Business Model

What goes into a business model?

In 1904, King Gillette, the founder of Gillette Razors, not only invented, through patents, the razor, the blade and the combination of the two but King Gillette invented a new business model. The business model, known today as the razor-blade model, has been taught in business schools and implemented in almost every industry worldwide. In this particular model, companies sell a one-time product at a substantial discount that is complemented by another higher margin product that requires repetitive purchases – DVR, DVD, Keurig, razors, etc. Thus, King Gillette built a business model that has acquired customers for over 100 years.

Peter Drucker thought, in his theory of business, the sole purpose of a business model was to create a customer. Johan Magretta describes business models as a system that fits the pieces of the business together that tell a story of how the enterprise works. In today’s competitive environment, it’s vital that businesses know and understand their particular model and how they create customers. In a 2016 PwC survey, 74% of CEOS believed there are more threats to business growth than there were three years ago. However, 69% think there are more growth opportunities today. To capitalize on these opportunities, companies need to reevaluate their model to ensure it still fits their market. If not, then the company needs to innovate because they’re likely to be disrupted by competition.

Webster-Merriam’s definition of a business model is a design for the successful operation of a business, identifying revenue sources, customer base, products, and details financing.

If you follow Clayton Christensen and Mark Johnson, you know that they define business models as “four interlocking, interdependent elements that, taken together, create and deliver value,” The four components of a business model are the customer value proposition (CVP), profit formula, key resources, and key processes.

Customer Value Proposition

Companies that can solve a client’s problem or help them accomplish a job will be successful because it’s able to add value. A CVP comprises of a target customer, product or service offering, and the problem it solves.The CVP needs to be precise, and being precise is often the most challenging to define. Without precision, the CVP will be too broad and thus, creating too much competition. A company can focus on precision by helping to address four common barriers that keep customers from finding solutions to their needs: access, skill, insufficient wealth, or time.

Four questions to ask:

1. What is the company’s target market?

2. What solution is the business able to create?

3. Does the offering bring enough value to define its precision?

4. Does the CVP address the four customer barriers?

Profit Formula

The profit formula refers to the methodology the company uses to create value for itself while creating value for its customer. The profit formula consists of:

  • Revenue model: price x volume
  • Cost structure: economies of scale, direct costs, indirect costs
  • Margin model: understanding desired revenue volume and cost structure, the business will be able to calculate the contribution needed to meet expected profits
  • Resource velocity: how fast does fixed assets, inventory, and other assets turn over, and how well does the company utilize resources to support the margin model

Key questions to ask when determining your profit formula:

1. What is the desired revenue and desired profit?

2. Does the target market support the volume?

3. What fixed and variable cost will have the biggest impact on the company’s overall cost structure?

4. How does the company measure resource velocity?

Key Resources

The key resources for a company are the people, skills, products, technology, equipment, facilities, and brand. These resources are required to deliver the CVP to its target market.

When evaluating key resources, ask the following:

1. What are the company’s core competencies?

2. Does the company have the necessary technology, equipment, and facilities in place to align with the CVP?

3. How well is the brand position in the market?

 

Key Processes

Successful companies have managerial and operational procedures in place that will allow them to scale not only the enterprise but also the value delivered. These processes may include development, manufacturing, training, planning, sales, budgeting, delivery, and service.

 

Questions to consider:

1. What process(es) does the company do that is different from the market?

2. How does the dynamics of each process affect the relationship with one another?

3. What, if any, process is proprietary, or can be leveraged, that gives the business a competitive advantage?

A business model is simple but yet complex in its functionality due to its dependency on each element. In a synopsis, the CVP and profit formula define how the customer and company will receive value, and the key resources and key process will identify how that value will be delivered. In order to determine if the company’s business model is working or not, the enterprise will need to be patient and have an ongoing evaluation of the P&L.

Matthew Feltner

 Matthew Feltner is an accomplished businessman turned strategist, consultant, and entrepreneur.

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1.   Magretta, Johan. “Why Business Models Matter” Harvard Business Review 80, no. 5 (May 2002): 86-92

2.   PwC “2016 US CEO Survey: Top Findings,” n.d., www.pwc.com.

3.   Christensen, Clayton M., and Mark W. Johnson. “What Are Business Models, and How Are They Built?” Harvard Business School Module Note 610-019, (August 2009).

