Need help with business model analysis? Here are some tips
The whole point of a business model is that it’s continually being tested in the marketplace. It’s dynamic, flexible and capable of withstanding external changes. An essential part of making that work is constant re-evaluation of what’s going right and what’s going wrong – something we call business model analysis.
We first need to create a business model – which is fundamentally a way to describe how the business creates, delivers and captures value. Osterwalder’s ‘Business Model Generation’ describes nine ‘building blocks’ to create a ‘canvas’ – customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. Other approaches are valid and usually have complementaries – such as Hamel’s ‘The Future of Management’, which details how to unpack a business model.
Whatever method you use to outline the business model, the analysis element is essential and can be applied across strategies.
Business model analysis tips
If we’re analysing the model, we assume you have a model in the first place. But if you don’t, the first step is to develop and document the business model.
Now on to analysis and the first real phase – unpacking the model to look at the 9 building blocks.
We must take each of the blocks in turn, we can start analysing where the value is created. Let’s take one of these as an example to illustrate the process – Channels. (for example in retail these could be your shop, wholesale distribution, and ecommerce site).
Firstly, measure the channels’ value to you – those that bring most the valuable customers, which you make only a little on and those that are loss-making.
Once the measurement phase is complete, it’s time to assess what to do with each channel. This could involve ramping up activity in those making the most money, putting more effort into those that make a little or scrapping those that generate a loss. However, very often improvement is all about effort and you could find that cutting expensive processes could transform the value created by a channel.
Social media is a good example. Most small businesses are diving in without much of an idea about the value it adds; they have little or no idea about how much profit they get from their social media activity. Even worse, they may not know how much it’s costing them in terms of time and opportunity cost (ie, what they could be doing instead that is more valuable).
The first improvement is to measure both (cost and profit) to see how to take things forward. This could be to reduce costs (such as using an automated scheduling tool), or to invest more with an third party provider who can manage the account.
Finally, while we have spoken about adding value to the business, we should remember that the business model canvas is a tool to demonstrate the company’s value proposition – in other words its value to the end user (utility).
A common problem is to confuse effort and activity with doing the ‘right thing’. If we don’t know if it’s what the end user (customer) really wants it’s almost certainly going to include wasted effort and cost. Business model analysis should be carried out in the context of uncovering and maximising ‘utility’ with the minimal cost to the provider.
Looking at social media again – does the consumer value the interaction with your Twitter account? Do they engage? What are the responses like? We need to measure these to assess the value of this channel.
These are just a few pointers on business model analysis, to find out more about business improvement, contact us.