Now may be a good time to question your Business Model
By: Richard Theriault, Partner NuFocus Strategic Group
As the fallout from the pandemic continues, many business owners find themselves contemplating their future and the future of their business. Although this may be daunting, it can also represent a unique opportunity for reinvention. But before staring any reinventing, it’s best to understand what you really have today. Then you can choose what should be part of your new future to build on and what should be part of your history.
Here are a few steps to help you figure this out. This should be done at a high level. There is no value in getting caught up in detailed spreadsheets. Consider it a “weed-free” zone.
1. Start with “following the money”.
Try to break out your company income into a small number of key revenue stream buckets. You should be able to do this in 3-5 buckets. Buckets can represent market sectors, product/offering groups, client types, etc. (Whatever is the most logical for your company). Once you’ve figured out 80% of your revenues, fit the rest in a last bucket called “others.” Typically, you’d see that 20% of your activities generate 80% of your income.
2. Then, sort out the “contribution value” of these buckets.
Here you must examine the gross contribution from each bucket. We are not looking for an exact number, but more of a range. For example, bucket A has revenues of $1M with a gross contribution of 20% while bucket B has revenues of $400k with a gross contribution of 30%, bucket C has revenues of $250k with a gross contribution of 50%, bucket D has revenues of $100k with a gross contribution of 60% and so on.
3. Next, take out your entrepreneurial crystal ball and examine the growth potential of each bucket.
Here you would rate the market’s growth potential and our own company’s growth potential. The key is to start optimizing your potential. Based on the examples in step 2, we would look at buckets C and D and ask the question: would it be possible to grow these buckets by 50% or 100%? Even if our core business went down by 50%, we could replace the gross contribution by growing B and C by as little as $200k.
4. And last, really use your crystal ball.
As the current pandemic will probably impact your markets, use this opportunity to expand how you look at your business with an additional angle. Are there niches out there that you can supply? Are there products/services that clients were asking for and you just didn’t have the time? Create another bucket and estimate its potential dimension and what kind of gross contributions you could make.
The goal of this exercise is to thoroughly examine how we create wealth and make a conscious effort to grow select non-core revenues, especially when the gross contributions are in excess of 50%. Also, new revenue opportunities will likely emerge from the pandemic aftermath. These segments are often niche offerings with limited volume potential, however, under certain circumstances and efforts, we can be surprised by the results. After completing your 4-step business model review, use the outcome to make proactive choices for your business model.
In closing, although some companies may fail during these tough times, a great many companies will reinvent themselves and thrive. Choose to be the latter.
For more information, please contact Richard at firstname.lastname@example.org