Out of the Box

You just never know what pearls of wisdom Joanna will pop up with next. Welcome back for 2010, Joanna!

Blog_ideas_boxI recently came across a Harvard blog post by Mark Johnson on reinventing your business model.

A confession: I’m not the full bottle on business models, and have used only rudimentary or ad hoc versions in the past.

But as soon as I read this post, I saw that here was a model I could implement – and so that’s what I am doing right now.

It works like this. First up 3 questions:

  1. Why would someone want to buy something from you?
  2. How will you make money selling it?
  3. What, exactly, are the important things you need to do to pull off the plan?

The answers go into 4 boxes (question 3 is answered in two parts):

  

Box 1:Your customer value proposition – what is it that you offer that meets a customer’s needs in a way that is different and/or better than the competition?

Box 2: How many can you sell at X price minus Y costs? Johnson has a more complex version of this question, that goes like this (I am quoting here):

  • Revenue model – simply, quantity times price
  • Cost structure – not only direct costs and indirect costs, but also overhead, which too many companies think of as immutable
  • Margin model – though technically part of the cost structure, I break it out separately because all too often companies mistake their margins for their entire profit formula and have tremendous difficulty understanding how a lower – margin opportunities could ever be profitable
  • Resource velocity – often overlooked as a profit generator, this measures how many widgets a company can invent, design, produce, warehouse, ship, service, sell, and pay for throughout the value chain for a given amount of investment, for a given amount of time. In some sense, it’s a measure of not how much money flows through your company but how quickly it flows through it.

Box 3: What resources are required to deliver your offering?

Box 4: What processes are required to deliver your offering?

 

I think this looks like a good model for those of us who tend to avoid models. What do you think?

 

Joanna Maxwell, Owner, WorkInColour

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11 Comments

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  • Thank you for this, Joanna. It sure has a bit more grunt than my bread post! :)

    I’ve been hunting elephant-sized clients and I appear to have bagged one and winged another. I’m now flat to the boards bringing them home, so I haven’t much time.

    I just wanted to say how great it is to have people of your calibre on our guest list. Best regards, P. :)

    Paul Hassing 6 years ago


  • Thanks Paul, you are seriously too kind.

    And I’m pleased to share this simple model – it has made a big difference to my business planning this year.

    Just wondering, how do you wing an elephant? Is it like Dumbo, the flying elephant? I have a weird mental image happening here :)

    Joanna Maxwell 6 years ago


  • Hi Joanna,

    Good to see you back supporting to our intrepid and dare I say it, ‘crusty’ ‘blogmeister’ while he is on Safari for ‘winged elephants?’ ;-P…Paul – have you tried a trail of breadcrumbs mate? 😉

    Butt seriously…elephants are pretty smart mate…but they’d be not pretty smart to miss out on The Feisty experience :-)

    I’m curious Joanna…given that you have a great business http://workincolour.com.au why would you want to employ a different business model? Is the one you have not working?

    That said, I can see how asking oneself these questions may lead to improvements or reviews of ones current business operations…

    However, I have never been inclined to think of business in terms of ‘models’…in fact I think the economies of scale of business rhetoric passed the point of diminishing returns about 80 years ago.

    Business models, structures, formats, CVPs, ROIs, ‘PVCs’…where does it end?

    Here’s an excerpt from description of http://hbr.org/product/seizing-the-white-space-business-model-innovation-/an/2481-HBK-ENG?Ntt=Seizing+the+White+Space by Mark Johnson, that Mark Johnson’s blog is promoting:

    “Leaving the rhetoric to others, Johnson lays out an eminently practical framework that identifies the four fundamental building blocks that make business models work. In a series of in-depth case studies, he goes on to vividly illustrate how companies are using innovative business models to seize their white space and achieve transformational growth by fulfilling unmet customer needs in their current markets; serving entirely new customers and creating new markets; and responding to tectonic shifts in market demand, government policy, and technologies that affect entire industries. He then lays out a structured process for designing a new model and developing it into a profitable and thriving enterprise, while investigating the vexing and sometimes paradoxical managerial challenges that have commonly thwarted so many companies in their unguided forays into the unknown. Business model innovators have reshaped entire sectors – including retail, aviation, and media – and redistributed billions of dollars of value. With road-tested frameworks, analytics, and diagnostics, this book gives executives everything they need to reshape their businesses and achieve transformative growth.”

    ‘Leaving the rhetoric to others’? My GOD! And that’s just a promo paragraph!!!

    In a world where ‘meaning’ has been unceremoniously dethroned by the new ‘King Content’, there seems to be a sudden and dramatic tide of ‘iteration’, lead by the new King’s Chamberlain, Sir Everything Overandoverandover (SEO).

