You Need To Change Your Business Model

So you’re thinking about changing your business model or picking one for your company. 

How do you know what needs to be tweaked for the success of your company vision? Or which model to choose to help you establish your company and set it up for growth?

Let’s dive in.

Why You Might Need To Change Your Business Model

• The pain you're trying to solve in your target audience is not the pain they need fixed. It’s not resonating, and you’re not attracting the audience you need to continue.

• The current model is not allowing you to make enough or increase your revenue and profit to grow your business.

• How you deliver your solution (product/service) isn’t the best for your target customers. They desire another method.

• Your current model limits your ability to scale your company. 

• Your model is wearing down you and your employees.

• Your industry is maturing, so your sales have been experiencing a decline.

• Competitors have changed the landscape of your industry or market and you need to be proactive to sustain your business and continue growth into the future.

• There’s been a huge shift in technology, culture, the socio-political landscape, and the economy that is or will affect your business. You need to strategize to address it.

• Your business model doesn’t support the company vision or brand experience you want your customers to have.

• There has been a huge failure on the part of your business that has affected your brand reputation. You need to drastically change your strategy and business model (and therefore your brand) immediately to focus on building a positive way forward for your business and the markets your focused on serving.

• Your company has gone though a merger or acquisition, so the previous models from the merging companies need to be integrated or aligned. 

So in order to know what decision you need to make regarding your business model, you’ve got to zero-in on each of the puzzle pieces of your model to pinpoint where specifically you might need to make changes. Let’s review that quickly.

So You're Gearing Up For A Change — But What Do You Focus On First?

It’s important to spend some time really thinking through the components of your business model. And to do so continuously. 

As some companies mature, many of them may even add additional models to their overall business to help them better serve the customers they’re focused on. But whatever decision you’re making for your company, it all must be based on providing true value to address the true and very real pain(s) you are solving for your target markets.

To review — your Business Model is how your company creates value and revenue.

And so, what makes up the components of a business model?

When considering this, you’ll want to think through your company’s —

• Value Proposition — the value or types of value you provide to your market to solve their greatest pain or problems

• Market Segments — Who are you creating your value for? Who’s problem(s) are you solving?

• Key Activities — What priority activities have to happen to create and provide our Value Proposition?

• Key Resources — What is needed to do the activities that have to happen to provide your value?

• Channels — How do we get in contact with our target market(s)?

• Customer Relationships — What is the type and quality of the relationship we are developing with each of our target market(s)? How do we execute our customer service?

• Partners — Do we have partners that are important for us to have to deliver our problem-solving value?

• Revenue Streams — What revenue streams could your company have? And how or in what manner do they prefer to pay? What pricing are our target markets willing to pay for our company’s solution?

• Cost Structure — What are the most important costs that need to be addressed to create and deliver your value?

Now, let’s jump into more of the specific models!

The Categories 

Companies can be categorized by how they’ve built a business model to serve and sell to a particular end customer (a consumer, a business, or a government entity). These categories include —

• B2B (Business-to-Business) — where companies sell their solution to other businesses or organizations.

• B2C (Business to Consumer) — companies that sell to individual end consumers and may use retailers or wholesalers to sell to their customers.

• DTC (Direct to Consumer) — companies that sell directly to individual, end consumers.

• B2B2C (Business to Business to Consumer) — companies that sell their solution to other businesses to help those other businesses sell to consumers.

• C2C (Consumer to Consumer) — companies facilitate consumers selling to other consumers.

• B2C2B (Business to Consumer to Business) — companies who sell to the employees of other businesses who then advocate for their employer to buy the original company’s solution.

• B2G (Business to Government, also Business to Public Administration or Business to Public Sector) — companies sell their solution to government entities.

• C2G (Consumer to Government) — companies facilitate consumers directly interacting with a government entity.

When you describe your company as being in one of these categories, it helps position in people’s minds how they can interact with you and how you can best help them. 

