Wherever you turn today business owners, leaders, social media channels, books, blogs, and entrepreneurs talk about business models. It is a trendy term thrown around by so many and to such an extent that the power of a business model seems forgotten.
As a reminder, we ask and answer, four questions. What is a business model? What does a business model look like? Why are business models so popular today? Why every business, regardless of type, size, age, wealth, or industry, needs at least one.
What is a business model?
In 1973 Douglas T. Ross, an accomplished computer scientist, wrote about scientifically modelling a business. Since then the business model has been tested, updated and applied successfully many times by scientists, business owners and leaders globally.
The model (or graphic) conceptualises the core elements of a business regardless of type, size, age, wealth or industry. These elements detail how a business makes money; who the customers are and what channels are used to reach them; the unique value the business provides to customers; who to form strategic relationships with; what key activities the business performs to deliver this value and collect revenue; and how these elements are measured.
Most businesses have more than one model, for example, a model each for innovation, change, technologies, strategic partnerships and acquisitions. Professor for Technology Management at St Gallen University, Dr. Oliver Gassmann, in one of his academic papers written in 2014, lists 55 different types of business models! Some you may recognise as popular today. Freemium – where some service(s) are free, upgrade for additional functionality. Subscriptions - a monthly fee is charged for a set period, starting at an affordable price point, with the option to increase or decrease over time. E-commerce - the sale of products/services online. Performance based - a customer pays on results.
What does a business model look like?
Business models can either be explicit as written or drawn or implicit, unspoken or undocumented, yet no less powerful. Explicit business models can look different as seen in the four examples below.
Figure 1 Four examples of how business models can look different.
To succeed in any business environment a business requires both core and dynamic capabilities. Our focus here are dynamic capabilities, the ability to learn, apply the learning skilfully to adapt quickly.
Dynamic capabilities are necessary because the business environment is never static, it changes constantly, so a business needs to adapt with it. I like to use the athletics race analogy. Imagine a 100 metre race. A runner bursts off the start line as the gun goes off, immediately striking and maintaining a steady, strong pace, never changing, even when competitors pass by on the track. Who will get to the finish line first? Like the runner, without adaption the business becomes stagnant, and competitors who are adapting, pass by reaching the customer first.
From a technology and innovation perspective, the need for adaptability stems from technology advancements. In today’s environment advancements occur every 18 months. Advancements mean a new set of competitors offering new, more convenient, more enticing and exciting ways to interest a finite number of customers. New technologies have removed geographical borders, so competitors are global, and therefore, are unknown, compared to previous years where competitors where more local, easier to recognise and keep an eye on. As Jack Welch, retired CEO for General Electric, said “ An organisation’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage".
So getting ahead, and staying ahead, of the competition requires, robust competitor and business environment research that informs a good strategy, and which dynamic capabilities to develop. Here are 3 common dynamic capabilities using Zoom under COVID as an example where a thorough simple STEEPLE/PESTLE analysis can help identify changes and new opportunities.
1.Business contextual factors
Zoom has flourished due to the global need for video conferencing for communication. https://www.theguardian.com/technology/2020/jun/03/zoom-booms-as-teleconferencing-company-profits-from-coronavirus-crisis
Zoom application and infrastructure was in place when the world needed it, was easy to set up and use, and low cost. Entrepreneurs recognising the trend early have developed alternative applications that offer all the things Zoom doesn’t offer. Megatrends can also help identify ‘sub’ trends sprouting from the megatrend. For example, online video teaching, though around for quite a few years already, has exploded recently.
In both the examples above businesses have used technologies to grasp opportunities in delivering a service to satisfy the demand of the consumer.
Develop the capability to stay up to date, and recognise changes, in these 3 dynamic areas, then apply your findings to your advantage, to get ahead, and stay ahead, of your competitors.