By Richard M. Franza, Ph.D., Guest Columnist
The time may be right to reassess your company’s business model, Augusta University’s Rick Franza says.
We all are aware of the damage this pandemic has inflicted on our individual companies and our economy as a whole. We are facing our first major economic crisis since the 2007-09 Great Recession.
Despite the economic trauma of recessions and depressions, some good can come out of such turmoil. A study sponsored by the Kauffman Foundation in 2009 found that of the Fortune 500 companies at the time, more than half were started in a recession and/or a bear market.
By extension, I also believe that means existing companies can come out of a down economy strongly. The question is: How? For startups and existing companies, it is always wise to start with your “business model.”
Simplistically, your business model is how your firm makes money, and your model will change change over time. Therefore, it is wise to regularly assess and adjust it according to how things might be changing in your markets.
I have found a powerful, yet simple tool to use in such assessments and adjustments, the “Business Model Canvas,” which I propose you use as you prepare to emerge from the pandemic.
The Business Model Canvas was introduced in 2005 by Alexander Osterwalder. He provides nine fundamental “building blocks” for a business model. In order for your business to thrive, these building blocks must complement each other to satisfy your customers.
These nine building blocks are: customer segments; value propositions; channels; customer relationships; revenue streams; key resources; key activities; key partners; and cost structures. I will briefly touch on each of these nine building blocks and how you might be thinking about them as we emerge from the pandemic/recession.
When using the Business Canvas Model, it is best to look at the first five building blocks collectively. These are the blocks related to customers and revenues. Basically, with these five blocks, you identify how you are going to generate revenue based on how you address your customers’ wants and needs.
The first block to look at is identifying your customer segments; to whom are you trying to sell? Are you a mass marketer, or are you selling to a specific segment or segments or a niche market? Who are your most important customers?
Hand-in-hand with identifying your customers is identifying what those customers value. Your value proposition is telling your customers why they should buy your product or service. Is it more cost-effective? Is it higher performance? Is it more customizable? Is it convenient to acquire? Who your customers are and what they value can change due various competitive and environmental factors.
The pandemic may be having a significant effect on what your customers value, so now is probably good to reevaluate your segments and what your customers value and do your best to determine if changes related to the pandemic will have long-term impacts on what customers value.
Channels and customer relationships are also closely related. Channels are the places where your customers can purchase your products or services. Will it be from your storefront, your website, or from distribution partners/retailers? Your choices of channels may also impact customer relationships, as it will be much more difficult to give personal service if your product is only sold through a retail partner.
Your value proposition can also effect your channel and relationship choices, as a lower price may limit you to the most efficient channels and a less labor-intensive customer relationship. Again, this pandemic may affect customers’ channel choices and the relationship you can have with them as they may choose to limit personal contact to reduce their health risks. The four previous building blocks will most certainly impact the fifth: your revenue streams. The strength of your value propositions in particular will determine your ability to drive revenues.
The remaining four building blocks will each impact your ability to deliver on the value propositions and consequently, your revenue streams. Your key activities and key resources are going to be most essential to delivering on your value proposition. Your research and development activities are critical if you are proposing to produce the most technologically advanced products. Your machines and processes will determine if you can produce cost-effective and consistent quality products. People are always going to play a role in delivering your value proposition, so make sure you have the right people in place despite potential cutbacks due to the pandemic.
Supply chain issues have been highlighted during the pandemic, so you need to make sure you have good partners who will deliver the materials and parts necessary in a timely manner to make your products. These activities, resources, and partners will all impact your cost structure, so be sure to evaluate how each has changed and how they might change again post-pandemic.
Hopefully, the economy will rebound soon and your business will be one of those we will talking about that flourished post-recession. To be one of those success stories, evaluate your business model using the Business Model Canvas. The internet is full of excellent articles and videos which will help you apply it.
The writer is dean of the Hull College of Business at Augusta University.
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