One of my favorite expressions I hear from small business owners is, “That doesn’t fit my business model.” I have sometimes followed up when hearing that and asking simply, “What is your business model?” Usually, I am told a lot of “stuff” about demand, processes, partners and things that really aren’t overwhelmingly important. In other words, a lot of stuff that adds little value to the small business owner. Most often because somewhere, somehow, someone has made this all very complicated.
Your business model should be simple. It should be a quick snapshot of what your business is and how it operates. Like the overused metaphor of layers of the onion, the model can be as multi-layered as you want. Layer upon layer of stuff that has value to some and to others is gobbledygook.
So beginning with a very simple model allows any small business owner to effectively lead and manage their business. They can add different layers to the model depending upon their own needs and goals. However, the very basic model is a simple one usable by any small business owner.
Think of your business as a series of functions and activities. In general, you have eight primary ones. Four of these functions will focus on the internal operations of your business. These four functions are:
Production (Service) and Product (Service) Management
Waste Management and Team Development
The other four functions focus on the external operations of your business. These four functions are:
Marketing and Sales
Customer Service and Customer Retention.
Together they look like this, each overlapping all of the others because they must all work together to achieve business success.
The internally focused functions are concerned with containing or reducing your costs. This is everything from what it costs you to do something, to your suppliers, errors you make, labor, material, waste and the team you have.
The externally focused are concerned with increasing revenue (sales). They do this through providing qualified leads from a variety of resources and customers, selling an appropriate number, offering additional value-added products and services that increase sales and retaining a large amount of your customers for repeat business.
When all eight of these work together effectively you get decreasing costs with increasing sales making your business more profitable and valuable.
That is the basic business model. It doesn’t need to be any more complicated than that and for some small businesses that are all they will ever need…until they want to grow bigger.
You can add another layer to that model by how you accomplish the key concerns in each of the eight areas. For example:
1. Mapping out your service or production process to find ways to make it more efficient.
2. Analyzing the supplies and materials you use to provide your product or service.
3. Looking closely at the effectiveness of your marketing. Is it doing the job of attracting qualified first-time buyers who want to buy from you or is it just a bunch of words spread around the marketplace?
4. Measuring to ensure your sales is selling the right product and service at the right price and volume.
5. Getting your customer service to add value to initial customer purchases by upselling.
6. Leading your customer retention so it returns a sufficient amount of repeat business.
After that layer, if you want, you can add more. More education, tools, training, coaching and results that create a more profitable business that gives you all of the things you want and need. Some will suggest that this involves developing an understanding of how financial statements work, how to incorporate six sigma kaizen or lean into your business and so forth. Some will suggest that you find a simpler way to take what is important from those areas and put it into simple terms and means that will not only sustainably grow your business but also are easier to both use and understand. (The reality is that even the most basic model requires the business owner to understand the finance of business)
This defines your business model. It clearly demonstrates how your business should operate daily. Within each of the four functional areas lives the detail about the who, what, where, when and how. If it isn’t there it doesn’t belong there…hire external experts on an as needed or contract basis. Anything more complex than this gets in the way of your business.
Whatever you decide, the end result is that your Business Model can be as simple or complex as you need it to be with none of it being overwhelming. Making certain your Business Model meets your needs as your business continues to grow, is critical to your ultimate success.