Reinvent your business model

Reinvent your business model

Start asking yourself how you can help people have an important job done, how you can help them with a major problem that is inadequately solved by current solutions, how you can help them overcome one the most common obstacles they are likely to face: lack of wealth, time, skill and easy access. Define your new offering : what will be sold and how it will be sold.

Set a price and revenue model that will be accepted by your target customers, in exchange for the value you create.

Work backwards to determine your costs structure, your profit margins and how fast you need to turn your assets.

Identify the key resources and processes you need to put together in order to deliver the value proposition. Successful business model are self-reinforcing. Resources accumulate, scale and scope effects become larger. Choices in terms of processes and resources enable a superior value proposition and a better profit formula.

Let’s take the case of Zara. Zara has chosen to produce in higher-cost locations, ship goods to stores weekly, use an expensive mode of transportation, in order to speed up the production process (2-4 weeks instead of 12-18 months) and keep up with customer preferences. These choices enable Zara to deliver extremely fashionable items and improve profitability thanks to fewer sales on Sale, fewer inventory write-downs (when clothes don’t sale) and a sharp decrease in missed sales (items customers may want to buy that are not available).

Finally, assess the robustness of your business model. Will it resist these 3 threats over time: imitation (can competitors emulate this business model?), substitution (can new products decrease the value of your offering?), value capture by third parties (suppliers, customers, other players)?

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