What is your business model?

How does your organization create value and monetize it? A company that is able to create value to a wide target market and monetize it in a sustainable way has a good business model.

In 2013, I was engaged by a hospital in Kenya to help define a business model. During the context analysis stage, my client’s CEO said, “we have a strategy which is clear. All we need is a business model.” I was puzzled.

“Your strategy must define your business model properly. A strategic plan without a business model is like a car without an engine. How does your company create value and make money?”  I recommended we start by reviewing the strategic plan so that the business model is well defined.

During the business model definition, the following questions were asked:

  1. Why does the business exist?
  2. How do you solve problems?
  3. Which kind of market do you target to solve their problems?
  4. In your approach to revenue, do you focus on small margins from many customers or large margins from a few customers?
  5. Are your services highly-priced or cheaply priced?
  6. Do you focus on mass production to sell to so many people or you produce on demand to sell to a few exclusive clients? Are you a cost focus company or differentiation?

After examining the above and more facts at the client, we were able to have a business model defined.

Simply, your business model is the way your company or organization creates value and makes money out of that value. A good business model enables scalability, small margins from so many customers and high contribution per unit.

Due to competition, you must keep your eyes open and ears alert. What worked yesterday may no longer work today since new competitors may come up with better ways of solving your customers’ problems thereby creating better value than you can offer.

Copyright Mustapha B. Mugisa, 2019. All rights reserved.

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