How to create a compelling business model
There are many executives who don’t understand their own business model or who don’t even know what their business model is.
Opportunities arise when the whole industry agrees to offer bad service to the customers. In that scenario, you can provoke a disruption by creating a strategy that better caters to the needs of a segment of clients by designing a difficult-to-imitate business model around it.
Different types of customers have different needs and require different value propositions. If you want real success, you must configure your business to serve a specific type of customers with a specific need, creating an ad hoc business model in order to do so.
Even if you have a magnificent idea and a brilliant strategy, if you don’t build a good business model you’ll fail.
How a business model fails
That is what happened to Quirky. Their idea is very good, to be a platform that helps inventors build and market their inventions.
Anyone can publish their invention on Quirky’s website and if Quirky considers it to be marketable they put designers to work, make prototypes, register the patents, manufacture it under agreement with Chinese producers and sell it through 35,000 associated stores. Quirky pays royalties to the inventor.
Quirky members present 2,000 ideas per week, even then, only 100 of them reach the market. Even though they managed to earn 70 million dollars in 2013, the company has gone bankrupt. A great idea that democratizes invention, but with a business model that has not been able to adequately connect all the pieces in such a way that this distinctive idea can generate sustained returns.
Competitors may try to copy your best practices, but will not be able to imitate a complete business model. Anders Dahlvig, president of IKEA, said: “Many competitors may try to copy one or two of our features. The difficulty arises when you try to recreate everything we have. They can copy our low prices, but would need our volume and worldwide supply capability. They must be capable of copying our Scandinavian designs, which isn’t easy without a Scandinavian heritage. They must be capable of copying our distribution process with flat packages. And, they have to be capable of copying our internal expertise – the way we arrange our stores and catalogues”.
What you need to do
Your business model must be in line with your strategy. You must align your resources and capabilities with your service proposal to create a differential value for the customer, and with the different activities carried out so they reinforce each other. This way a competitive edge is created.
You will need to establish the central rules of your business model, since they’ll help you create an organization that learns. In IKEA, everyone has internalized the basic rules and made decisions according to them, reinforcing and improving the model.
You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.
If you can’t create a compelling business model your business will suffer heavily. In such a case, it is best to start thinking about selling the company, specially nowadays that the M&A world has gone crazy and prices are at their peak. As advisors who have taken part in numerous operations, we know that many times you are unsure if M&A is the best route for you. If you need advicing to decide what the best option is for you don’t hesitate to contact us!