Paul Lemberg

Part I

Long ago and far away during what is known as the dot-com era, something called “business models” were the rage. Every company had one—or at least they spoke about having one. But along with some other questionable business notions like “cost-per-eyeballs” and “stickiness” — the idea of business models has fallen into disuse.  

I think it’s time to revive this powerful shortcut to profitable thinking. 

What is a business model and why do you need one?

A business model succinctly describes how your business will make money. It is shorthand—hence the term model—insuring that all your business bases are covered, detailing only the essential elements: how you produce a product or service people want, how you tell people about it so that they want it, how you put that product in their hands, and how you make a profit.

Simple enough, right?

Have you actually gone through this exercise? Have you taken the time to consider the critical factors for your business success, making sure you have adequately addressed each one?

Suppose your business is already generating a profit. Do you need a business model?

Maybe…

To paraphrase Dr. W. Edwards Deming (you can’t go wrong paraphrasing Deming),  “If you can’t tell me, simply and briefly, the purpose of what you are doing, then you don’t understand what it is.”  

To put this another way, if you can’t describe—briefly and to the point—how your business performs its critical success functions, you are probably not earning the most money possible from the opportunities available to you.

But a business model is more than just a list of the essential elements—it is a cohesive narrative which you can communicate easily—to customers, vendors, lenders, investors, employees, anyone.  And just like a financial model—which allows you to identify and tweak various components like lead conversion rates or the cost of money—a business model helps you identify, then tweak, individual components to increase your profit. 

There are four key parts to a solid business model.

Your value proposition.

Your value proposition links the individuals and organizations (consumers) in your market segment to the products and services you offer, via your unique package of “value elements.”  Your value proposition answers the questions: who are they buyers, what will they buy, and why will they buy it.

Your fulfillment system.

Some people call this operations. I like fulfillment system; it makes the point that this is about fulfilling on the promises you make to clients and customers. Your fulfillment system is the way you deliver your company’s unique value to your customers, in the form of products, services or both.

Your fulfillment system may involve creating something in-house or outsourcing. It might involve manufacturing from raw materials, assembling components, or even buying finished goods—for resale.  Or it might be providing services with your own staff, using outside contractors, or assembling a team of virtual contributors.  Any combination of fulfillment methods is possible; your business model makes clear which.

Your business development system.

Your business development system includes those parts of your business which identify potential buyers and puts your product or service in their hands. This is what people traditionally think of as marketing and sales. It also includes distribution networks, licensing, franchising, channels, and any other systems or methods that facilitate people buying your wares.

Your profit formula.

This is how your company is going to make money.  

As it is said, do the math! You cannot buy high and sell low expecting to make it up on volume, regardless of what people hoped in ages past.

Buy low and sell high will make you money, but unfortunately, for most people that bit of info that doesn’t tell you enough to get rich. You must buy low enough, make whatever you buy worth more via some kind of added value, and then sell high enough, over and over again. Your profit formula describes how you are going to do that.

In Part II of  Profit Models, I’ll talk about a simple method for creating your model.

If your business has between $2,000,000 and $25,000,000 in revenue and are ready to rapidly move it to the next level, you should get in touch to find out how we can help.  Axcelus is the world’s only Business Acceleration company with a proven, systemized approach to helping entrepreneurial businesses expand and develop – much faster than they are already growing.  Go to http://www.axcelus.com/acceleration_request.html

Paul Lemberg is available for consulting and speaking at your next meeting or retreat.