To successfully run any business, shareholders, managers and directors of SMEs and privately-held companies can create enduring value through challenging the business model.
To run any company, however big or small, it is essential to implement the right model for the way the business operates.
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It is critical to implement a sustainable, financially viable business model that positively impacts as many of the business’s stakeholders as possible.
Here are a few tips for doing just that:
Face the toughest question of all
Challenge whether or not the business model can generate income and value long-term. Many business founders blame insufficient cash flow as the biggest challenge they face, but the reality is often that the business simply doesn’t have legs. There simply are not enough potential customers in your market for the business to be viable.
Ask yourself: “If I continue to put in capital, expertise and effort, will it make a difference?”
Sometimes, you have to be willing to accept that the business idea itself may not be sustainable.
Know your customers
If you try and sell everything to everyone, you run the risk of investing precious time and energy targeting a broad client base, only to learn that not every customer is a profitable one.
A quick way to destroy value is to not clearly understand your value proposition or to believe that you should sell to anyone who is willing to buy,” says Holmes. “Find out who your best customers are, and direct your efforts to showcasing your value to them.
Optimise your revenue model
Once you have defined your customers, base your model around how to deliver the best value to them while generating optimal revenue for your business – through product or asset sales, usage fees, leasing or licensing agreements, service fees or advertising.
Your pricing may fluctuate from deal to deal, or you may operate on a fixed price basis. You may sell your products or services through an annuity model, or rely on repeat purchases. Get to grips with how the business earns its money and look for ways to shift revenue potential by the way that it accrues.
Streamline your cost structure
Be clear on the costs required to operate your business model, and identify which are most important.
For example, invest in your employees with expertise critical to your business, thereby ensuring you are delivering the value you promised the market.
Determine what percentage of your revenue will be allocated to net profit, employee costs, research and development, overheads, sales and marketing, and production or delivery costs.
This “spend formula” is highly effective in mapping each unit of revenue to the required costs, and will change as your business grows and evolves.
