by Michael Roney
Your business model constitutes an essential part of your company’s operational foundation. It must provide direction on how you will cater to the wishes of your customer base and help define your approach to the commodity you are producing. There are numerous variations and options to take under consideration. Regardless, whether you are bringing forth a new product, or carving out a niche from an existing market, forging a unique business model that provides a highly competitive edge is paramount. The foremost objective is to find a model, which in the eyes of the consumer, will position your product significantly ahead of your rivals.
Leaders must critically evaluate opportunities from both the list of applicable business model concepts and their product-specific related plausible model options and innovations. This requires leaders to:
- Understand their business and the niche it will compete in.
- Correctly identify what their potential customers are “seeking” or will “respond to” in a highly positive manner.
- Define ideas, tactics, methods, approaches, and operational norms which will fully satisfy identified customer wishes or demands.
- Creatively envision bold game-changing business model concepts to exploit those “ideas”.
Development of a typical business model starts by understanding where a company fits within several broad-based business factors such as:
- Are you looking at a mom-and-pop store on the corner or a Fortune 500 company?
- Is your company producing goods, providing services, selling products, or constructing highways?
- Are you developing raw materials, making components, or producing finished merchandise for sale to consumers?
- Are you providing financial services, medical services, or B2B services such as contracted human resources management?
- Will your point of sale be a brick-and-mortar location or online?
- Are you producing only one product or a whole line of products?
- Are you building a business based upon just your lifetime or a multigenerational company?
Your business model must be in sync with your visionary goals, your product, and your market niche.
Business models may include a strategy on how a company will:
- Conduct business.
- Satisfy customers.
- Evaluate and obtain equipment, resources, and services required.
- Determine the best locations for facilities.
- Acquire land and/or sales outlet locations.
- Build and/or maintain required facilities.
- Approach marketing and sales.
- Set prices.
- Process orders.
- Increase production rates.
- Improve quality.
- Provide service and parts.
- Deal with updates, upgrades, or recalls.
- Develop and implement innovation.
- Deal with logistics.
- Manage the workforce.
- Grow and expand.
- Hold costs down.
- Maximize revenue.
An understanding of company requisites, within your key strategic areas, will assist in defining outside the box successful approaches for meeting operational goals and objectives within these key areas. The earthshaking approaches ultimately selected and used must provide a clear competitive advantage both within key strategic areas and when combined as a whole, in serving your customers.
Important questions to ask, in gaining this depth of understanding, might include:
- What will your customers seek, crave, demand, prefer, or become excited about, once you deliver your new, or improved, product into the marketplace?
- How do you accurately quantify this perceived “need” within the anticipated customer base?
- How does pricing factor into your potential success?
- What are your labor force requirements?
- What skills will be critical?
- What role might robotics, labor unions, or sustainability objectives play?
- Where are your materials, supplies, components, and energy requirements coming from?
- How dependable are the sources of critical items?
- What risks are associated with the logistics of those critical items?
- What alternatives might be available?
- How can you improve: quality, production rates, or delivery time?
- How can you reduce: costs, waste, duplication of efforts, inefficiencies, and defects?
- What role will innovation play in staying ahead of your competition once the product is out on the market?
- What type of support organizations will be needed such as: legal, public relations, human resources, parts, service, shipping, or an online help program?
- What types of advertising/selling/marketing campaigns will quickly and effectively capture the anticipated consumer base as well as expand that base robustly?
- What will the business model require, to profoundly satisfy the “needs” of customers and simultaneously produce positive brand perception, brand loyalty, and repeat customers?
- What is the best method for distribution and delivery of your commodity to your customer base?
- What new ideas, changes, or unconventional thinking would help capture and retain an increasingly larger portion of market share?
The next step is to generate and define details of a game-changing model to monumentally address your specific situation. The goal of this process is to dynamically capture, retain, grow, and dominate market share. Your model must help your company: out-innovate; outcompete; underprice; find the best locations; hire and retain stellar employees; increase production while lowering costs; reduce delivery time; and therefore, drive potential rivals out of business completely.
Examples of business model “concepts” incorporated into mottos of successful companies:
- FedEx: When it absolutely, positively has to be there overnight!
(FedEx in 1971, forced its way into the package delivery realm against both UPS and the USPS’s parcel deliveries, by utilizing expensive air travel to fulfill a promise to customers and deliver packages anywhere in the United States overnight.)
- Walmart: Always Low Prices.
(Walmart in the 1970s went national, facing significant competition ranging from household name companies like Sears and S. S. Kresge/Kmart to grocery store chains, both regional and national in scope, based upon the key concept of Always Low Prices.)
- Burger King: Have It Your Way. (Used for 40 years.)
- United Airlines: Fly the Friendly Skies.
Ideas to consider:
Break conventional industry paradigms. Find new concepts, objectives, approaches, or processes which will better serve your customers, reduce costs, improve quality, or increase production rates.
Try visualizing how your company might operate from a different perspective. For example, if you are trying to carve a niche in an industry which creates a specific output and then conventionally ships that product to the next level of manufacturing via semitrucks, here is a different viewpoint. A manufacturer of specialized large tires for big farm tractors, monster trucks, or front-end loaders, might consider buying trailers with lower beds than standard flatbed trailers which would carry more tires per load. Depending upon the number of loads per year to be shipped they could:
- Lease a truck when required and assign a qualified employee to drive loaded trailers to their destinations.
- Lease loaded trailers to independent truckers to make deliveries.
- Contract with traditional larger shippers to use the trailers for delivering loads at a reduced price per tire.
- Utilize all three options as appropriate.
