In our recent post, 8 Things that Growing SMEs Should do in 2014, we asked you to question whether your business model was working efficiently enough in a changing business landscape. In today’s post, we look more closely at what defines your business model and if it is setting your organisation up for success in 2014.
How does your business model shape up?
A business model is a framework by which your organisation works – across all functions. A few key elements are needed to bring a business model from theory to reality and, it might never be a ‘finished’ piece of work, but one that needs constant review and adjustment to remain relevant within your industry as well as the wider economic market.
Your business model needs to include these important factors;
- Purpose– why are you in business? (Making money is a result of your business, not the purpose)
- Target(s) – who do you create your services and products for? Do you need to change or expand your target market?
- Products/services – what do you do/create/manufacture? Do you need to broaden your product range or become more niche?
- Strategies – what’s the future plan for your business? Is everyone aligned on this?
- Infrastructure – where are your offices based? Are your locations optimum for your business? Do you have the appropriate tools, machinery and technology to do business?
- Organisational structures – do you have the best people in the right positions to fulfill your business strategy? Do you have the right support across all levels?
- Trading practices– how do you do business? How often are your practices reviewed to ensure they are still the best for your business?
- Operational processes and policies - does the day-to-day running of your business go smoothly? Are your operations productive and efficient at all times? Does everyone follow the same rules?
As David J. Teece remarks in his book Business Models, Business Strategy and Innovation (2010):
“The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit".
How can you improve your business model?
Whether you’re an entrepreneur just starting out, an SME looking to make a big leap, or a giant corporation, your business model matters, and as long as you’re in business, it always will. Three key steps can help you to constantly review and improve your business model.
1. Print it, share it, review it
Have a version of your business model available for your team and heads of department and integrate it into regular discussions and meetings with them. It’s all too easy to get stuck in the daily issues and details but taking a step back regularly and asking yourself, and those supporting you, questions such as ‘how does this support our strategy?’ will help you to constantly follow your business model, or redefine it.
If you have never shared your business model with your team, now is a good time to start. Before sharing it, ask them what they think the answers are to each of the elements mentioned above – you might be surprised at how differently they see your business!
2. Involve your employees
They are the heartbeat of your company and often the ones who know more about the daily obstacles and issues than anyone else. Share your business model with them and create a safe and open environment for them to raise any potential issues they see from their own corner of your business. You might just be enlightened by something one of them says that doesn’t support your current business model and you have the opportunity to adapt accordingly. You’ll also see more empowered employees when they feel their opinion being listened to and they’ll feel part of something bigger.
3. Ask customers for feedback
This doesn’t mean sharing your entire business strategy in your next newsletter or asking them to tell you everything that’s wrong with your organisation; it needs to be subtler than that. Monitor what your customers are saying about you online, for example, and take notes of where your business model might be improved. Review the top ten complaints received in the past 12 months and look at what changes could be made to avoid this happening again. Creating exceptional experiences for your customers needs to be an important step in defining your business model so don’t underestimate it.
Ultimately your business model should be top of mind for you, your team and your employees - and they should all know where they fit in to making it a reality.