4.   Christensen, Clayton M., Johnson, Mark W., and Kagermann, Henning. “Reinventing Your Business Model.” Harvard Business Review 86, no. 12 (Dec 2008): n/a.

Lean and Young – Business Planning for Millennials

businessmen planning meetingAccording to a brand new post from entrepreneur.com, if you’re twenty-something, there are seven things that you should know about business planning before you end up climbing the corporate ladder for 40 years.

Now, don’t get me wrong: I like this article. It focuses on the new business models that have sprung up in response to what Gartner calls, The Nexus of Forces:

“The Nexus of Forces — the convergence of mobile, social, cloud and information — has become the platform for digital business. Digital business is the creation of new business designs by blurring the digital and physical worlds.”

It can be argued that today, every business is a digital business and that, based on the rules of bimodal and agile business planning; your old-school business plan may be totally irrelevant. So, before I spin off into a number of fascinating rants, let me get back to the article and clarify where CBM can help you remain agile, but still rooted in good business modeling practices.

Take One Ibuprofen and Call Me in the Morning

The first thing the writer or the article, Cameron Benson, did was to grab a meme from Big Pharma:  “Go for the ‘minimum effective dose.’” By this he means just get to market, already.

”As long as your product offers value to your customers, it’s ready to launch. Everything else will come in due time. This doesn’t mean you should start a business around a subpar or incomplete product, but you shouldn’t wait until it’s perfect, either.”

I agree. But I also believe that if you haven’t thought through your delivery methods, how you can reach your customer and who your competitors are, you’re destined to have jumped too soon. Use tools like the business planning framework. It’s lean enough to not gum up the works but smart enough to help you avoid the most common pratfalls before you launch.

Our friend Cam also asserts that “People are your businessAs an entrepreneur, you need to nurture your ability to develop and cultivate relationships with others because that skill is essential to the growth and success of your business. How can you build more relationships to help your business grow?”

About twelve  years ago, I read Tim Sanders book, Love is the Killer App. I was deep into my corporate phase (meaning I had stopped being an agency person and had gone in-house to try to effect awesome marketing/PR change from within) and there were some long-time political lifers invested in stopping every idea that wasn’t their own. I nearly lost my mojo—until Tim Sanders and his statistics about nice people finishing first saved me from developing premature meanness and the frown lines that go with them.

This Yahoo executive laid it out in a way that I could definitely work with: “Here, then, is my definition of love business: the act of intelligently and sensibly sharing your intangibles with your bizpartners. What are your intangibles? They are our knowledge, our network, and our compassion. These are the keys to true bizlove.”

Sanders is basically saying that “smart, nice people can succeed.” If your personal brand is mean and narcissistic, you can have the best product in the world but your brand will tank because in this age of social media transparency and comment sections, you’re toast if you offend too many people too much of the time. Trust me—you do NOT have the budget to kill every rumor—especially if they’re true. Suffice it to say, newer business models have to include some semblance of kindness in their plan. It’s just common sense.

Cameron also counsels: “Let go of the business plan myth. The world has changed a lot since the time of traditional 160-page business plans. There are millions of successful businesses that started from a simple idea…while the “traditional” business plan may not be necessary, there are key things to consider before you launch. First, start with the end in mind by considering how you want your business to function. Next, consider the branding aspect of your business, domains, social media profiles, etc. and own your name! Finally, put it all together by handling the legal aspects of your business.”

At CBM, we love this attitude. Creating a Lean Business plan will often take care of the functional blueprints you’ll need for day-to-day operations. But don’t forget—one of the main reasons businesses fail is because they can’t get a handle on logistics. Once again, our Framework can help.  If I could tell any young entrepreneur one thing, it would be this—“lean in” on your logistics. It’ll pay off in the end.

Applying the Blue Ocean Strategy to the Business Model Canvas

To apply the Blue Ocean Strategy, you start with a Business Model Canvas that describes your industry and then look at your the business model canvas from three different perspectives: the cost prospective, value proposition, and the customer segment.

