inflation rate of 15%. This is an indication that the economy is heading towards recession and as expected, businesses are feeling the effect. Companies are closing down amidst high cost of doing business and drop in consumers’ spending, while others are re-strategizing with their business model to face the challenges. While we hope for the best as business people, it’s important that entrepreneurs begin the process of re-evaluating their business models and repositioning them for a sustainable operation.
To reposition your business model, it is important to have a clear understanding of the model currently adopted by your business. Every business has a model as long as it creates and captures value, even if it is not well articulated (which is dangerous for business). Consider a business model as a roadmap that tells you what value to create, how, when and who takes responsibility for its success. A business model is not an end in itself, it is not a guarantee of business success indefinitely, but it puts you on track. Hence, the survival of your business depends on how sustainable your business model is. To be sustainable, a business model must meet the needs of today, and create a way for solving problems in the future. It guides your business no matter the state of the economy as long as you continue to create value. The best idea and technology cannot drive your business operations, but a good business model will. It is the wheel that drives your business and it can make or mar your business activities.
In developing a business model, the values you intend to create as well as capture should play a key role. For every action taken, the question should be what value am I creating, and how do I capture it to benefit my organisation? Until your customers are satisfied, your business model has not performed its key function. So, what do we consider in developing a sustainable business model?
Clearly define your current business model. Companies that don’t have a defined business model are those that depend on price of goods and product availability in the market to compete. You must define your business in terms of how you want to generate funding for the business as well as revenue, who are your customers and how they want to be served, the type of method you want to engage in creating your market offering (product or service) etc.
Make it adaptive. Your business model must adapt (efficiency is key) to all phases of a business cycle -Expansion, Boom, Recession, and Depression. When creating a business model, don’t just focus on the current business cycle alone, consider and evaluate your models in terms of all the phases. The problem with relying on the current business cycle is that, when that phase is over, your business model may not fit into the reality of the new phase.
Integrate innovation process into it. Karan Girotra and Serguei Netessine, authors of the book, ‘Risk-Driven Business Model: Four Questions That Will Define Your Company’ explained that your business model is just a series of decisions you need to make regarding your costs, revenue and risk. In integrating innovation, you must consider what decisions to make on improving your products and services, when such decisions can be made, who makes them and why. A business without an innovative business model, shouldn’t dream of creating innovative products or services.
If you have doubts about the survival of your company, maybe it’s time to evaluate the business model you have adopted and see how it affects your business’ ability to remain relevant in the market.