Developing a winning business model in digital economy

06 Oct, 2017 - 00:10 0 Views
Developing a winning business model in digital economy Giants like Kodak called it quits when digital cameras came into existence

eBusiness Weekly

Kudzai M. Mbaiwa
Building a business with a functional economic model is not an easy task. Developing a winning one in a dynamic economy such as ours is even more difficult. The very popular business plan is a great help when one is running an enterprise under “normal conditions” when the intention is to plan and implement as a response to a known problem with known data — building on an existing product or service.

That definition makes it clear that should conditions change, the business plan becomes obsolete. Business model canvases are the perfect response tools for one running an enterprise in Zimbabwe — they are deliberately designed to find evidence for a value proposition customers want and then create a profitable and scalable business.

The overall mind-set is one of prototyping, testing, and iterating — which every progressive Zimbabwean business ought to have.

Business Plans versus Business Canvases

Business plans are useful when an idea is unlikely to change or be disrupted. They tend to be high fidelity — with plenty of detail and many pages. Very little testing is done when they are generated, such that only minor changes ever occur to the business.

This means that enterprises built entirely on a business plan are at high risk of disruption, and the operations are run with high uncertainty whether the business will exist in the next few years, months or even weeks! At the pace the world is moving now, a business owner can really not afford to live like that. Risk can never be eradicated, but it can be managed; and modelling using canvases is the answer.

Business model canvases tend to encourage frequent testing — going often to the market to test one’s idea/product and making alterations to the document often. As such, risk is increasingly managed and lowered over time. It sounds tedious, but it must be built in to the company’s processes and time if one is to build something that lasts.

In the digital economy anyone can become a giant overnight if they successfully build a model or platform that attracts users and can be monetised.

Examples abound in the public domain of companies that probably “stuck to the plan” in the face of a disruptive environment and the inevitable occurred — they folded. Giants like Kodak called it quits when digital cameras came into existence because they were besotted with creating and selling the old school “film”.

Smaller competitors like Fujifilm remain afloat because they leveraged their existing business and remodelled quickly exploring other product lines.

Coming home to Zimbabwe, we know of music recording company giants that wound up after failing to evolve from the old arrangement of making money from high sales of radio cassettes and CDs.

They were easily disrupted as the internet democratised the sharing of audio content and missed the opportunity of reinventing themselves by perhaps starting an online channel for distribution and delving into other offline music promotion activities.

Giants fall when they fall in love with an initial idea as outlined in the business plan, and refuse to move from it.

Business Model Canvas Applied

Unlike the business plan, the business model canvas is not just about making as much money as possible! It is about zeroing in on purpose as a business, creating value for customers and delivering that value. Alex Osterwalder, the “godfather” of business model canvases, suggests that a successful business idea requires three legs to stand on: feasibility, desirability and viability.

Feasibility speaks to technology. There must ability in-house to develop products that are wanted by the customers, and are both functional and useful in solving identifiable problems.

Desirability speaks to design; the products must be created in a way that makes them attractive, again utilising the feedback of customers. Finally, viability; which speaks to the business aspect — after creating and delivering value for customers, the business must get value itself. These three aspects are better reflected on a canvas than they are in a large business plan.

Several models exist for business but they all can be worked on using the business model canvas as a base, taking account each of the nine elements. This global standard used by millions of people in companies of all sizes is used to describe, design, challenge, and pivot a business model should it fail to be validated by the market.

The nine elements it highlights are customer segments (the specific group of people that the organisation aims to serve), value proposition (a clear description of the company’s offering and how it solves problems or creates value for customers), channels (the means that a company uses to reach its customer segments to communicate with them and to deliver products and services to them), customer relationships (the methods used to maintain relationships with customer segments), revenue streams (income generation and collection mechanisms in the business), key resources (the most important assets that the company needs to make the other elements of the business model work), key activities (the most important things that a company must do to make its business model work), key partnerships (the network of suppliers and partners that make the business model work) and cost structure (the major costs that need to be incurred to sustain the business model).

Applying the canvas to the aforementioned situation of a long time recording and marketing studio, for example, would yield the following sample responses.  The customer segment would be fans of old school music that was recorded in studios pre 1990s. The value proposition would be that the studio offers “old school” music presented in the contemporary format of MP3/MP4 sold as singles or albums or a choice selection off their online platform.

This would solve the problem of finding classic Zimbabwean music from an era where there were just vinyl’s and cassette tapes. The channels it would have taken up would be social media for communication and marketing — Facebook, Twitter, Instagram — and they would not struggle for content at all considering the multifaceted nature of the music industry — fans love information about their favourite musicians, old and new, in addition to the music.

The delivery channel would have been an online store offering both soft form and physical music as CD’s with the option to order anything and they would simply transcribe from their master tapes to the format required. Revenue would come from sales with the possibility of merchandising.

The key resources would be partnerships with all musicians so as to build the biggest ever repository of Zimbabwean music and this would inform key activities like signing on old and new talent.

With such a model, costs would largely be for maintaining the platform and database, and a highly energetic but lean staff to keep things moving — with specialists for artists engagement, database management, marketing and social media and pricing to ensure piracy was eradicated. Sadly, recording companies failed to crossover to a new model in time to avoid being disrupted.

Companies need to be serious about innovation while they still live, not when they are about to die. This final quarter of the year is a good a time as any to begin to reflect on one’s enterprise, looking away from the business plan at inception and rethinking the business model. We will look into various business models in the next article.

Feedback: Twitter @kumub, Email [email protected]

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