Many business owners and senior managers, if asked, admit to having a great understanding of their business model and the market in which it operates. In reality, most have a startlingly shallow understanding, failing to take into account many facets of the model.
One of the difficulties in defining or describing a business model is the complexity involved. Verbal descriptions are often long winded and ineffective to describe the components of the business that exist, and how they all integrate with one another. As an excellent example, consider the owner of a small business I spoke to the other day. I asked him about his business, and the model he had chosen. To most, his answer was acceptable – his business manufactures clothing items out of his small office in Australia. When prompted for more information, he didn’t have much to tell. Why is that a problem? Simple. Knowing only what your business does means you are failing to comprehend large portions of your business model. This owner could not tell me which customer segments his business targeted, what the channel to market was, or even what the specific revenue and cost components of his business model were. That’s a problem.
This may seem pedantic, but this is critical for anybody managing a business. Knowing the business you are in is not an option, but a strict requirement. If you’re starting a business, figure out a solid business model before you ever put pen to paper on your business plan. If you’re already in business, dedicate some serious time to understanding your business model. If you can’t make the business model work, change it. Don’t fall into the trap of many small business owners, writing a […]