The business model: how you create wealth

The business model says, This is how we create wealth (or social equity, or whatever your goal is).

It tells how you exchange what you do for money.

Basically a business model is like an engineering drawing or a flow chart. At its core is your value exchange: what you do that causes people to give you money, and all the supporting steps and actions wrapped around that.

 

The guaranteed business model

The business model I refer to first, is what I call the Four Basics.

Business involves uncertainties you cannot always control, but if you deliver the Four Basics with some persistence, you are as near as possible guaranteed to succeed. And the Four Basics are simple:

1. Sell something buyers want.

2. Price it to meet the local market (or to deliver cost benefits to the buyer).

3. Tell buyers about it.

4. Make it easy for them to buy it.

  1. If you have these four things happening, you can have fundamental confidence in your business model.  But if one or more of them is dodgy,  no smart marketing idea will be good enough to save you.

Corollaries of the Four basics

The Four Basics are deceptively simple, but they have far-reaching implications.

Two important corollaries are:

Capacity. To both sell something people want and give them an easy buying experience, you must have capacity. If you want to increase sales, you must have spare capacity available.

Culture. To make sales easy, but ultimately to achieve any of the Four Basics, you must have positive culture. People who expect failure can achieve it no matter what.

 

More about the Four Basics

1. Sell something buyers want

This is fundamental and often overlooked. If you promiote like hell, sell to your last gasp, throw in bonuses and discounts and they stil won't buy: maybe they don't want what you're selling. Don't fight it, change it.

2. Price it to meet the local market

No matter how much they love you, your product and your sales processes – people love a bargain more.  If you can't meet the competition on price (like-for-like, including brand value, service, warranty and other value adds), you can fudge a small amount by making your service a little different, so direct comparisons are impossible. But this will give you no more than wiggle room. Long term, if you must meet the local market.

Note that I included in the like-for-like list some non-cash values, such as brand and service. Thay are real parts of the price.  A more accurate term would be value-for-money. The sophisticated the shopper, the more critical to them is the performance of your product or service, the more they will be concenred with value for money, ahead of straight price.

Some lucky products have no direct competition. It happens more often than you umight think, especially in technology and professional areas. In this caseyou must price for value for money. WIll your buyer feel they have got a worthwhile return on their investment?  Best of all, will it save them money overall?

And finally on price, unless you sell mostly online, note that word "local". You don't have to compete with people in the CBD, if most of your customers want to buy near their home. That's why you'll pay more for milk from a corner store or servo than you know you would if you went out of your way to a supermarket.  Most shopping is local, either geographically or conceptually (for example, when people only consider brands they recognise). Price to where your customers buy.

3. Tell buyers about it

Most businesses don't promote enough, to the right tragtets.

Note I said "Tell buyers about it" not "Tell people about it."

If you put a big ad in the newspaper, you may be promoting to 200,000 people.  But if only 20 of them are in the market for your product, you are promoting to only 2,000 customers. The other 198,000 don't count and won't add to your income.

Maybe you could have reached the 2,000 another, cheaper, more effective way?

To sign off on this basic, be sure that most people who buy your product or service are aware of your offer – and get regular reminders of it.

4. Make it easy for them to buy it

Make it easy for yourself: make the purchase process easy and fast. Do it their way. Ease of purchase might include location, stock, payment facilities and even the payment model. For example, if your clients are typically bureacratised with annual budgets requiring advance approval for purchases above a certain level, you might offer your a monthly fee rather than once-off payment, making it easier for someone to squeeze it into an existing budget.

 

You don't know unless you listen

This is a fairly brutal foot note.  Most often when I assess the Four Basics I find the business owners are uninformed, misinformed – or delusional.  The only person who can reliably tell me whether they want a product, whether they know a particular supplier, whether that supplier's price is good and whether it is easy to buy from them is – the buyer. So I prefer to ask buyers. Not owners or managers. I call it research. But before you spend on research, take a minute to listen. Do you hear customers eager to buy your product, who know your name and are happily buying? Is that sound loud and clear, all the way to your bottom line?