Profit IdeasWhy a Good Business Model is Crucial to Profits
Benson Garner, President — Innovation Principle
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I recently sat down with Benson Garner to discuss business model planning. I first met Benson at a workshop he ran in Nashville and, with his help, found a few glaring holes in my business which subsequently improved my company's profitability.
Before that workshop, I didn't truly understand what a business model was. I had an impression that my company had a model in place because we knew how we were going to market and had been pretty successful. I was aware that there was a proper process and map for a business model, but I had never gone through that exercise and was stunned to find gaps that were affecting my business's ability to perform.
"The purpose of a business model is to understand how a company creates, delivers, and monetizes value to its customers," Benson explained. "We often use a visual tool, called a Business Model Canvas, to sketch out a company's business model. The ultimate goal in this exercise is to map out those areas which are most critical to the business itself. This allows a business to focus on the areas that are absolutely necessary to creating, delivering, and capturing value. The rest, while still important, may not be something that you necessarily want to handle yourselves."
"One great example is Bharti Airtel, a huge telecom company in India, which realized that it was really good at finding customers and creating products/services for them. At the same time, the company figured out that it wasn't good at designing and building the physical infrastructure needed to support its operations. The company subsequently decided to outsource its physical infrastructure – a move that was completely unheard of in the telecom industry at the time – and, as a result, the company was able to expand to 27 other countries and is now more profitable than ever."
In my experience, a lot of distribution companies have very long histories. Some have been around 100 or 150 years and, as a result, have changed hands several times since their founding. Whatever the original business plan was, if one was set up, it would have gradually broken down over time. I've worked with a lot of owners who inherited their business and often they're well-aware that their company isn't earning the profits it should or that it could run more smoothly. A business model canvas would certainly help these companies get on track.
"Many companies think that they're running one model, but they're really running 4 or 5," Benson said. "The beauty of a business model canvas is that you visualize how these individual models connect which allows you to see if they're synergistic or if there's some overlap. This helps you spot gaps and allows for careful planning instead of just letting things happen."
Businesses spend a lot of time on mission statements to help people understand what they should be doing or shouldn't be doing. However, the Business Model Canvas is actually the golden key to make sure that all the aspects are covered and helps to ensure that everything a company does is intended rather than left to chance.
For more information about Benson Garner, visit: www.bensongarner.com