Over the past few weeks, I’ve connected with some brilliant individuals in multiple entrepreneurial organizations. In every instance, I heard some form of “We want to change the world” as these high-energy individuals described their ideas and their motivation.
I love “change the world ideas” put forth by people passionate about doing something new, doing something better and helping others along the way.
There’s no way I can avoid cheering for these teams. However, I can worry for them.
In particular, I can worry about the part of the discussion that is missing thus far in all of these conversations. The gap in our conversations occurred when the topic of “business model” was broached. And more specifically, the gap was reflected in the inability to clearly define whom they were serving and HOW they were going to make money.
What is a Business Model?
If you mention the phrase, “business model” in a crowded room, a good number of people will nod their heads knowingly, adopt thoughtful and curious looks on their faces and secretly wonder what the heck a business model really is.
For a bit of help in getting on the same page about business models, I am referencing the definitions put forth by both the late Peter Drucker and Harvard’s still thankfully, very alive Clayton Christensen (as described in the HBR article, “How to Design a Winning Business Model”):
Drucker offers that a business model is comprised of the answers to the following three questions:
- Who is your customer?
- What does the customer value?
- How do you deliver value at an appropriate cost?
Christensen indicates that a business model must consist of four elements:
- A customer value proposition
- A profit formula
- Key resources
- Key processes
I like them both. Take the time to address Drucker’s questions and Christensen’s four elements and you will be much better armed to go forth and conquer your targeted space in the world.
Unfortunately, a fair number of noble world-changers armed with know-how, communities, content/products and visibility are not yet able to answer Drucker’s questions or describe their business in terms of Christensen’s components with appropriate specificity.
These groups are not alone. We all struggle with this issue in our businesses…and frankly, I continue to wrestle with it several years after launching on my own. The issues surrounding your business model must be constantly re-evaluated.
The world is a difficult place and tends not to change for those that fail to figure out who in specific terms they are serving, and what REAL, TANGIBLE, PAY MONEY TO FIX types of problems they are solving for these customers. The outcome tends to be a great deal of activity with no vector and ultimately no ability to sustain.
The Pitfalls of Not Thinking Through Your Business Model:
- You have no true strategy..and therefore, almost every idea seems like a good one. You don’t know where to say, “No.”
- People around you are excited by an appealing vision and offer cheerleading that keeps you energized and focused on producing more of something…content…better mousetraps…huge visibility, but no revenue or profit.
- You easily get caught up in the trap of, “If I do more of something,” it will fix the revenue and profit problem. You keep doing more, creating more, building more, talking more..but still, nothing changes on the revenue or profit side.
- You turn to others for advice, and well, everyone has opinions. Some of these opinions include solving the nagging tactical problems that occupy your days. A new website. More technology. More widgets to help extend our visibility.
- You adopt visibility statistics as metrics, when there is absolutely no meaning behind the statistics. They’re fun to watch, but they don’t answer the important business model questions above.
- At the risk of being redundant and borrowing from my recent read/review of Wayne Elsey’s, “Almost Isn’t Good Enough,” “visibility isn’t engagement,” and, “no money, no mission.”
A Short-List of Ideas (and a case study) To Help You Think Through Your Business Model:
1. STOP! Take a time out. Quit creating “field of dreams” (build it and they will come) offerings without answering Drucker’s questions.
2. Clarify. Revisit your vision for what the world will look like when you’ve fulfilled your mission. Clarity is key here. If your vision isn’t crystal clear, no one, including yourself will understand how to build to road leading towards this vision.
3. Resolve. Solve the “my customer is potentially anyone who breathes” dilemma. Sorry, I know that everyone can use your product, but no one will unless you narrow your focus down to a tangible number of people that you know as well as you know yourself. In fact, you should strive to know them better.
4. Describe. Define the “experience” that you want this customer to have, and identify the processes you need to create to develop this unique and differentiable experience.
5. Push back from your desk! Spend most of your time getting to know your customers off of the computer screen and out in places where your customers live and work and hang out.
6. Map the terrain. Move from the customer to the customer’s sphere and map out the influencers, participants, channels, and competitors. Look for people that are interested in the same customers, as these may be people will to pay for, help or support your efforts to address those customers.
7. Show yourself the money. Resist the urge to do more, until you’ve built a plan to fund the business. Without this plan, you are effectively planning to fail.
8. Get creative. Funding can come from more than the end-customer.
One of my favorite success stories is a firm that took the old media model of the magazine and successfully adapted it to today’s web-based world.
In the old magazine model, you secured subscribers to interest advertisers. The more subscribers and the more information you could provide/sell to your subscribers, the more you could charge your advertisers.
The owners of the magazine had a mission to bring information to very targeted professionals to help them solve mission-critical data dilemmas for organizations. With the demise of print media, they moved their model to the web, but also identified new ways to build global communities and leverage current social technologies. Today, this organization brings together communities of experts in specific business areas on the web, provides them with a platform to deliver content to targeted (free) subscribers. The subscribers opt in and agree to allow information about the content they consume to be aggregated and ultimately licensed to industry firms. This information is golden for advertisers that sponsor events, leverage the experts and market to the subscribers. The industry firms pay handsomely for access and for information, the industry experts build their businesses and the subscribers grow smarter and engage with firms that understand their needs.
As an important note, the former magazine publisher and now web-based community/content provider didn’t invest a single penny until he had defined this business model.
The Bottom-Line for Now:
No money, no mission. We need you to change the world. Just don’t forget to figure out how you’re going to pay for it, and how you’re going to pay yourself in the process. You’ll be much more effective and much happier once you can afford your idea as well as the talent needed to make it happen.