Let your business model be a game changer

FOUR years ago Tom Goodwin, a senior vice president of strategy and innovation at Havas Media noted a curious trend in an article on techcrunch.com.
He observed that some of the biggest companies in the world were dominating sectors without the prerequisite infrastructure that has traditionally determined success.
Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening,” Goodwin said.
All those companies are game changers that have transformed their sectors and even the whole world. A good business model can prove to be a game changer as it will give a company some competitive edge.

But what exactly is a business model.
A business model describes how an organisation creates, delivers, and captures value, in economic, social, cultural or other contexts. Simply put, it describes how an organization fulfills its purpose.

According to Peter Drucker, a management guru, a business model answers the following questions: who is your customer, what does the customer value, and how do you deliver value at an appropriate cost?

A business model should concentrate on value creation for both the consumer and the shareholder. When drawing up a business model for a company you are basically addressing the question “How do I plan to make money?”
This question will be answered by asking and answering these further questions:
l Who’s my target customer?
l What customer problem or challenge do I want to solve?
l What value do I deliver?

l How will I reach, acquire, and keep customers?
l How will I define and differentiate my offering from the competitor?
l How will I generate revenue? An effective business model also takes into account how customers pay.
l What’s my cost structure like?
l What’s my profit margin?

The simplest and oldest business model involves creating a product and selling it at a profit directly to customers. There are other alternative models that involve selling to a wholesaler or to retailers, or selling through distributors, licensing products to other companies, selling online, or selling through auctions and a lot other alternatives.
The coming up of the internet has brought with it a lot of other business models.
All great business models depends on developing qualities that help the business succeed such as finding high-value customers, offering significant value to customers, and delivering significant margins.

High-value customers should be those that are easy to locate, that allow you to charge a profitable price, those customers that are willing to try your product after minimal marketing expenses and those that can generate enough business to meet your sales and profit objectives.
These customers could be the end users of your product or service or they could be retailers, distributors or wholesalers.

In order to offer significant value to customers and thereby create competitive advantage, your product features should provide unique advantages and benefits to the customer, the product should be distributed effectively, provide lower selling price and this can be achieved by incorporating benefits from manufacturing efficiencies into the price or through adoption of favourable pricing options and you should offer faster delivery and a broader product line.

The internet can help you in being innovative as you serve customers. It’s imperative that you stay on the creative edge to fend off competition.
To create value for shareholders you need to deliver products or services with high margins.
You can achieve higher margins by improving processes or by having features that provide significant value and allow you to charge more.
The following tactics can be used to earn high margins: using a more efficient distribution channel, reducing sales support and sales effort, maintaining a lean manufacturing process, offering more auxiliary products or other opportunities for revenue without increasing cost.

Business models are an essential part of strategy.
Any resilient business model must be able to create sustainable returns for its investors over time, or else, it will go out of business.
Companies have come up with a variety of business models like the one adopted by Gillette ‘razors and blades’ model in which a basic product, the razor, is sold cheaply, but an essential add-on or consumable, the blade, is sold at a high price once the customer has been lured in.

Business models are not static. If you want to remain relevant and competitive you need to constantly review your model.
“Write your principles in pen and your business model in pencil” said Josh Kapelman.
To maintain your competitive advantage, it’s very important that you ensure your business model still delivers what the customer values.

If you are coming up with an innovation that is competing head on with an existing product or service, then your innovation should bring in ten times improvement in performance compared to the competition, or you should be changing the rules of the game with your business model innovation or you are re-imagining the future or creating it.
Business model innovation, if it is executed well and the timing is right, will be a great source of sustainable competitive advantage which will unleash immense value for your customers and your business.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy (ACCA P3), advanced performance management (P5) and entrepreneurship.
He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062 .