From the cost prospective, identify the highest cost infrastructure elements and see what would happen to the model if you eliminated or reduced them. Then consider the infrastructure investments you could make or improve upon and see what would happen to the model. When Blue Ocean Strategyit comes to looking at your model from the cost prospective, ask yourself the following questions:

– What activities, resources, and partnerships have the highest cost?
– What happens if you reduce or eliminate some of these cost factors?
– How could you replace useless or costly elements by reducing expensive resources, activities, or partnerships?
– What value would be created by planning new investments?
– How will changes made from a cost prospective affect your value proposition and customer side of the model?

Next, look at your business model from the value proposition prospective and see what new value you can create or increase. Then see what value you can eliminate or reduce. When it comes to looking at your model from a value proposition prospective, ask yourself the following questions:

– What less valuable features or services could be eliminated or reduced?
– What features or services could be enhanced or created to produce a valuable new customer experience?
– What are the cost implications of your changes to your value proposition?
– How will changes to the value proposition affect the customer side of the model?

Finally, look at your business model from the customer prospective and see what new customer segments you could focus on. Then see what customer segments you can eliminate or reduce. When it comes to looking at your model from the customer prospective, ask yourself the following questions:

– Which new customer segments could you focus on and which segments could you possibly reduce or eliminate?
– What jobs do new customer segments really want to have done?
– How do the customers prefer to be reached and what kind of relationship do they expect?
– What are the cost implications of serving new customer segments?
– What effects does adding or eliminating customer segments have on your value proposition?

How would you start to apply the blue ocean strategy to your business?

Note: this article was originally posted November 11, 2015 at www.stevebizblog.com.

 

Critical Thinking About Market Forces

Market ForcesWhen completing a Business Model Canvas, it is helpful to guide the discussion through the use of questions. When it comes to looking at market forces that will affect your business model, the following set of questions should help you in thinking more critically about your business model. These questions are broken down into five categories: market issues, market segments, needs and demands, switching costs, and revenue attractiveness.

Market Issues:

  • What are the critical issues affecting the customer landscape?
  • What market shifts are underway?
  • Where is the market heading?

Market Segments:

  • Can you define the customer segment further by demographic and psychographic characteristics?
  • Are there specific customer market segments that are growing or shrinking?
  • Are there peripheral customer market segments that deserve more attention?

Needs & Demands:

  • What are the customer’s biggest expressed/unexpressed needs?
  • What are the biggest unsatisfied customer needs?
  • Where is demand increasing/decreasing?

Switching Costs:

  • What binds the customer to a company and its offerings?
  • What switching costs prevent customers from defecting to competitors?
  • Is it easy for customers to find and purchase similar offers?
  • How recognized and important is your brand?

Revenue Attractiveness:

  • What are customers willing to pay for?
  • Where can the largest margins be achieved?
  • Can customers find and purchase cheaper products/services?

What market forces affect your business model?

Adapt

Three C’s to Your Digital Business Model Success – Why You Need to Adapt or Perish

AdaptAt the Center for Business Modeling, we sometimes travel around the world to find business thinkers that underscore our philosophy for business models. This time, a Professor at New Zealand’s Massey School of Business, Leslie Warren, was the visionary that caught our eye. Listen:

  • “Businesses must reward experimentation…and create a safe space for failure.”
  • “We have to get over the idea that entrepreneurs are born that way.”
  • “Businesses must foster a culture where enterprising behaviors are rewarded.”

Very perceptive, professor!

Mistakes Matter

You’ve seen us weigh in on business models that are iterative and adaptive in the sense that they respond to customer needs and marketplace pressures. The companies that can build innovation into their business models are those who allow their strategists to “learn to learn from failure,” as Professor Massey urges in her video.

In a recent article in the Economic Times, writer Priyanka Sangani asserts: “The digital economy has resulted in a fundamental shift in how organisations operate, with the focus moving from products and services to experiences and outcomes. Organisations no longer control the conversation and if they don’t keep up with this peer-to-peer economy they risk being left behind.”

