business model

Learn why it’s important for your company’s stakeholders to understand your business model – what you do and how you make money.

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Show Notes

The term business model was used a lot in the days to of the so called dot com era.  It was basically a fancy way to say how a company made money.  Whatever you call it strategy, value chain or business model, it’s important that stakeholders in your business understand what you do and how you make money so that you can run a successful business.

Key Points

*Key stakeholders for your business are the owner, employees, customers, partners and suppliers all have a stake or interest in your business and how you make money and we explain why.

*Your business model has a broader reach than just you and your employees.

*Entrepreneurs need to have a clear understanding of their business model in order to communicate to all the stakeholders so that they are engaged.

*Employees must be clear on the business model so that their decisions, actions and attitudes align with your business model and the value proposition that you bring to the market.

*Suppliers and partners can bring more value to your business when they understand the key elements of your business model and we illustrate that with some examples.

*Even customers sometimes need to understand your business model and we show you why that is important to maintain loyalty and your value proposition.

*If an entrepreneur doesn’t feel his business model is clear to the key stakeholders, we discuss some steps to help get clear and work with stakeholders to understand and communicate the key elements that help make the business successful.

Resources and Links

Note: Links in this post may be affiliate links.  Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

Link to the Books mentioned in the episode:

Hundred Percenters: Challenge Your Employees to Give It Their All, and They’ll Give You Even More by Mark Murphy http://amzn.to/2erAPDv

Hard Goals: The Secret to Getting from Where You Are to Where You Want to Be by Mark Murphy http://amzn.to/2fBf3R7

Lisa Roberts is a business operations specialist who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can learn more about her here .

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Business model is a fancy way to say how your business makes money. Sounds simple right? Well in some ways it isn’t so simple. Make sure that the people involved in your business know how you make money so they can help you.100 bill

Consider the various businesses that you know. Think about their business models and how they make money. Companies have created strategies to help them make more money by doing things a little differently.  Ford shook things up with the first assembly line; McDonalds did with the franchise model; and Amazon with their sales aggregation model and now their fast fulfillment and delivery model. For Ford it was about efficiency and cost, for McDonalds it’s about consistency and value and for Amazon it’s about volume, selection and speed. While they’re all concentrating on selling, managing costs and making a profit, each had their own special ingredient that made them more successful.

So Who Should Understand Your Business Model

Well, I would say you, your employees, and your advisors and even to some extent your customers. Why? They all are involved in your business and have a stake in making sure that it’s successful.

You as the Owner

It not enough to sell something, hire some employees and hope that customers buy what you have to offer. At some point you must understand what really makes your business money. It may be one thing or a number of things. It could be what you sell, the way you sell it, how you deliver it or even how you provide service. What makes your business special?

Is it your service? I’m sure you have special guidelines for your employees on what they should and shouldn’t do when servicing customers. Do you rely on fast and efficient delivery? I’m sure you’ve taken steps to ensure that your process allows you to do that. If you have a low margin business, you’ve probably taken steps to ensure that the costs are controlled and your accountant helps you monitor them.

Employees

Your employees should also have some idea, especially your management, on how you make money too. Decisions they make can affect how much money the business makes. It’s important for them to understand the key things that are important to your business model.

Running a restaurant that relies on good food with a chef who starts using frozen food instead of fresh will start to affect the quality of what you serve and cost you money. A contractor with a good reputation for quality and professionalism will be hurt by employees who do average work and leave the site a mess at the end of the day. A business that relies heavily on helping customers with problems won’t be successful if employees don’t call customers back in a reasonable time or are rude to them when they call for help.

Your Advisors

You have advisors for a reason, to give you good ideas, information and solutions about problems facing your business. If they don’t understand your business model and you haven’t helped them to learn more about your business, they won’t be able to give the best advice.

Your attorney  who is writing contracts for you to sell your products or services can help you more by understanding how you make money. If you get paid after you do x and y, and you are having trouble collecting fees because your contracts lack certain clauses, the attorney may be able to help you by inserting more definitive language in the contract. Do you have a business where there are a lot of upfront costs you incur before you get paid for the sale. Your banker, understanding this, may be able to help you with short term financing options. Finally, if your accountant understands the key cost factors that define success in your business, she will be able to provide information and reports that help you more effectively monitor and control those costs.

Your Customers

If you have customers who are loyal to you, they need to understand how you make money to some degree. They like you and want to keep coming back, so they need you to be successful too.

A business friend who owns a salon told me a great story about when his business had to raise prices on hair color. The cost was going up and after eating those additional costs for a time, it began hurting his business. After researching the reasons for the increase (which were not in his control) and careful consideration about the message that he needed to pass along to his customers, the price increase was put into effect. Once customers understood the clear reasons for the increase, they respected it and accepted it since he was clear and honest about it. Helping customers understand “the why” helped build greater trust and as a result, loyalty.

Help People Help You

You, your employees, your advisors and your customers all have an interest in your business being successful. Decisions they make, advice they give or loyalty they feel can help you more when they understand the key issues and factors that affect sales, costs and profit.