Questions To Ask About Your Business Model

business modelOne of the leading thinkers about business models is Alex Osterwalder, the authored the book Business Model Generation and articulated the Business Model Canvas. Osterwalder advises that entrepreneurs ask themselves the following questions about their business model as this may be helpful in identifying strengths and weaknesses in the approach to the business…

 

1. How difficult would it be for your clients to migrate away?

 

The more costly it is for a customer to switch away from your services to those of a competitor, the less likely it is that they’ll switch.

 

2. How scalable is your business model?

 

Scalability allows you to expand your business without increasing your cost or if there is an increase, it is just an incremental increase in cost or infrastructure. A good example of this is a web-based business like e-learning.

 

3. Does your business model produce recurring revenues?

 

A good example of this is a school. Every year, there are (hopefully) more students and the fee income stays as long as the students are there.

 

4. Does your business model enable you to earn money before you spend it?

 

It’s always better to earn before you spend. Osterwalder points to Dell Computer’s early modeling of this approach, building computers only after an order is placed. Another example is services that are billed in advance – like consultancy fees. This helps to manage and enhance cash flow.

 

5. How well does your business model protect you from competitors?

 

 

The strength of your business model can be a deterrent for competitors. This can include experience, a special skill, a new technology not easily accessible to others or perhaps a business process that is hard to emulate.

 

6. Is your business model based on a game-changing cost structure?

 

Do you expect to work with a lean cost structure that is hard to beat? This can lead to competitive pricing and better customer service than your competitors. An example of this is e-learning degrees that offer the same degree compared to a much higher-cost “travel to the university” option.

 

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