The Business Model Types

So, you know how your company has been delivering value (or how you plan for it to deliver value),  you have an idea of where some problem areas lie in your current business model, and you’ve reviewed which umbrella category your company fits under and the types of customers you serve…

Now, what are some business models that could help you address the problem areas in your model and better deliver the value you provide to your end customer?

Here’s a master list of models that could be helpful to review —

• Retail — businesses that sell products to consumers.

• Wholesale — businesses that sell products or services to other retailers or businesses.

• Brick & Mortar — businesses that sell to consumers out of a physical location.

• Reselling — businesses that buy products or services from one source and re-sell them at a higher price. 

• Ecommerce — businesses that sell products or services online.

• Brick & Click / Click & Mortar — businesses that have a physical location and also sell their product/service online.

• Fee-For-Service Model— businesses provide their service to customers for a fee.

• Product + Pay For Support — businesses sell their products to customers and further support is provided at an additional price to the customer as they use the product.

• Product + Pay For Add-Ons — businesses sell products to customers and additional add-on features are sold at a separate price.

• Razor Blade Model — businesses sell a product (sometimes below its cost) and disposables required to use the product are sold continuously to customers.

• Reverse Razor Blade Model — businesses sell a high value (or high margin product) to customers upfront and low or free supportive or companion products are provided in order to use the product.

• Xaas Model (Anything-as-a-service Model) — businesses provide access to their product, service, tools, or technologies for a recurring fee.

• Freemium Model — businesses provide a free, basic version of their product/service for customers to try and paid options of the product/service when customers decide they want the more advanced features that come with the paid-for product/service.

• Advertising Business Model — businesses give a product/service away for free while ad space is sold to advertisers who want access to the users of that product/service.

• Transactional Model — businesses provide a product, service, tool, or technology to customers and collect a % of each sale transaction of that product, service, tool, or technology.

• Usage-Based Model — businesses provide a product or service and only charge customers for the amount of the product/service that they use. 

• Marketplace Model — businesses host an e-commerce platform where buyers and sellers can interact and create transactions.

• Membership Model — businesses provide a product, service, environment, and additional benefits that customers have access to for a recurring fee.

• Franchise Model — businesses come into contract with franchisees who want to use the business’ brand, business model, and product/service to sell to end customers. The goal is to expand the reach of the business model and brand.

• Shared Assets Model — businesses facilitate customers sharing their underutilized assets with other customers who would like to use those assets without owning them. 

• Manufacturing Model — businesses take resources or raw materials they’ve obtained and create products from them to sell to their customers.

• Distribution Model — businesses distribute products and services from producers and manufacturers to customers such as retailers and wholesalers.

• Lease Model — businesses buy assets and sell them to customers by way of a lease which allows the businesses to transfer ownership of the asset to the customers while the customers pay a fee over the lifetime of the lease either equating to all or a portion of the assets market value.

• Rent Model — businesses allow customers access or use of their assets for a fee for a set amount of time. There’s no transfer of ownership. 

• Referrals/Affiliates Model — businesses sell a product or service and encourage their customers or affiliates to promote/refer other potential customers to the businesses or to use the businesses’ products or services in exchange for incentives (like commissions from sales resulting from the affiliate’s promotion).

• Direct Sales Model / Commission Model — businesses sell a product or service but don’t use physical retail locations. Instead, they work with a network of salespeople to sell directly to customers. 

• Brokerage Model — businesses don’t sell a product themselves but connect buyers to sellers offering particular products or services.

• Insurance Model — businesses take on the financial risk of particular events on behalf of an individual consumer or a business in exchange for premium fees paid by the consumer or business. 

• HardTech / Deep Tech / BioTech — businesses develop products that require high levels of investment and take years to bring to live or commercial versions. Customers sign LOIs (Letters of Intent) to show their interest in purchasing the live products when they are ready. Revenue for these businesses can often be many years out, and high risk can be involved because of the technical and regulatory aspects of the products these businesses are developing.

