Four Steps to a Business Model that Can Work

Chasing customers whose sole priority is low price and whose M.O. is to lure as many contractors as possible into a bidding war is going to produce an endless run of sleepless
nights. You just can't come out ahead unless you have a tremendous speed advantage.

The trick is to find a niche where you have a competitive advantage, where competition is limited or where customers actually are selective and loyal. The solution is known by many names including strategic planning, SWOT analysis, positioning, and my personal favorite, the business model.

I am partial to the term business model as it highlights the key issues. The first term puts the focus where it belongs: business. The second term expresses the objective of the exercise: creating a model that tells you what needs to come together for your success. Models are prescriptive. They are visible. They are comprehensive.

Steps in crafting a winning business model

1. Conceptual design. What combination of features is required to separate yourself form your competition in a manner meaningful to your customer?

2. Detailed design. This is where you turn your concepts into a detailed business plan that will identify all the systems you need working seamlessly together.

3. Construction of the business. Hammer meets nail. Adaptability is required. Just as construction projects never follow the construction plans and specs to the letter, neither does a business plan. Changes will be required.

4. Close-out. This is when your business is fulfilling its promise, producing valuable services to a discerning clientele. At close-out your business is humming along in accordance to your business model.

Your business model will need the occasional remodeling as your needs or your customers' needs change over time.

The components

In order for a business model to work, a few things must fit together.

  • It must fit your personal strengths and interests
  • It must meet the needs of one or more discerning customer groups
  • It must focus on a competitive arena that isn't overly-crowded
  • It must be staffable

When all of these things come together, the business will make money. It's a simple as that.

Know thyself

A successful business model starts with discovering your natural strengths and fitting them into the proper role. In other words, never pursue a business model that requires you to excel in a role you are not wired to excel in.

You have two characteristics that are hard wired into you. The first is how you process information and interact with others. This is commonly known are your communication or leadership style. The second is the way you work.

Tools are available to help you map each, and we strongly recommend that you invest a few bucks to learn these two things about yourself. Several tools will map your communication style reasonably well. The two most common are the Myers-Briggs and the DiSC. They are widely available via the web. We know of only one tool that maps
the way you work: the Kolbe A Inventory.

You aren't ready yet to move on to the next step until you have put thought into the types of tasks you get a charge out of and those that drain you. You need to design your business model to put you into a position where you are spending most of your time doing what you like and do well. Fill out your business with people wired to perform the tasks that don't fit you well.

Market research

There is no getting around the necessity of researching both your competition and your potential customers. One thing we've noticed over the years, there is a direct connection between high margins and competition - the more competition the lower the margins. It's the law of the jungle.

You need to find a group of discerning customers who are significantly under-served. Even in this climate they are out there. The number of attractive customers who are under-served is one of the limiting factors to the size of your business and the profits it can generate. There is no getting around it. If you try to grow your business past the size of the market that is willing to pay a decent margin, you will be price squeezed.

Staffing

The next limiting factor is skilled labor. Often the demands and expectations of a well-paying client limit who you can use to perform the work. For example, tree trimmers and cell tower installers both require individuals who have great agility and fearlessness. They are never abundantly available.

Stay on course

In his book, Good To Great, author Jim Collins identified a discipline he called the Hedge Hog.

Collins was referring to the ability of highly successful companies to identify their path and stick to it no matter how many other apparent opportunities came across their radar. The same discipline applies to your business. Once you have methodically designed and implemented your business model don't lose sight of it. Test every opportunity against your business model to determine whether it fits or not. If not, let it pass. If so, make
the slight adjustments you need to in order to capitalize on the opportunity and grow your business.

Loading