If You Haven’t Redone Your Business Model, You May be at Risk

By John Riley

 Businesses that have managed to weather the economic storm by cutting staff, reducing inventory, and a variety of other measures are now trying to figure out how they are going to sell their wares in this new and uncertain economy.  In response to the new business environment many companies  are changing their business models and most likely, more will be. 

 Building a business model  can be as simple or as complex  as the situation requires. The important thing is to end up with plan that offers you a realistic chance of success.

 It always starts with customers. You can be sure their businesses have been impacted by the recession as yours has been and they are or soon will be doing things differently.  You need to understand what’s changed and most importantly, how it’s going to affect the way they are going to do business in the months and years ahead.  Be sure you are well prepared with the questions you need answered…you may not get another chance for a long time. 

 Remind yourself that if you don’t listen to what the customer is telling you, you’re not going to get the message.  Communication experts tell us that listening is the biggest weakness people exhibit when trying to communicate.  We also know that listening is a learned skill so concentrate on nurturing it. When you do, the valuable intelligence you will receive from the customers will help build your business.

 You will already have a good handle on the economy and forthcoming government regulations so its time to think about the strategies you need to penetrate and expand what you have defined as your target market. If you run a tight ship, each of your departments will have processes that have generated and stored historical performance data and the metrics that are used to measure that performance.

  Input from the sales and marketing department is a good place to start. Sales personnel report on each of their customers and submit  forecasts of anticipated purchases for each, how much of that business he expects to receive, and the resources he needs to make that happen. With that information, the head of sales consolidates the data and arrives at a total sales figure for the year, taking into account the enthusiasm or lack of enthusiasm  of his team members.

 Manufacturing then introduces their metrics, units of production per day, cost per unit, amount saved through manufacturing efficiencies, quality improvements, capacity increases or decreases, etc.  Also taken into account is the financial officer who distributes the list of planned capital expenditures, timelines for receipt of equipment and start up of operations.

 Each of the departments that support sales and manufacturing provide their proposed contribution in the form of increased revenues or reductions in operating costs or both.  Metrics from each department will be used by the Department Heads to support their proposals.

 With this collective input, the executive team is able to fashion its business model for the coming year. The business model remains a dynamic tool as the year progresses. Management knows and expects there will be some tweaking of the numbers, but when management spots a gap (significant variation) between expected performance and actual performance they take corrective action. 

 In general, this process of collecting data, analyzing it and then preparing a business model is one of the most important management  functions.  Approach it casually and without preparation and you will pay a high price.  Do it well and you will reap the substantial  benefits.

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