{"id":99,"date":"2019-10-04T05:01:24","date_gmt":"2019-10-04T04:01:24","guid":{"rendered":"https:\/\/kleosafrica.com\/blog\/?p=99"},"modified":"2023-11-10T05:03:37","modified_gmt":"2023-11-10T04:03:37","slug":"the-ceos-guide-to-effective-business-models","status":"publish","type":"post","link":"https:\/\/kleosafrica.com\/blog\/2019\/10\/04\/the-ceos-guide-to-effective-business-models\/","title":{"rendered":"The CEO&#8217;s Guide to Effective Business Models"},"content":{"rendered":"\n<blockquote class=\"wp-block-quote\"><p>\u201cI started the business with a simple question: How can we make the process of buying a computer better?\u2019\u2019<\/p><cite>&#8211; Michael Dell, Founder of Dell Computers\u00a0<\/cite><\/blockquote>\n\n\n\n<p>A\nfeasibility study should be conducted to determine the likelihood that your\nbusiness idea will be successful. While it is not a checklist, a good\nfeasibility study tests the different components of the idea\u2019s business model\nto determine its chances of success.<\/p>\n\n\n\n<p>To get your business model\nright, you will have to examine the following:<\/p>\n\n\n\n<ul><li>Your customer\u2019s value proposition<\/li><li>The business environment<\/li><li>The industry<\/li><li>Your competitive advantage<\/li><li>Your financials<\/li><li>Your team<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The\nCustomer\u2019s Value Proposition<\/a><\/h2>\n\n\n\n<p><strong>Life\u2019s Too Short to be a \u2018\u2019Me-Too\u2019\u2019 Entrepreneur<\/strong><\/p>\n\n\n\n<p>Innovation is the heartbeat of successful\nentrepreneurship. A business\u2019 growth potential is determined by the quantum\nleap in innovation that it represents. At the top of the value chain are\npioneers, which offer value innovations. Next are migrators \u2013 businesses with\nvalue improvements. At the bottom of the pile are settlers \u2013 businesses that\noffer me-too products and services.[1]<\/p>\n\n\n\n<p><strong>Veronika Scott: One Stitch at a Time<\/strong><\/p>\n\n\n\n<p>Building a social performance\nstrategy or starting an impact-focused business is one of the best ways to fill\nunique needs in the community. Veronika Scott began The Empowerment Plan while\na student at The College for Creative Studies in Detroit. She took a class\nwhich asked her to create a product that filled a need in her community.\nIdentifying the issue of homelessness, she began spending time at a warming\ncentre where the design for the EMPWR coat was conceived.<\/p>\n\n\n\n<p>While conducting her primary market research, Veronika was challenged by an angry homeless woman who asserted that she didn\u2019t need a coat, but a job. This insight shaped the innovative business practices The Empowerment Plan was build upon. The non-profit organization hires single parents from local shelters and provides them with training and full-time employment as seamstresses so that they can earn a stable income, find secure housing, and regain their independence.<\/p>\n\n\n\n<p><strong>Questions for Your Business:<\/strong><\/p>\n\n\n\n<ul><li>Define your key customers \u2013 who they are, what they do, where\nthey live and operate<\/li><li>What unique advantages does your product\/service provide that\nyour competitors don\u2019t?<\/li><li>Are customers buying your product\/service?<\/li><li>What challenges does your product\/service solve?<\/li><li>How motivated are your customers to pay you?<\/li><li>Are customers willing to spend the required amount to enable you\nto build a sustainable business?<\/li><li>Does your target market have the potential to grow?<\/li><li>Are there other customer segments you can serve with related\nproducts\/services?<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The\nBusiness Environment<\/a><\/h2>\n\n\n\n<p><strong>Evaluating Environmental Factors<\/strong><\/p>\n\n\n\n<p>The business environment refers to the set of political, economic, social, technological, environmental and legal forces that can promote and nurture or constrain and kill businesses in a given territory and market.<\/p>\n\n\n\n<p>A PESTEL analysis is a popular tool for understanding the environment a business operates in as well as the trends likely to have an impact on the business\u2019 performance.<a href=\"http:\/\/www.gloryenyinnaya.com\/reflections-on-the-awec-leadership-summit-in-kigali\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><\/strong><\/a><\/p>\n\n\n\n<p><strong>Questions for Your Business:<\/strong><\/p>\n\n\n\n<ul><li>What are your ambitions \u2013 a high-growth business or a small,\nlifestyle business?<\/li><li>How large is your market?<\/li><li>How quickly has it grown over the past few years?<\/li><li>How fast will it grow in the next few years?<\/li><li>Conduct a PESTEL (political, economic, sociocultural,\ntechnological, environmental and legal) analysis and identify the trends that\nwill affect your market<\/li><li>Speak with your\ncustomers, suppliers and competitors and get some information on market trends[5]<ul><li>What are the\ncurrent key trends? What is the evidence supporting the existence of these\ntrends? How have the trends evolved historically? What is the nature and degree\nof change or turbulence within trends? What kind of impact do the trends have\nfor your business \u2013 negative, positive or neutral?