“Who is the customer? What does the customer value?” -- Peter Drucker
A good business model begins with an instinct into human motivations, fears, emotions, challenges, and desires flowing into a rich stream of profits.
Business models at their heart are stories which explain how the enterprise works and makes a profit.
When business models fail, they fail the narrative test (story) and the numbers test (profits + loss don’t add up).
Management consultant and writer Joan Magretta explains business models ask the fundamental questions: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to a customer at an appropriate cost?
Think of a business model like the scientific method - you start with an idea for a consumer need, you then test this need, and iterate as necessary.
Plus business models serve as an exceptional planning tool - a business model focuses attention on how the elements of the enterprise will work together to secure profits.
Business models often fail because they are built on feeble assumptions about human motivations, fears, emotions, challenges, and desires. Often business models are solutions in search of a problem.
Business models are not the same as a strategy.
Business models describe a system of how the pieces work together, whereas strategy describes how you will do better than your rivals to capture and secure customers.
Sooner or later, if you are good and you have discovered a human need that can be executed profitably, you will foster competition. Dealing with this competition is how you deploy your strategy.
Executing the same business model with no strategy to differentiate yourself in terms of what customers and markets you serve will lead to failure.
Failure not because of a business model, failure because you are trying to be all things to all people - there is no difference in experience, engagement, or effect between your company and the other company.
Being all things to all people has no story, no patina, no folklore.
A proper business model tells a good story and has the ability to get customers aligned around the same values and same culture your company is bringing into existence.
A good story is easy to remember and is easy to repeat.
A good business model is easy to remember and easy to repeat.
A good business model is a narration that captures the numbers necessary to serve customers and remain in existence for the long-term.
- Marc
Marc A. Ross is the founder of Caracal Global and specializes in thought leader communications for global business executives working at the intersection of globalization, disruption, and politics.
Why business models matter = narration + numbers
