher & Partners, which found that 72% of new service and product innovations fail to deliver on expectations. Gassman, Frankenberger and Csik the authors of the Business Model Navigator point out that organizations which historically have been known for their innovative products such as AEG; Kodak and Schlecker have lost their competitive advantage as they have failed to adapt their business models to the changing environment.

Steve Blank, serial entrepreneur; author of The Start-up Owner’s Manual and creator of the customer development model that inspired the lean start-up movement says that start-ups should be thinking about how they can find a repeatable and scalable business model. This same thinking is also needed in larger business organisations.

A business model is defined as how a company creates value for itself while delivering its products and services to customers. Gassman, Frankenberger and Csik simplify it even further. They say the business model asks the following four questions:

  • Who is the customer segment you are creating value for?
  • What customer value (service/product) are you creating?
  • How will you deliver this value (the value chain – activities and processes)?
  • And the Value or the Why, (The revenue model; profit and impact drivers)?

Understanding your business modelA successful business model is one that makes a profit. A sustainable business model is one that is agile (not static) and can be adapted to fit changing customer needs and market conditions. The business model canvas created by Alexander Osterwalder is a popular tool that allows businesses to understand their business models. It is a strategic management and visual template that allows organizations to first understand their current business models, then pivot and create new business models.

We can learn from successful organisations that have managed to survive and thrive in a VUCA world. They have done so by continuously reinventing themselves and innovating around their business models. Such as the 182 year-old Procter and Gamble, one of the world’s largest consumer goods companies. The company’s former CEO, A. G. Lafley, who successfully led the organisation from 2000-2010 and 2013-2015 said the following about business models and innovation: “Over the course of my career, I’ve come to see business model innovation not as a static process, but as a systemic, repeatable and reliable capability, one that leaders need to build, strengthen and eventually turn into a sustainable competitive advantage.”

Nokwazi Mzobe, Founder of Matoyana Development Consulting

Editorial Note:

About: Matoyana

Matoyana is an entrepreneurship development consulting firm located in Johannesburg & Durban, South Africa.  In 2013, they saw an opportunity to assist and support owners of small and medium enterprises to run successful and sustainable businesses. Today Matoyana has grown to an organisation that not only enables SMEs to thrive but also promotes a culture of entrepreneurship, creativity and innovative thinking.

Contact: Nokwazi Mzobe

Email: nokwazi@matoyana.co.za

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