“C” Your Way Clear

Melding Professor Warren’s vision with the pressures of the new, digital economy that Sangani warns us of can seem a tall order. But if you focus on three main “Cs” of the new digital economy when building a business model to compete, you will be well on your way to achieving the flexibility you’ll need to win.

Competitors. Watch out because your competitors can turn into partners if you’re wise enough to build a business model that encourages “open innovation.” Professor Warren talks about such collaborations as the next wave of business partnerships—when the new imperatives of this “experience and outcome” economy require us to make friends of former enemies. If a partnerships not in the cards, then be sure to create a plan for regularly reviewing your competitors’ offerings and keeping track of their external presence in the digital space. We’re not saying you have to be a “me too” reactive marketer—just be sure you keep an eye on the other guy and learn from their mistakes—and successes. Use CBM’s SWOT analysis template to begin.

Customers. There’s no excuse—and I mean none—for not knowing your customer these days. What’s got them grinding their teeth in their sleep? What product tweaks can you make to anticipate not today’s pain points—but the pain points of tomorrow? (Everyone else can call these innovations, I’m fine with it.) If you don’t have a good CRM system or processes in place to get your sales teams’ feedback into the marketing strategists’ offices at least once a quarter—you’re missing the signals that can send your profits soaring.

In Sangani’s article, he interviews R. “Ray” Wang, author of the new book, Disrupting Digital Business and the founder chairman of the Silicon Valley based Constellation Research. Wang says that “the toughest shift is focusing on the new business model when the company is comfortable with life as it is. Most companies start with a new team and then try to integrate them back to the core after the first set of successes.” I would suggest a cross-functional team dedicated to the “Customer Experience” so that your business model can benefit from the brainpower of the entire organization. Fast tracking these projects will put you in a good place to compete now and win more customers later. Team members then can start intra-functional, customer-facing projects on this start-up “incubator” model.

Community. I know we are all a little tired of hearing about the differences between “engagement” and “awareness” in our online communities. Sorry, though, my friends: the numbers don’t lie: according to Demand Metric, content marketing generates three times as many leads as traditional outbound marketing, but will cost a company 62% less money.

Content marketing has proven to be a sure fire way to build communities—of suspects, prospects and dare we say, even “brand champions.” A solid program of content can move the needle on community engagement and awareness—if you know where your most impactful communities “hang out.” Do the research, plan on measuring the ROI and get started. As always, you need to be purposeful yet flexible enough to change course if your strategy fizzles. Use CBM’s Business Planning Framework to plan your community engagement projects—just pick a “tile” and get started.

Sangani’s Economic Times article is entitled, “Digital Darwinism is unkind to those who wait—you will be out of business if you wait too long.” I think that’s a little bit too dire of a prediction, because I think most businesses are awake to the possibilities—and perils—of our new world. I think we’re smart enough to “evolve and adapt” before bankruptcy looms. But one thing I do know—things are changing so fast in this digital, uber-connected world—if your business model isn’t able to change with them, it may be in very serious trouble.

Making Your Business Model More “Customer-Obsessed” in the Digital World

When your business model includes technology (and let’s face it, everybody’s does right now, at least when it comes to reaching customers) you need the right kind of people on board to uncover your next competitive move. You need the combined strength of product development visionaries; marketing gurus; and business analysts comfortable with the reams of big data that digital business models generate. So let’s say you have the right kind of team in place. What else are you doing right?

Your partners and processes are iterative and agile—you can move on a dime to tweak your sales and marketing plan as the marketplace demands.

Your sales and marketing strategy also has your prospects visiting your website and downloading your content in droves and you’ve got the analytics to nail down quality leads to keep your sales force happy for months to come.

Finally, your product or service continues to morph to reflect the common “pain points” you see out there – and your product development people are enabled via a robust, yet flexible Products and Services Roadmap process to introduce new products – products that “own their space” from the moment of launch.

You seem to be going gangbusters – you’ve obviously got a handle on the customer-facing “tiles” in the framework, above, but you want to be able to supercharge your customer focus. You might think that you need a brand new framework to deal with these new and emerging techno-powered customers. Not so.

You can effectively use the Center for Business Modeling’s Business Model Framework in light of the customer mandates inherent in our new, super-connected universe. Here’s how to do it by focusing on three key questions that will make sure you remain, “customer-obsessed.”

