Entrepreneurs often struggle to understand the business model concept, which may seem abstract or technical. It can be simplified to two basic components: How the company generates revenue from sales and operational factors, expects them to achieve and maintain profitability. Gradually, as the company begins, the model often changes due to new opportunities, new competitive threats, or simply because the company is learning something about the actual needs of their customers.
Failure, learning and adaptation are part of the journey, if you are looking for the right value proposition and the right business model. During this phase you test iteratively assumptions underlying your idea, learn more about the market / clients and improve your idea until you reach the goals of the market model and the model of product. You can make two types of adjustments when you are in the “search”: iteration or pivot. Let’s see why these are separate movements:
Iterate: The adaptation is minor; You are redesigning your business model and your value proposition, but your new models are still closely related to the original idea.
Pivot: Your basic idea will be undermined so that you explore a radically different business model and value proposition. A pivot occurs when you make a major change to one or more Business Model Canvas components. As entrepreneurs easily go through their ideas, they struggle with a business model and a proposal for a radically different value to move. Pivot weaknesses usually occur because a contractor is too late to destroy an idea he likes, or too slow to make any significant changes. It is important to respond quickly when you need to turn.
Ways to know when to change your business model if it does not work.
Your business do not generate enough traction from the customer you targeted:
- The customer you care about does not really care about the problem you want to solve. It is a common mistake in new companies. The jobs, pain and profits you intend to fill are not important enough for customers. They need to focus on their critical tasks, their pain, and their profits. You are attracted by customers, but you quickly realize that the market is not big enough to survive your business. You must offer something that a small group is willing to pay for, or focus on a larger pool of paying customers. You can also modify your model to diversify your sources of income. You are talking to the wrong customer: the end user is enthusiastic about what you offer, but the buyer or decision maker is not convinced. How can you meet some of the buyer’s most critical positions, pain and gains to pay for it?
When your business value proposition does not resonate with the customers
- Your customers take care of the tasks, pain and profits you want to answer, but you have chosen the wrong product features. Or your product does not solve the problem of your customers enough. How can you create features that maximize the value you create for your customers?
Your acquisition and loyalty strategy does not generate the growth you were hoping for
- Your value proposition brilliantly resolves the work, pain and profits of your clients. The problem is that you have not found the right channels to reach your customers. Put yourself in the shoes of your customers to understand how they hear about new products, where to buy them, and how to get them back. You have found the right channels to market your value proposition and deliver it to your customers! But you end up paying more to gain a customer than the revenue this customer generates for you (customer acquisition cost> customer lifetime value). How can you play with the numbers to reduce the cost of acquiring customers or increasing your customers’ revenue?
Customers are not ready to pay the price
- You have found a critical problem and customers are hungry for your value proposition. Unfortunately, they cannot afford it or do not want to pay it. Can you lower your price? Can you get rid of costly expensive features and only calculate the costs that are most important to your customers? Can you generate new revenue streams? Can you address other customer segments and expand your market?
You cannot build the product and / or your costs are too high
- This one is really easy. Your financial equation is wrong: cost> income. Can you outsource certain activities and / or find cheaper ways to produce and deliver your value proposition? What seemed simple on paper turned out to be a serious headache. You cannot manufacture the product you want to offer because of unavailable resources, a complex manufacturing process, slow technology, and so on. Can you solve problems related to important activities and resources by substituting or outsourcing them?
External forces threaten your business model
As Bill Gross explains in his TED talk, bad timing can mean the death of your business. In this case, there are already too many competitors and good products available. Or you are too early in the market and people have to change their behavior to take on your value proposition. Seek opportunities to enter promising markets that will soon grow strongly. The market you are entering is ripe and sales are in decline. Other companies try to leave this room. Determine why sales are falling and where customers are spending their money.