5 Key Ways To Adjust Your Business Model
By Nicholas Au, published: 2020-08-05
Business models are continually evolving as companies react to internal and external developments. Samsung, one of the world’s largest producers of electronic devices, was originally founded as a grocery trading store. Tiffany & Co. was not always an established jewellery vendor, they used to sell stationery. Adjusting a business model has thus become necessary for many businesses to survive and grow, especially for entrepreneurs and SMEs.
Here we’ll provide practical advice on when a business should consider adjusting their business model and what steps to take when doing so.
What is a Business Model?
A business model is a plan of how a business will make a profit. Business models will often cover aspects such as what products or services the business will sell, what the target market is, and what the anticipated expenditures are. When we are referring to adjusting a business model, we are referring to what actions a company can take to increase their profitability.
Recognising When an Adjustment in Business Model is Necessary
The Business Model Canvas is a tool that allows business owners to analyse their company’s value propositions, infrastructure, customers and finances for the purpose of improving the company’s business models. It covers the following topics:
- Key partners
- Key activities
- Value propositions
- Customer relationships
- Customer segments
- Sales channels
- Key resources
- Cost structure
- Revenue streams
By analysing the above in reference to the Business Model Canvas, business owners will be able to identify opportunities to refine their business model.
Customers Are Not Willing to Pay for Your Goods / Services
Perhaps the most critical sign that can be taken as an indication for a change in business model is that, despite customers understanding your value proposition, they are not willing to pay for your goods/services. When this happens, it is important to take a step back and understand what needs to change in order for consumers to feel like your goods / services are of good value.
External Forces Are Threatening Your Business
Companies may find that there are too many competitors in the market or may be customers having trouble adopting your value proposition. There may also be political forces or macro-economic developments that are out of your control but are unfortunately impacting your ability to operate or serve your customers.
Company Expenses Are Limiting Growth
If a company is spending too many resources on producing / delivering their value proposition then there should be a revaluation of what costs are being incurred to determine what can be eliminated or reduced.
Change in Consumer Trends
Businesses are not the only parties that have been evolving, consumers have as well. For instance, brick and mortar establishments are no longer considered necessary parts of a company. The last few years have demonstrated consumers’ preference to shop online. Understanding what is affecting consumer behaviour will allow you to adjust your business accordingly.
Understand Your Cost Structure
Cost structure refers to the level of expenses a company is willing to incur to bring their goods / services to their customers; what are they spending on; and how much profit will be recognised in doing so. Identifying what your business is spending its money on, and how much it is spending, will help create more efficiencies.
A good question to ask is, what are the biggest and most important costs inherent to our business model?
Is your cost structure value-driven or cost-driven? Value-driven cost structures aim to create more value in the product itself and are not concerned with producing at the lowest cost possible. Cost-driven cost structures focus on minimising the cost of the product or service as much as possible.
Evaluate any expenses that can be regarded as a pain point. Doing so will facilitate greater transparency and can result in the more responsible use of resources. For instance, if a company is utilising a cost-driven cost structure, they may realise it is cheaper to lease equipment instead of purchase.
On the other hand, you may realise that your resources are being utilised as effectively as possible. If this is the case, then your cost structure can allow for the re-evaluation of the price of your goods / services.
The key purpose of analysing a cost structure is to provide greater transparency on the health of your company. The greater the level of information at hand, the more information business owners will have to plan for their company’s future.
Automate Processes Whenever Possible
As the age old saying goes, “time is money.” When manual, time-consuming tasks become automated, a company will be able to free up resources to focus on their core business operations. Xero, an online accounting software is a perfect example of such as it allows its users to:
- Connect directly with a company’s bank accounts, allowing for the automatic import and categorisation of financial information
- Automatically issue invoices and email reminders to clients
Whether a company wishes to minimise human errors, or wants to reduce labor costs, or even adapt to market demands, automation can help a company regardless of what industry they are in, and its size.
Expand Your Target Market
Cutting costs is not the only thing that companies can do to change their business model. Developing your company’s marketability can greatly improve profitability by becoming more appealing to their target customers and can even attract entirely new audiences.
To better interact with consumers, it is important to utilise digital mediums as much as possible. Affiliate marketing can assist in this regard. By looking at non-competitive products or services that are reaching out to the same target markets, businesses will be able to collaborate and share their outreach efforts.
In respect of target markets, it is important to understand that consumer values and preferences are constantly changing. For example, recent economic downturns have curbed people’s spending habits and mindsets. Taking a proactive approach to understanding how sentiments are changing can help a company identify new business opportunities as they arise.
Evaluate How You Interact with Your Customers
Lately, businesses have transitioned into the digital space when interacting with their clients. Social media, email marketing, support, discussion forums or even external complaint channels provide consumers with ample communication channels to voice their pleasures and concerns. Communication does not have to begin upon delivery of a good / service though, as relationships can still be developed after the delivery of goods / services.
Does your company provide services? If so, then perhaps it would help to implement a communications line to enable dedicated personal assistance. This intimate, hands-on personal assistance will allow sales representatives to handle all the needs and questions a client may have.
Does your company sell a variety of goods? Companies who sell a variety of goods can find that automated services can provide touches of personalisation that can help by identifying customers preferences and recommending additional products that they might be interested in.
One of the most effective ways to form a relationship with customers is to reward them for their loyalty. Loyalty programs can encourage repeat spending and a sense of brand loyalty and can be easily promoted through various digital channels. Satisfied customers can increase a company’s sales through referrals and repeat purchases.
Businesses must always be constantly evolving. Take time to examine your company’s business models and identify areas that can be improved. Given that we are in challenging times, companies that are proactive in keeping ahead of the times will find themselves more adept at capturing new business over their competitors.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.
Start managing your legal needs with Zegal today
FURTHER READING: 5 Reasons Cloud Computing is Important to your Business