The customer is always right, right?

Let’s face it– your target audience might think they know what they need, but they may not always be right. Ideally, you do, and you can shepherd them through the buying process to educate, inform and, ultimately, inspire them with the product or service offerings that solve their most pressing problems. I remember delivering an IM solution for a group of internal employees back in the day. The pre-pilot benchmark groups were highly cynical about the solution—but once they got it popping up on their desktops they said, “We didn’t know that this is what we needed all along!”

You have this next greatest solution for your customer because you listen and learn with every complaint, every return and from lessons learned from every supposedly “revolutionary” product in your segments that flames out upon start-up. In the connected universe, you have even more signals to prove yourself an innovation partner rather than just a supplier, or one-and-done partner.

Marketplace and Target Audience Identification business model tweaks in this new world require you become a business collaborator—and to become an innovator for your customers before they necessarily know they need one. Ask yourself these customer questions and use them to adjust your customer-facing activities:

  • Do I take the time to find out which industry innovations are exciting my customers? If so, what do I do about it?
  • Are my sales channel partners having the same conversations?
  • How can I digitally enable myself to hear what my customers are saying and start conversations, building the relationship and shoring up my brand equity? Can I be cost-effective when doing it and can I prove it works?

Brian Solis has an interesting take on this last one. He says that: “Stakeholders and investors find it difficult to assess the ROI of customer experiences and the impact of positive reinforcement on the bottom line.” If you can get more quality leads from listening better and listening digitally, that’s enough ROI for us. That means you are creating a customer experience that works—and these days, you must use technology to do it right.

In a recent presentation at Pegaworld, Solis outlines the stakes involved in keeping your connected customer top of mind: “To effectively compete in the digital economy, you are left with no choice; become customer-obsessed or lose! Every moment-of-truth counts when it comes to customer loyalty. For some, this paradigm shift will be easy. For many, you will have to re-think your business model.”

Use CBM’s Framework among your top executives to plot out how this connected, customer obsession will look in your business model. Then, as Solis says, “adapt or die.”

Capturing Value in Nontraditional Ways

When I grew up in Massachusetts, I remember reading a story about Joe Kennedy. He would go up to owners of older drafty apartments in downtown Boston and make them a unique proposition. Many of the units were poorly insulated and cost a small fortune to heat in the winter. Joe would agree to insulate the building at no cost to the owner if the owner agreed to simply pay Joe the historical heating bill for a contracted period of time. Then at the expiration of the contract, the owner would begin to pay the actual heating bills from that point forward and owe Joe nothing for his investment in insulation.

Joe captured his value in the margin between the lower heating costs he had to pay while the owner continued to pay Joe the much higher historical based cost. Joe capture additional value in the form of tax credits.

Since I live in Colorado where it is sunny for over 300 days per year, last year I contemplated buying a solar panel to supplement my electricity. After doing an ROI analysis, I determined that based on the large upfront cost it would take more than six or seven years to see any kind of savings from the purchase. I recently read an article by clean energy entrepreneur Jigar Shah that got me thinking. There is an opportunity for a solar panel company to look at the Joe Kennedy model and just give away the solar panel in exchange for capturing the margin between the market cost of purchasing electricity from the utility company and the actual cost paid by the consumer with the panels supplementing their electrical need. The solar company could devise a economic model based on a contract period where the margin would provide an ongoing annualized revenue stream for a given number of years that would not only cover its cost, but provide a hefty profit. Rather than carry all the costs, the solar company could unitize the cost of the panels plus their installation and offer the deal to investors who could also capture the subsidies. Have you ever considered giving away your product in exchange for capturing revenue in other ways?

Reposted by permission. View Steve’s original post here. Follow Steve on Twitter @SteveImke

Keeping Promises to Your Customer: Marketing Strategies that Work

How to tell your company’s story to inspire trust, remain agile to customer needs

In Seth Godin’s recent blog, he says: “My take for the last 15 years is that marketing is merely storytelling and promise making/keeping, and in fact, everything the organization does is at some level, marketing.”

