In our business we run two or three business models which require many differences of approach and definitely bump into each other from time to time. When working on our plans for 2013 I was considering the different business models and it occurred to me that many companies have a very hard time introducing new models and perusing new opportunities. So in this short article I would like to set the foundation of how to establish a new business model and explore the inherent difficulties of operating multiple models.
First, I believe that when introducing a new model or going after a new market, which in many cases requires change in our model, there are two major pitfalls that cause failure. The first is expectations. This is ‘the grass is always greener on the other side’ syndrome. Initially looking at the new opportunity we are blind, to a large degree, by the amazing opportunity we perceive. The opportunity after all is what causes us to enter the new market or add the new product segment. Then reality sets and the difficulties we did not consider arrive. This is inevitable. But there are remedies.
The second reason for failure is that a new business model is going to create challenge in ways we did not anticipate. This problem is exacerbated by the fact that the new model is not producing a significant enough portion of our revenues or profits. As such it becomes a larger problem then it’s worth. Or at least so it seems.
So how can we solve this? First, when approaching a new market or new product segment you need to consider all of the ramifications of the choice. You might just be adding a line but you might be causing a significant change to your operational model or adding a new model or a new complexity to your current business model.
Next, when looking at your opportunity consider your upside, but also consider the level of organizational energy that is going to be required in order to make this a significant part of your business. It should be understood from the get go that the fact that you are not as familiar with this model will make many of your projections and assumptions for growth nothing but an educated guess. This means that lower revenue from this line should not discourage you. As a matter of fact, it will be advantageous to set the projections very low so that even a small amount of revenues is exciting to the people in charge of the new business model or segment. The excitement will drive the needed emotional energy.
Finally, you want to allow ample time for the new market opportunity to produce significant results. This will only happen if you invest the needed resources upfront. In order to accomplish this the vantage point may need to be of a longer term. There needs to be an understating that the payback may take longer, but the long term rewards maybe greater. You should also consider the increase this new model can bring to the value of the company. While this may not make a major impact on revenue a potential buyer or investor may consider this a hidden gem.
This level of analysis may make you walk away from some opportunities. But more importantly it will prepare you to the difficulties of implementing the opportunity. Ideas are a crucial part of the growth chain. But, the failure is usually at the execution level. The understanding of your current business model and the deep understanding of the changes this new venture will require outside of just financial is the crucial link between idea and execution success.