The idea of business models seems to have taken a back seat to the flashy world of blockchain, digital coins and artificial intelligence in today’s business talks. But clear business models are critical to the success of any company, old or new.
At the most basic, a business model describes how a company makes money. It shows what the company offers and to whom, how it creates, delivers and captures value. A well-constructed model aligns with the company’s purpose, goals, and strategies. These days, businesses need to be creative in designing their models.
So, how do executives get it right? The first step is to have a clear understanding or ‘consciousness’ of their existing model. This understanding can help the business find areas of innovation and improvement. It’s a way of looking closely at the building blocks like key resources, activities, partnerships, customer relationships, channels, costs, and revenues.
Executives have to periodically check if their business model still works and aligns with the current market. The unfortunate truth is that sometimes even successful business models no longer meet demands in the rapidly changing business environment. For instance, Blockbuster failed to evolve their DVD rental model, which led to its downfall in the face of online streaming like Netflix.
A business model review could show gaps, risks, and opportunities. This process involves challenging all aspects of the current model. It could even prompt a complete overhaul, where businesses pivot to a better model. Take IBM as an example. It transitioned from hardware production to a service-oriented model.
The path to creating a great business model also requires experimentation. A company could test different ideas, learn from the outcomes, iterate and implement the ones that work. Remember: experiments could also mean failures, but they’re invaluable for testing a business model’s resilience.
It’s critical for companies to not just follow the crowd but choose a model that closely aligns with their goals. If executives are ready to take the time and effort to understand, review, challenge, experiment with, and implement productive business models, they’re on track to setting up their companies for long-term success. In the end, it’s not about who has the latest trends in digital coins or artificial intelligence, but who understands the roots of their own business model best.
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