You just never know what pearls of wisdom Joanna will pop up with next. Welcome back for 2010, Joanna!
I 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:
- Why would someone want to buy something from you?
- How will you make money selling it?
- 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