Study production procedures and related costs within your direct control as well as tasks done by others. If you are manufacturing a product, study operations from the origin point for your raw materials until the final product reaches consumers. Review every aspect of the process such as:
- Where are materials coming from? How are they made? Are there other options?
- How are developed materials stored, packaged, or containerized?
- Where are materials stored?
- How are they moved within facilities and between facilities?
- How many times are they loaded and unloaded?
- How many hands will touch and move materials or the product during the whole process? What are the labor costs associated with this handling?
- How many pieces of manufacturing type machinery are utilized?
- Will there be middlemen involved?
- How many different companies are contributing to the final costs of the product?
- Will final product costs be unnecessarily increased via these companies due to duplicated: operating expenses, overhead costs, or profit and risk structures?
Then ask questions such as:
- If material development, storage, or handling processes were changed could costs be reduced?
- If key items could be handled fewer times during production, could labor costs be decreased?
- If manufacturing equipment were redesigned could production quality and rates be improved and costs lowered?
- How could delivery time be reduced during any steps in the process?
- Are there any steps of the production process which could be combined or eliminated?
If your company controls a piece of the process requiring a modification, figure out how to fix the problem before you go into production. If a supporting company has an issue, offer to:
- Help resolve it with an infusion of funds at a low interest rate.
- Lend the services of a subject matter expert.
- Change the terms of the contract to help resolve the problems.
If the issue is large enough consider:
- Buying a controlling interest in the entity.
- Changing the supplier for the item.
- Developing the ability to make the item yourself.
If there is a middleman increasing costs, go around them directly to their supplier.
Exam your workforce. Look for options to reduce labor costs or increase employee productivity. Robotics have been in use for years in many industries such as automobile manufacturing. There is a major push to use more robots in building construction and fast-food chains. They can work 24/7/365. You could start an employee-owned business to develop a sense of ownership within your workforce or consider profit sharing with your employees. Uber, Lyft, GrubHub, and others copied the idea of “independent truckers” used for decades and made it a core of their business models. Other companies, such as Amazon and FedEx modified the same concept in contracting delivery services out to independent companies to reduce their workforce costs.
Although Disney is clearly not a start-up, they provide an interesting story on how a change in perspective can be successful. In 1998, they launched their first cruise ship into a sector already filled with big-name cruise lines. Disney knew their business model had an edge in this niche by totally understanding “family entertainment”, after years of generating revenue through movies, Mickey Mouse merchandise, and theme parks. In December of 2021, 23 years later, Disney announced they would be increasing their fleet from four ships to seven. In comparison, Carnival Cruise has 26 ships and Royal Caribbean has 25.
Hypothetical ways common business models could be redefined, outside of their historic context:
A new niche in the mobile food truck sector could be born, if a start-up approached a major fast-food franchising company with a business model utilizing semitrailers as a platform to marry their franchise name to. An eighteen-wheeler decked out with franchise company logos and signs, capable of rolling from large event to large event, would instantly attract franchise regular customers as well as others. These mobile walk-ups/branded fast-food restaurants, would make great additions to carnival ride companies who travel across the country to provide services at county fairs or used to feed large numbers of fans near a major sports arena as an alternative to tailgate grilling parties.
Professional sports teams could take a more wholistic approach. Rather than looking at the team as their only business, they could view the team as their city’s ticket to a citywide stronger economy. Given the unique attraction of major league sports teams, the team could use this leverage to spearhead development of a mutually beneficial large scale business model strategy. This strategy could involve the local Chamber of Commerce, the city council, the local tourism board, major hotel chains, other members of the business community and/or business associations, land developers, stadium vendors, and fans. This type of interconnected synergistic business model concept could focus energy and investments in the same general direction across numerous venues. The mutually beneficial blueprint could move mountains and build dynasties, benefiting the entire metropolitan area as well as fans and the team. A win-win-win scenario.
Car dealerships could invest time and effort into building customer loyalty and retention which would pay benefits down the line. As industry generalizations:
- Car dealerships are owned and operated by people with a mindset to sell cars. These sales-oriented folks hire service people to perform needed service and repair work.
- Car dealerships charge higher prices for service work, parts, and upselling, than most aftermarket companies.
- As a result of this higher aftermarket pricing structure, dealerships normally retain service customers only until the factory warranty runs out, rather than throughout the full cycle of vehicle ownership.
Aggressively working to retain sales customers, as satisfied service customers through the full cycle of ownership, should reward dealerships when these now loyal customers purchase their next vehicle there. A traditional sales-oriented dealership could accomplish this by accepting competitive lower aftermarket pricing levels for service and parts while also expanding their service area to increase the number of service jobs which could be performed each day. This would protect total revenue and profit levels traditionally counted on by dealerships from service and parts. By increasing the numbers of satisfied sales customers converted into delighted service customers, the dealership would see an expansion in their loyal customer base. The time and effort spent to retain sales customers as service customers would yield a steady increase in total car sale revenues per year, without costing a dime of net revenue from the service department.
The larger, well trained service department, utilizing competitive pricing, could attract service customers away from other repair shops via superior levels of service work execution and success, (including factory authorized or required work). These newly satisfied service customers would be highly likely to purchase their next car at the dealership, knowing they will receive this same competitive level of service work on their new vehicle. Thus, the time and effort originally expended by the dealership to improve existing customer loyalty and retention, would also generate additional long-term increases in car sales through new service customers turned into new sales customers.
What is the bottom-line for start-up leaders? The business model, as the backbone of your company, must focus your energy and operational norms on faithfully serving customers’ wishes or demands. The model’s approach must exceed those wishes and therein convince customers to ignore your competitors. Metaphorically, you must implement a game-changing business model which will make customers willingly come back again without question; drag their family members in by the hand; and proclaim to their friends about how happy they are with your products or service.