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Developing A Great Business Model
Developing A Great Business Model
Determine whether your business will succeed by evaluating these six aspects.
By Don Debelak | April 03, 2007
MARKETPLACE
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Great business models depend on developing three "green lights," or qualities that help the
business succeed: finding high-value customers, offering significant value to customers, and
delivering significant margins. Great business models also avoid three "red lights" that can
derail a business: difficulties in satisfying customers, trouble maintaining market position, and
problems generating funding for growth. The list below outlines key factors in determining
whether your model meets each green light and avoids the red lights. Examine your own
business to see if you meet the criteria for success and, more importantly, to correct any
weaknesses you might have.
Green Lights
1. Acquire high-value customers.
High-value customers doesn't mean rich customers, but customers who meet the following
requirements:
• Can generate enough business to meet your sales and profit objectives
Customers don't necessarily need to be the end users of your product or service. They could
be retailers, distributors, catalogs or whomever you sell your product or service to. If your
end users or distributors don't fit this profile, you can still meet this requirement by attracting
high-value customers through partnerships or alliances with companies in the market.
• Offer more auxiliary products or other opportunities for revenue without increasing
cost.
Red Lights
1. Provide for customer satisfaction.
Consider whether it will be difficult--and therefore expensive--to satisfy customers once they
buy. Some of the aspects of a business that create high customer satisfaction costs include:
Customer satisfaction costs, which occur after the sale, are red flags because the costs are
typically high and don't produce revenue or profits. If your type of product might have high
customer service costs, you need to configure your business to put these costs on someone
else, either with partnerships or alliances or by restricting your sales to an aspect of the
business that doesn't require customer satisfaction costs.
2. Maintain market position.
A good business model uses its resources to improve its market position, adding new
products, features and customers or expanding into new applications. The red flags that
indicate it will be difficult to maintain market position include:
• There are alternative technologies being developed to meet the same need.
• You have well-funded potential competitors who could quickly move into your market.
Long term, your ability to hold market position is determined by the characteristics of the
overall market. For example, a company involved in the semiconductor manufacturing
business must adjust and guess right on constant changes in technology to hold market
position. Sooner or later they will guess wrong and fail.
• Fewer than 50 percent of the investment required will be used in revenue producing
areas, such as sales and production.
Money is available for the right plan and the right model. You'll find money available if your
ROI is right and if you have financial leverage, which means your initial investment will allow
you to double or triple sales without requiring any more funding.