Does Your Business Model Need Updating?

With the craziness of the holiday season in full swing, you may not have given much thought to your business model. But now that Christmas and New Years’ are in the rear view mirror it might be time to take another look. In our upcoming series on business models, we’ll examine some basic questions about these valuable tools, including whether it’s time to give them a fresh coat of paint or remodel them entirely.

So what is a business model? It’s a nebulous thing, sort of like great art. It’s hard to define, but you’ll know it when you see it. One of the simplest definitions of a business model is the answer to a very basic question: how are you going to make money?

Making money in your business

It’s a pretty important thing. While we all start up a business with the best of intentions, we’re not going to be around very long if we can’t generate a profit. Finding a way to make money in business can be challenging. Finding a way to stay in the black year after year can be harder still. Consider a couple of examples:

Innovative catalog biz

One hundred years ago, Sears & Roebuck was perhaps the largest, most influential retailer in the country. They achieved their success by innovating. Their mail order business took advantage of the spread of the railroad and legislation that enabled rural-free delivery, allowing them to penetrate hard-to-reach markets. Their ever-expanding network of anchor stores let them continue their dominance during the mall craze of the 1970’s and ‘80’s. However they allowed themselves to be undercut by discount outlets like Wal-Mart, which sapped their brick-and-mortar business, and they had no real answer for the advent of e-commerce. Once an innovative giant, Sears may well be joining the other corporate dinosaurs in a path to extinction.

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IBM has a happier story. The company first made its mark by supplying typewriters to burgeoning businesses in the early part of the last century. As the computer age got underway, IBM smoothly transitioned to become one of the premier suppliers of hardware, including printers, personal computers and mainframes. It wasn’t enough to sustain the company, and by the early 1990’s IBM faced its potential demise. The company shifted its business strategy to supply business software, a difficult transition since hardware had been what defined the company for so long. Having survived, IBM is well positioned to move into the digital future.

The moral of these two stories is that we have to adapt our business strategies to meet with changing times, even if that adaptation is painful. Sometimes we have to learn to walk a new way. We have to look at it analytically. If a product or service is no longer producing a reliable revenue stream, we have to find the courage to let it go, even if that product is what’s made our company what it is. Holding onto the past can cloud our vision of where we want to go.

As the success of companies like IBM proves, fundamental change is difficult, but not impossible. Don’t be afraid to take a cold, clinical look at how you’ve been doing things and to make the necessary adjustments. Redo it from the ground up if you have to. The results may be just what you need to propel your growth into the next decade and beyond.