You have worked tirelessly crafting your business model, studying markets and assessing conditions to operate your company. Unfortunately, after an extended period, you are learning that nearly everything you predicted and desired has not come to fruition. In fact, you have probably met only 23% of your performance goals, and you are not witnessing any improvements. Put simply, your bottom line is taking a significant hit every quarter. Nobody is happy about it.
At this point, it may be prudent to ask yourself: what is the best way to move forward?
Changing Your Business Model
Of course, entrepreneurs should never feel like failures if they are learning from their mistakes and adapting to an evolving economic landscape. Therefore, we have attempted to answer this question in depth. We have compiled a breakdown of everything you need to know about why you might need to change your business model, as well as how to implement any such transformation.
Beyond not turning a profit, there are many reasons why you might need to switch things up. The decision on whether to update your corporate blueprint will vary depending on the sector you operate in or the type of firm you possess. For instance:
The Industry is Evolving
Since the industrial revolution, every industry has gone through dramatic change, whether due to creative destruction or product innovation. Businesses – large and small – have entered the dust bins of history, and they will continue to do so. Consumer preferences shift, new goods and services enter the market and companies become complacent. Will Amazon be around in the next 50 to 100 years? Time will tell.
The same reasoning applies to your startup or small business. Your business model may have worked a decade ago, but the global economy and technological advancements have transformed your industry. It is either adapt or die – or not try at all. If your business model does not take into account the myriad of changes in the marketplace, then how do you expect to survive and thrive?
External Threats Are Piling Up
According to Woody Allen, 90% of life is about showing up. Not in business. The concept of 'wrong place, wrong time' aptly suits entrepreneurship. If you are launching a venture, and there are too many competitors in the market, there is very little chance for your startup to take a significant slice of market share. Alternatively, there could suffer from the opposite of this: your venture may be too early. The consuming public could be yet to adjust their behaviour, which means you cannot risk attempting to keep your doors open until customers are ready to make that leap.
Then, of course, there are other factors at play, such as political turmoil, job-killing laws or global uncertainty. In business, it is about understanding, preparing and forecasting the world all the time.
Your Balance Sheet is in the Red
After two years in operation, your balance sheet is drowning in red ink and your liabilities are piling up. Servicing your debts is eating away at the limited revenues you are producing. At this point, you are debating with yourself whether to change course or to cut your losses. But while it might depend on how much in the red you are – and if there is a chance to return to black within a reasonable amount of time – you may need to shift your business model to something that satisfies consumer demand and adapts to market conditions.
Customer Values Are Changing
Let's be honest: the customer of today is vastly different from the customer of yesterday. Today's generation of shoppers has a unique set of preferences. For instance, millennial shoppers want more interaction with a product to share on social media.
The purpose of a business is to satisfy the public's wants or needs. To grasp the shift in attitudes and values, you may need to conduct market research, or study the reams of analyses, white papers and studies on the state of the modern consumer.
If your business is not growing at a sustainable pace, then it is time to consider modifying how you operate your company. Moving forward, your job is to examine your target demographic, the market you are working in, and revenue generation.
That said, there are other factors to look at beyond just a paucity of growth. For example:
Your Value Proposition Fails to Reach Your Audience
Your value proposition is paramount in business, and consists of a promise of value that you will deliver and communicate with your products. However, for too long, you have emphasised the wrong features of your creation, despite having the intentions of addressing particular customer problems.
It is imperative to both develop features and highlight those functions that maximise the value you produce for your customers.
Your Mission is Not Defined
By now, you are aware that a mission statement’s objective is to define your fundamental purpose.
A pizza shop's mission is to sell the best pizza at the best price. An athletic clothing shop's mission is to sell apparel that can facilitate the person's morning run or evening trip to the gym. Even a convenience store has a mission: to sell goods to customers who live in its vicinity but are too far from a major supermarket.
What is your company's mission? Why does it exist? If your mission is not defined, then you may need to reevaluate and revise your business model.
Consumer Prices and Business Costs
According to Effy Pafitis, this generation of consumers is more interested in customer service and corporate social responsibility. However, consumers still care about pricing. Sure, they may not seek out the lowest possible price, but they continue to desire competitive pricing. If you cannot offer that, you may need to adjust your business model to fine-tune how you can manufacture or sell products that can rival that of your rivals – or even undercut them.
At the same time, it is important to rein in your business costs. If your production costs are $5 per unit, but you are selling at $3.50 to gain an advantage, you will not survive for very long. Think it's impossible to reduce the sticker price while balancing your operating costs? Not if you look over your business model again.
KPIs Not Showing Path to Growth
The precise moment you know it is time to ditch your current business model and substitute it with another is when your key performance indicators (KPIs) are not illustrating a path to growth. For months, all your metrics have highlighted a downward trend, and your predictive models show more of the same.
Changing your entire model might sound extremely daunting, especially as you are investing in another unit of your business. From a different staff to a new brand strategy, you are taking a risk by rebooting how you operate.
It's completely doable, however. Here are the key steps that you need to take:
Hire New Talent
A great company is nothing more than the people in your office, and your business model needs to reflect this fact.
There are generally two options in this regard:
- Bring in new talent to complement your current staff; brainstorming with people who have fresh eyes on your product can do a world of good.
- Perform an audit of performance and weed out the good from the bad. Perhaps you have some dead weight that is doing too much damage to your company.
Ultimately, your business model should consist of introducing game-changers every so often because they have creative ideas, a strong background or a unique take on the present-day environment.
Transform Your Brand Identity
Brand identity is more important than ever, especially in a global economy. An essential element of any model is a well-crafted marketing plan – one that can build brand awareness and ensure your company is attracting eyeballs to your goods or services.
Here are some tips for transforming your brand identity:
- Identify your target clients; who will be more interested in your products?
- Develop a content marketing strategy that can appeal to many demographics.
- Come up with a messaging strategy; why would someone buy your product?
- Design a website that is user-friendly and tailored to search engine optimisation.
- Research names, logos, slogans and anything else that is front and centre of your brand.
Look at Different Metrics
Everyone has different metrics to monitor to determine if they are succeeding in the marketplace. Perhaps you have measured your company's performance using the wrong parameters.
Ultimately, as you shift your business model, you may need to examine your brand's success utilising three significant goals: awareness, consideration and action. Let's take a brief look at the KPIs of each objective:
- Awareness: Views, awareness lift, ad recall lift, impressions and unique users.
- Consideration: View-through rate, brand interest lift, watch time and favourability rating.
- Action: Clicks, sales, registrations and purchase intent.
Entrepreneur has an interesting recommendation for instituting change in your business model: "view scarcity as a good thing". Even if your company is starting to do well after a slight change in your operating model, you still need to experiment and reassess your operations. The corporate landscape is always changing, economies are advancing, and markets are evolving.
In the end, a good product will always sell. It does not matter if the economy is in the boom phase of the business cycle or the bust. Over the years, some of the most successful products of the industrial age were introduced during downturns, whether it was the personal computer in the 1981 recession or the 2001 downturn. Consumers may not go overboard in their spending as they would during the good times, but if you have something worth buying that will either solve their problems or enhance their living standards, then they will decide to use their hard-earned dollars to buy what you are selling. The moral of the story? If you have a great product or service, consumers will be ready to buy.