I couldn’t agree more. But how can a new company or an existing company ensure that they’re telling the right stories and making promises they can keep? Using The Center for Business Modeling Business Planning Framework will help. And the best thing about it is that it is an iterative process: If your story doesn’t gel or your promises start to feel flimsy, using the framework will help you adjust.

Agility is Critical

A post by Margaret Rouse writing on techtarget.com provides an excellent definition of business agility. She outlines the ways that a company can keep changing by “assessing priorities and progress frequently”—not just at the end of a project. Her post mostly discusses agility in the context of project management, however, isn’t your business plan the most important and impactful project you undertake?

Using the Framework has helped me crystallize my stories and ensure my promises are kept to my clients in three major ways:

I Can Do Anything Better Than You

1) Brand integrity- I used to tell the story: “I can do anything you need in PR and marketing” and it’s just not true. I don’t have certain skills but then again, one of my strongest attributes is being clear-eyed about that. If one of my clients gives me a project that’s not in my wheel house and hiring a contractor to fill in the gaps is cost-effective for both the client and my company—it’s full steam ahead. However, I need to be very careful when doing so—most of the skills I need help with come with a pretty hefty price tag. Working with my client to find a more effective partner brings them more value in the long run—and makes me more of a business consultant in their eyes. That’s the new story for me—“I will do what I’m best at and if it’s not my strength, I will make sure I hook you up with quality people.” My product and services roadmap (based on the CBM Framework) was adjusted accordingly.

What No One Wants to Hear About Business Ownership

2) Keep your promises to yourself- As a marketing and PR professional for many years, I spent a lot of late-night hours catching up on work because I made sure to make the evening football and soccer games when my kids were in school. When I opened my own company, I tried to opt out of business trips (when possible) that included a lot of travel, paid awesomely — but would upset my work/life balance.

Sometimes, I just had to leave and do my job—and that involved breaking promises to my loved ones rather than to my employer or client. Today, I walk a fine line with keeping client promises and promises to myself about how present I will be for my grown daughter and my youngest son. I believe that any business plan that ignores an entrepreneur’s personal life will fail in the long run—so when using the Framework, I make sure to adjust my plan to the impact on my personal life. I might lose some revenue, but I gain energy and commitment for the projects I choose to take on—because I know that they are congruent to my values. No one asks for their checkbook balance on their death bed.

What’s the Story?

3) Telling a valuable story- The CBM Framework shows you how to tell your company’s story and also to remain agile enough to change your story when the customer is not responding. This is where content marketing metrics come in—how are you reaching your customers and what are you telling them to ultimately turn them into “paying customers”? Your marketing strategies are always evolving based on their needs and your business goals.

Keeping promises. Telling compelling stories. These are the two core activities of any business, anywhere. I love feeling confident that I’m doing them well. Let CBM’s Framework make you confident, as well.

Three Ways to Disrupt Your Business Model

Technology is no longer the key disruptor:
Your Business Model is—So it “better be good”

David Skok is one of my favorite business writers because he tends to change the way I think about my business. He helps bring new ideas to entrepreneurs like me, who barely have time to do our jobs — let alone keep up with the latest in business model innovation. I know when I visit a Skok blog or SlideShare, I’m not wasting my time.

Take this recent statement from David in a SlideShare titled, “Business Model Innovation: The New Trigger for Great Start Ups”: “Unlike in the past where technology innovation was the primary driver of startup innovation,  in the last ten years it has frequently been innovation in new business models that has caused the disruption to create the opening for new companies.”

The 79+ page Slide Share brought me to some great conclusions about where my company might be headed. David uses awesome examples to show how the “business model as innovator” concept works in practice. Here are some of the most valuable insights:

1. Watch your CAC (cost to acquire a customer) – According to Skok, start-ups using the new model—spending money to get customers to your website and then monetizing the site with offers, etc—doesn’t take into account how much money it will cost to acquire not only a visitor– but a real customer. By monetizing a portion of the customer base and using free software to acquire customers cheaply, startups can keep their CAC more manageable—and make more money.

I learned this lesson the hard way. I loved attending the big, fancy conferences when I first started my company. I thought I would network with the big money clients—then, once they met me, of course they would hire me—voila! That $2,500 conference fee paid for itself.

