Posted by: Bill von Achen | September 23, 2011

Seven Questions to Ask About Your Business Model

This past June, I attended the 15th International Conference on Thinking in Belfast, Northern Ireland. While there, I presented my ongoing research into the thinking processes of groups, based on more than 15 years of experience facilitating CEO peer groups. But I also benefited immeasurably from the ideas and concepts on a wide range of subjects I learned from dozens of other presenters.

One of the most insightful and thought provoking presentations I attended was the one given by Alex Osterwalder, a leading thinker and commentator about innovative business models, and the co-author of the best-selling book, Business Model Generation.  In his presentation, Osterwalder dissected the key elements of a successful business model, which he’s captured in his Business Model Canvas, a one-page sheet that allows business owners to “describe, design, challenge, invent and pivot your business model.” (A free copy of the Business Model Canvas can be downloaded at www.businessmodelgeneration.com.)

There’s no substitute for reading Osterwalder’s book and applying the filter of his Business Model Canvas to your business model. But, in a recent blog posting, Osterwalder posed the following seven questions that may help you to get to the heart of what’s working, and what’s not working, about your approach to business:

1.  Does your “switching cost” prevent your customers from churning?  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. And remember that “cost” can mean time or energy, not just money.

2.  How scalable is your business model? Scalability allows you to expand your business without increasing your cost base (such as web-based business models). But even traditional businesses should think about scalability when it comes to new products and services.

3.  Does your business model produce recurring revenues? Think King Gillette, and the razor/razor blade model, or printers and ink cartridges. You incur the sales cost only once, and continue to reap the benefits from the initial sale with minimal additional investment.  

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.

5.  How much of your business model leverages the work of others?  Here, the model is IKEA, which sells you furniture parts that you take home and assemble, or online networking sites, where information posted by participants actually builds value for the company.

6.  Does your business model protect you from competitors?  The strength of your business model can actually deter competitors from entering your space. For Osterwalder, Apple is a prime example of a company whose strength makes partnership a more inviting option for potential competitors.

7.  Is your business model based on a game-changing cost structure? In the airline industry, Southwest pioneered a cost structure that enabled them to effectively compete on price. More recently, Skype has built a business on the model of a software business instead of a telecommunications company with major infrastructure investments.

You can read the complete text of Osterwalder’s blog, entitled “7 Questions to Assess Your Business Model Design,” at http://www.businessmodelalchemist.com/2011/09/7-questions-to-assess-your-business-model-design.html.

How does your business model measure up to these questions? What changes could you make to your current model to improve your competitiveness and your profitability? Post your comments and ideas here.  Thanks!


Responses

  1. Absolutely a great list of questions. Thank you! I just finished a book called “That’s a Great Question” by management consultant Greg Bustin. In it, he poses more than 500 questions that top business leaders use to help drive results and impact change at their organizations. It’s been a huge help to me as I’ve advanced at my company. Check it out at Bustin’s site http://www.bustin.com


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