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Chief Executive Officers of large companies often refer to their business model when describing why they are successful. If you listen closely they typically refer to a new product line or new efficiencies. They imply this is the totality of their business model. Nothing could be further from the truth. What they are really describing is their current Differentiation (how they are better than their competition). This is like saying my engine is the sole reason for the success of my car. It may be a differentiator but it requires all other components to be of good quality (competitive) to be successful.

Every business has a business model by default. Some are good and some aren’t. If you are currently successful, you must have a good one. My definition of a business model is a representation of the business.  My Business Model consists of a graphic plus documents that describe the 12 important elements of a Business Plan.

           Elements of a Business Model

Six elements describe the Business Idea (the concept) and six elements describe the Business Resources (all of the assets required to implement and sustain the Idea). The six Idea elements are products and services, target market profiles, competition, differentiation, advertising and sales. The six Resource elements are ownership, staffing, facilities, financial model, funding and balance sheet.”

 

The important thing to remember about these twelve elements is that if any one of the elements is not competitive in the marketplace, the business is likely to flounder.  In meetings with small business owners, or those wanting to be an entrepreneur, most don’t fully understand that they have or will have a business model and what that means. Most also have issues with one or more of the 12 elements of their business model.

The task is to try and help them understand those elements that have issues because it is the weaknesses that cause failures and resolving those weaknesses is the key to success (a good business model).  Three elements that come up most often as issues are identifying the target market, identifying positive differentiation, and funding. Issues with any of these three elements is a serious barrier to success.

So just remember that you have a business model, like it or not. You may have a good differentiator but if the rest of your business model has issues, your differentiator may not be enough to produce success.