When I finally broke down the average number of clients I obtained from attending twice a year, every year for three years, I came up with five clients that yielded about the same amount of money as I spent on the conferences. I deicided to cut down attendance to once every two years and spend my new business money on people who were already in my network.

I still go because I love to learn about my discipline. I just don’t spend as much in acquiring customers there. And even though $5,000 a year doesn’t seem like a lot to you, it was a lot of money to me back then. Today, I’d rather spend it on something that yields client contracts on a regular basis.

 2. Keep Track of Buying Behavior – Skok says that outbound marketing annoys your customers and is increasingly not working. Today, buyers use Google search, reviews, free trials, blogs and other content sources to learn about the offerings they need. The key point Skok makes resonates with start-ups in particular—you need “inbound marketing thought processes.”

 I see so much content “thrown at the wall until something sticks” by start-up companies. They “know” they need to be certain places online but they don’t pay thoughtful attention to what they want out there; who needs to be saying it (I love customer testimonials as a buyer and as a business); and where they need to be (to build a social following) basically, how to “educate and entertain.”  Spend a lot of time on this part. It’s worth it.

 3. Be a “New World” Business – The older business model had us charging for everything, even demos. Demos and trials are still widely used. But to move into the “new world” of innovative business models, you have to figure out how to simply give it away. For free. And only monetize a fraction of your customer base to make money.

Granted, your customer base has to be pretty big for most of us to afford the mortgage, the car, and our kids’ tuition with this model. But if you are watching your CAC carefully; writing and posting targeted content in accordance with how your buyers really behave (and not how you wish they would); and figuring out how to give it away while monetizing enough to feed your family and please your investors—Skok says you can get there.

Use the Center for Business Modeling SWOT tool to figure out your strengths, weaknesses, opportunities and threats in these three areas. And then get to work disrupting your market.

apple-business-model

Three Lessons from Apple’s Business Model

What you should know about Apple’s ability to delight (and keep) customers

I was watching the news the other day and saw Hong Kong street vendors with cardboard signs sitting on the street in colorful –but flimsy –nylon beach chairs. What were they selling? They were hawking Apple iPhone 6 devices outside of the Apple store that ran out of product –every single day.

Then, the Motley Fool ran an article this month (November 2014) about how Apple was formerly valued by investors as a subscription service, based on its free software updates. This update service is another example of how Apple keeps its customers front and center. They want to be sure the customer experience is as flawless as it can be — so they keep sending improvements to their devices — for free.

Apple’s stock price is on the rebound, with an updated “buy” rating from investors based on three very important facets of their business model—all of which directly affect the customer. So what should you know about Apple’s model to help you focus on your customers better?

#1 Pay attention to retention – According to the Motley Fool article, Apple’s retention rate is at 84% — double that of its rivals. If your business model doesn’t have a plain strategy for tracking and building retention, you’re missing out on an important deliverable. Even if customer retention isn’t a key growth driver for you, at least plot out why — or your competitors will.

#2 Product upgrades – Apple delivers upgrades almost constantly. If your product plan doesn’t include finding out about any “bugs” the customer is experiencing or which “want-to-haves” are moving to “have-to-have” features in their eyes, you need to get on that. Like, yesterday.

#3 Subscription prescription – If your product mix is lagging in these two areas, there’s still a way to create more built-in value: The Motley Fool article describes it like this:

The analysts even offer another way to think of Apple’s business, suggesting that its market cap could potentially double if only “Apple were valued more like a subscription business with low churn.”

At first, the notion of customer churn might sound misplaced in the context of a hardware business, but the point is that Apple customers are remarkably loyal, and the Mac maker can count on the majority of them upgrading their devices every one or two years.”

Your takeaway — make it super-easy for your customers to upgrade as if your products were a subscription service. Build in “upgrade” timeframes into your sell cycle and contract terms…make their life easier by making your product better before they have to ask. Have a discussion with your team about how you can structure your product offerings more like a renewable resource. That’s Apple’s model. Take a look and see which of their strategies you can deploy to make your product more like a service. Use CBM’s SWOT Template to plot your course.