<\/li><\/ul><ul><li>What are the\ninterrelationships between trends? What are the conflicts between trends?<\/li><\/ul><ul><li>Identify most\ncritical trends or \u2018\u2019issues.\u2019\u2019<\/li><\/ul><ul><li>Assess the\nunderlying forces. Make alternative projections of the issues.<\/li><\/ul><ul><li>Derive\nimplications of these forces on your business and your competitors\u2019 strategies.<\/li><\/ul><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The\nIndustry<\/a><\/h2>\n\n\n\n<blockquote class=\"wp-block-quote\"><p>\u2018\u2019When an industry with a reputation for difficult economies meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation.\u2019\u2019 <\/p><cite>&#8211; Warren Buffet, CEO of Berkshire Hathaway<\/cite><\/blockquote>\n\n\n\n<p><strong>Assessing the Smartphone Industry<\/strong><\/p>\n\n\n\n<p>The iPhone is one of the\nleading smartphones in the world. Looking beyond face value, the smartphone\nindustry is attractive for the following reasons: There are few available\nsubstitutes, as landlines, home lines and public phones have little or no\nportability. Barriers to entry are high, due to the differentiated product,\nunique design, strong brand, cost advantages and high set-up costs. Buyers have\nlow power, because there are many customers and large costs incurred in\nswitching from one brand to the other. Suppliers have moderate power, because\nthere are few OS suppliers but many component suppliers. Competitive rivalry\nfrom Samsung and other large competing firms is high<\/p>\n\n\n\n<p><strong>Why Industry Analysis?<\/strong><\/p>\n\n\n\n<p>Why should you, as an\nentrepreneur, be interested in industry analysis? It helps you understand the\nprimary factors that affect your profitability. It helps you understand areas\nof strength or weakness that can be exploited. It helps you discover market\nniches not currently being serviced by other companies. It helps you determine\nwhere your company is, or should be, positioned in the industry. It helps you\nsupport decisions on whether and where to make investments. It provides some\ndirection on the future of your industry and the companies within it.<\/p>\n\n\n\n<p><strong>Questions for Your Business:<\/strong><\/p>\n\n\n\n<ul><li>What industry do you compete in?<\/li><li>How easy is it for a new competitor to enter your industry? What\nbarriers to entry exist within your industry? What has been the experience of\nrecent new entrants to your industry?<\/li><li>Who are the primary suppliers to your industry? What are the\nmain drivers of their power? What strategies can your company employ to\nmitigate the power of suppliers?<\/li><li>Who are the primary buyers in your industry? How powerful are\nthey vis-\u00e0-vis you and your competitors? What strategies can you employ to\nmitigate the power of buyers?<\/li><li>What is the fundamental need being satisfied by your industry\u2019s\nproducts or services? Can that need be satisfied through different means? What\ncan you do to mitigate the threat of substitutes?<\/li><li>How intense is the rivalry among competitors in your industry?\nWhat is the basis of competition within your industry? What strategies can you\nemploy to mitigate the effects of intense rivalry in your industry?<\/li><li>Based on all five forces, what is your overall assessment of\nthis industry?<\/li><li>Just how attractive or unattractive is it?<\/li><li>If your industry is a poor performer overall, are there\npersuasive reasons why you\u2019ll fare differently? If not, move on.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The\nSustainable Competitive Advantage<\/a><\/h2>\n\n\n\n<p><strong>Creating Dynamic Competitive Advantage<\/strong><\/p>\n\n\n\n<p>To win in the marketplace on a\nsustainable basis, you have to choose a game plan (from among the many options)\nby matching the opportunities with internal distinctive competencies. One must,\nhowever, not take \u2018\u2019exploiting distinctive competencies\u2019\u2019 as an end in itself \u2013\nit is only a means to an end.<\/p>\n\n\n\n<p>\u2018\u2019The real essence of business is to find and keep\ncustomers.\u2019\u2019<\/p>\n\n\n\n<p><strong>Wal-Mart\u2019s Sources of Competitive Advantage<\/strong><\/p>\n\n\n\n<p>A behemoth like Wal-Mart\nderives its competitive advantage from various sources.<\/p>\n\n\n\n<p>First, its low cost and\nefficient operations. It does a lot of little things extremely well and they\nall add up to a tremendous cost advantage.<\/p>\n\n\n\n<p>Second, its market position.\nIts small town rural strategy has evolved into a network of stores with a\nrelatively large number of \u2018\u2019local monopolies.\u2019\u2019<\/p>\n\n\n\n<p>Third, its culture and human\nresources management. Its empowered and committed associated \u2018\u2019live to work for\nthe glory of Wal-Mart.\u2019\u2019<\/p>\n\n\n\n<p>Fourth, its founder \u2013 Sam\nWalton \u2013 is Wal-Mart\u2019s biggest enthusiast and cheerleader. He provided value by\nhaving a vision, setting the strategy and creating the culture that drove the\nentire strategy.