• Crowdsourcing — businesses seek out and leverage a crowd (which can be part of their target market or 3rd-party to it) as a source of information, opinions, ideas, intelligence, skills, services, etc. in order to create and improve upon products and services they produce for their end customers. 

• Charitable Business Model — businesses making revenue from the products or services they sell to their customers include a way to support a cause or charity within their business model.

• Donation Model — businesses accept voluntary donations from other businesses or consumers to create a product or execute a service for customers.

How To Choose One That Fits Your Scenario

Deciding upon a new or additional business model comes down to understanding the problem you are solving, who you are solving the problem for, how you will continue to solve (or change how you solve that problem), and assessing the changes you’d need to make to the remaining parts of your current model that may be directly affected by any pivot in those initial areas. 

As a reminder: the parts of your business model include your — 

1. Value Proposition

2. Market Segments 

3. Key Activities

4. Key Resources

5. Channels 

6. Customer Relationships

7. Partners

8. Revenue Streams

9. And Cost Structure

Whether you are a B2B, B2C, DTC, B2B2C, C2C, B2C2B, or B2G company, you can ask questions like the following to assess the type of change your Business Model may need (whether partial or in totality) —

• What’s the pain you’ve been trying to solve? Has that changed? Or do you need to change the pain you’re focusing on?

• What’s your Value Proposition? What type of product or service do you provide? What are its problem-solving, benefit-providing features? Do you need to pivot your product/service to better address the pain you are solving for your customers?

• What type of customer(s) do you serve now? Are they responding positively to your value proposition? Or do they feel that your product/service is not addressing the problem they have? Are you looking to pivot your market focus to another that you’ll be able to serve better? 

• How do your customers obtain or get access to your product or service now? Does this need to change? How do your customers or a potentially new customer segment prefer to obtain your product or service?

• How have your customers paid for your product or service until now? Have there been changes in your market or industry that have created changes in the preferences of your customers (or potential new customer segment)? Does your current business model’s revenue model allow you to earn the revenue you need to sustain and grow your business?

• What are the costs of your current business model? If you need to make a change to the costs you incur, how will this affect the rest of your model? Is it doable/sustainable? Or does changing your cost structure mean major changes to the rest of your business model and, therefore, require a complete change in the model as whole?

It’s important to focus on a choice that works best for your end customer AND for your company. Also, keep in mind some products or services may fit better with certain business models than others.

An example of a partial or total change in a business model could go something like this —

You’re a B2B service business (so you have a Fee-For-Service Model), but the businesses you’re trying to sell to aren’t responding enough to your value proposition. However, after doing some research, you realize that individual consumers (maybe individual employees or independent professionals) are in need of a solution like yours. They have the problem you’ve been trying to solve, but maybe their parent company does not notice how deep the need is or is just not inclined to try a new service at this time.

You could consider trying a B2C2B subscription model to allow employees to become advocates for you in persuading their company to obtain your service. 

Or, if there are other variables proving to you that your current target market as a whole won’t work out, you could choose a completely new model.

You could try a B2C/DTC Xaas subscription model that gives consumers access to your service wherever and whenever they’d like for a recurring fee. This removes the limitations around how many customers you can sell to (since there are most likely more individual consumers than the businesses you were targeting). It also supports the potential increase in your company’s revenue stream because you have more secure and continual access to customers bought into the value proposition of your service. And lastly, it could be less costly to acquire this type of customer compared to the businesses you were targeting before.

Next Steps

Over the next several newsletters, we’re going to go into some examples of these business model categories and types to help you with your thought process around which business model may be a good fit for your business case.

If you’d like LUSID to help you work through your business model change and strategize around which business model is most appropriate for your company vision, you can set up a free call with us here. We’re excited to learn more about you and your business!

And feel free to reach out with any questions, comments, or additional thoughts you may have at [email protected] or www.getlusid.com. We love connecting with visionary Founders, CEOs, and executive leadership teams working on impactful ventures.

LUSID