Monday, May 6, 2013

Is your business model sustainable?

Here is a very good video of a business model of Nespresso, a subsidiary of Nestle, selling coffee at a premium rates. It is a very good 'real-life' example of how different component of business have to be 'tied' together to create a viable and profitable business model. Individual components such as - revenue stream, channels, or value proposition - do not matter much; what matters is how they are 'integrated' together in one piece.

Interestingly, the nine individual components are bifurcated into two separate streams:
  • 4 Revenue side components that includes revenue stream, type of customer relationships( new or repeating), distribution channels and customer segments and another is 
  • 4 Input Resources components ( or what we earlier called servicing side of business in an earlier blog) which includes key activities of the business, key resources to do those activities, key partners to help you do deliver the business promise and the resulting cost structure and 
  • Component of Value Proposition which ties Revenue with Resource  ( i.e costs) components together and determines the profitability of the business 
In an earlier blog, we had seen how the clash of investment of time, money and resource between acquiring a customer and servicing the customer ( between the revenue and input components, in other language) can make a business model unsustainable. 

Advantage of a putting the business model on one page

Once you put your business model on one page like Nespresso, then you can see how individual components correlate, how the correlation is affecting both sides - revenues and resources - simultaneously, and what to do to increase the profits, or deepen the customer relationships. It is a like snap shot of the entire business that can help you find the best available leverage in your business.

Have you mapped the business model of your organisation on one page? If you have not, it is time you do it. 

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