A good business model tells the story of how an organization works and creates value that not only engages customers but also internal players.
The customer development process along with the business model canvas, and a vision make it possible to develop a story, one with defined customers, motivations, and a plot that turns on an insight about value.1
Good business models:
- Offer a unique value to defined customers. This happens by understanding who your customers are and what they value. Customer development plays a key role here in determining and delivering this unique value. Creating significant value can give you the competitive advantage and attract high-value customers that will buy in to your product or service and generate enough business to meet sales and profit objectives.2
- Deliver products or services with high margins.3 Profit tells you whether your business model is working. Higher margins come from process innovation or product/service innovation. Process innovation is a better way of making, selling or distributing an already proven product or service. Product innovation is designing a new product or service to fulfill an unmet need.
- Difficult to imitate. Business models don’t work alone; strategy is what sets an organization apart from the competition. Establishing a key differentiator will help build barriers to entry that protect profit streams.4 A successful business model tells a better story than alternatives.
- Grounded in reality.5 A successful model means tying numbers and modeling the behavior of the business so accurate assumptions can be made about customer behavior.
Missing the mark on either the numbers or narrative test is when business models don’t work. This is why it’s necessary to start with a hypothesis then iterate, test and pivot as necessary. A business model that is regularly updated can be used as a “scorecard” to monitor progress through the Customer Discovery phase. Validating your vision with potential customers helps build the story and defines the business model.6
Above all, successful business models generate virtuous cycles, or feedback loops, that are self-reinforcing.7 A virtuous cycle is created when management invests in innovation and engages its people by training and empowering them to deliver superior service to customers. This results in a compelling story, or more so, an epic tale.