<\/p>\n\n\n\n<p><strong>Questions for Your Business:<\/strong><\/p>\n\n\n\n<ul><li>How are you obtaining your returns?<ul><li>Lowest costs\nthrough scale advantages?<\/li><\/ul><ul><li>Lowest costs\nthrough scope and replication advantages?<\/li><\/ul><ul><li>Premium prices\ndue to unmatchable service?<\/li><\/ul><ul><li>Premium prices\ndue to proprietary product features?<\/li><\/ul><\/li><li>Do you own intellectual property \u2013 patents, trade secrets,\ntrademarks \u2013 which competitors cannot likely replicate?<\/li><li>Can you deploy superior processes, capabilities or resources\nthat competitors cannot likely duplicate?<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Economic Logic<\/a><\/h2>\n\n\n\n<p>\u2018\u2019Business without sound economics is just\n\u2018\u2019busyness\u2019\u2019 \u2013 a lot of activity that doesn\u2019t translate into much at the end of\nthe day.\u2019\u2019<\/p>\n\n\n\n<p>You need to ensure that the\ncore elements of your economic model by examining the following elements:<\/p>\n\n\n\n<ul><li>Revenue forecast<\/li><li>Customer acquisition and retention cost<\/li><li>Time to obtain a customer<\/li><li>Gross margins<\/li><li>Capital investment required<\/li><li>Break-even analysis<\/li><li>Operating cash cycle characteristics<\/li><\/ul>\n\n\n\n<p><strong>Questions for Your Business<\/strong><\/p>\n\n\n\n<ul><li>Is your revenue sufficient for the required capital investment\nand the margins you obtain?<\/li><li>What is the cost of customer acquisition and retention?<\/li><li>How quickly can you attract customers?<\/li><li>Is your contribution margin sufficient to cover your fixed cost\nstructure?<\/li><li>How much do you have to invest in working capital (inventory,\naccounts receivable etc.) and how long is this investment?<\/li><li>How soon do your customers pay?<\/li><li>How slowly do you pay your suppliers and employees?&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><a>1.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Team<\/a><\/h2>\n\n\n\n<p>At the end of the day, the best\nbusiness model in the world can fail if not properly executed.<\/p>\n\n\n\n<p>As the business owner, there\nneeds to be an alignment between your personal qualities, vision, lifestyle,\nrisk propensity, relationships and the business you want to establish.<\/p>\n\n\n\n<p><strong>Questions for Your Business:<\/strong><\/p>\n\n\n\n<ul><li>What\u2019s your entrepreneurial mission?<\/li><li>How high are you aiming your entrepreneurial dream?<\/li><li>What are the key success factors for succeeding in your\nindustry?<\/li><li>What Key Success Factors are you prepared to meet and where do\nyou need help?<\/li><li>What is your relationship with suppliers?<\/li><li>What is your relationship with distributors and customers?<\/li><li>What is your relationship with competitors and substitutes?<\/li><\/ul>\n\n\n\n<p><strong>Conclusion: Interpreting the scores<\/strong><\/p>\n\n\n\n<p>Low scores in target market\nattractiveness and team\u2019s preparation to execute on Key Success Factors are\nusually insurmountable obstacles. It\u2019s better to close shop than persist as a\n\u2018\u2019me-too\u2019\u2019 entrepreneur, or one who doesn\u2019t deliver results.<\/p>\n\n\n\n<p>Low scores in the other three\nareas aren\u2019t deal breakers. However, you need a plan to combat these\nweaknesses. A stagnant market can be overcome by innovation. You can succeed in\nan unattractive industry through accurate targeting, delivering unique benefits\nand building differentiated processes that provide a basis for sustainable\nadvantage. Innovating to retain product leadership, growing a loyal customer\nbase and exploiting first mover advantage can overcome a poor score on the\nsustainability of your advantage. Your team\u2019s mission, aspirations and risk\npropensity need to be aligned to the level of resources you will need.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Business without sound economics is just \u2018\u2019busyness\u2019\u2019 \u2013 a lot of activity that doesn\u2019t translate into much at the end of the day. You need to ensure that the core elements of your business model are sound.<\/p>\n","protected":false},"author":1,"featured_media":100,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[7,6,8],"tags":[30],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/posts\/99"}],"collection":[{"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/comments?post=99"}],"version-history":[{"count":1,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/posts\/99\/revisions"}],"predecessor-version":[{"id":101,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/posts\/99\/revisions\/101"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/media\/100"}],"wp:attachment":[{"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/media?parent=99"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/categories?post=99"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kleosafrica.com\/blog\/wp-json\/wp\/v2\/tags?post=99"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}