    I have met a lot of people in my time, and even the dumbest of them are intelligent enough to ask themselves the followig when embarking upon any project:

    What can I do?

    Is it worth doing?

    What do I need to do it?

    What happened to having a good idea and passionately pursuing it? How many great and successful businesses are run by folks that don’t have a clue about all that ‘transformational growth’ jargon?

    Architects use models, Geneticists use models, Climatologists use models…Have we forgotten what a ‘model’ actually is? It certainly isn’t ‘reality’…it is a guide, a practice, an educated approximation AT BEST!…isn’t it?

    In a world that at least appears to be finally cracking its long-closed eyelids to the fact that the current ‘Business Model’ didn’t do something as basic as a ‘Stock-take’ before it ramped up it’s production systems (ALL OF THEM!); how energy efficient is all this ‘modeling’ at this point? And what is the reference point for all of this modeling? The model that missed the stock-take? Oh! Well that makes great business sense! Doesn’t it?

    What if our infrastructure actually supported actual business ‘logic’ (as opposed to ‘business rhetoric’)? Would ‘doing the right thing’ actually become economically viable?

    Thanks again Joanna…as always you have a knack for raising the core issues with the lightest of touches :-)

    Cheers

    Stephen G

    Stephen Glanville 6 years ago


  • Crap! Megan! My links disappeared from my comment! Can you see if they are in the html?

    Thanks :-)

    Cheers

    Stephen G

    Link Context: One link ‘WorkInColour’ goes here – “I’m curious Joanna…given that you have a great business …”

    The other one,’the book’ goes here – “Here’s an excerpt from a description of by Mark Johnson…”

    Stephen Glanville 6 years ago


  • Ooh! Crap! Sorry Megan…I stuffed up the code…I put extra ” around the words and they disappeared!

    You can remove these comments if you like :-)

    Cheers

    Stephen G

    They disappeared from the link context thingy too…:

    Link Context: One link ‘WorkInColour’ goes here – “I’m curious Joanna…given that you have a great business ‘WorkInColour’ …”

    The other one,’the book’ goes here – “Here’s an excerpt from a description of ‘the book’ by Mark Johnson…”

    Stephen Glanville 6 years ago


  • Hi Stephen,

    They’re back in…I had to remove the no follow though, I think that was part of the problem? Very strange…

    Megan from myBRC 6 years ago


  • Steven, lovely to have your insights on this. I must confess that I didn’t have a formal model before this. What I like is the simplicity of 3 questions and 4 boxes – even a non-economist like me can do it. I also don’t believe everyone needs a model, let alone the same model, but we all need to at least consider the issue! Great to hear from you…

    Joanna Maxwell 6 years ago


  • Thanks Megan :-) Yep! Very strange indeed.

    Hi Joanna and thanks…it was fun :)

    Hey! Did you know that Economists lay awake at night wondering if the real things they see can work in theory? :-)

    I have some license to slam Economists and Economics ’cause I studied it at Uni. I reckon it’s a form or brain disease…it maybe too late for me?…but maybe I can help prevent others suffering the same fate? :-)

    I was always jumpin’ up on down on my desk, demanding answers that made some kind of sense. I’d be saying stuff like:

    “Are you trying to tell me, that you want me to read this big fat book and learn all these preposterous big fat words and graphs, that describe a cup of tea over a fence between neighbours?”

    I like simplicity too :-)…I tried it…Mobile Wood-Fired Pizzas…sounds so simple doesn’t it? :-)…I thought so too…but I ended up being a bluddy lobbyist! :-)

    Cheers

    Stephen G

    Stephen Glanville 6 years ago


  • It’s a bit of a balancing act, isn’t it? Simple v Right. What’s that quote about ‘For every problem there’s a simple solution…that’s wrong’?

    I have a creative thinking tool that I love and use a lot, which is about ask (at least) 3 questions about your problem, find 3 possible solutions or talk to 3 people – maybe that’s why I went for a model with 3 questions in it…hmmm

    Joanna Maxwell 6 years ago


  • Thanks Joanna. I like this idea of brief but concise business planning. I came across this link only a few days ago, which asked similar questions: http://blog.asmartbear.com/startup-business-plan.html

    I think writing a formal business plan is a huge undertaking. It has benefits, but really not much more (IMO) than can be gained by asking some simple, to the point questions such as the ones you’ve listed above.

    Stephen Hamilton 6 years ago


  • Stephen, that’s a great link – I will add their 10 questions to my 4 boxes! Really useful and it’s good to see approaches that get to the heart of it without requiring complex spreadsheets and made- up projected numbers. Most useful…

    Joanna Maxwell 6 years ago


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