How to model your business for growth and value

Some assumptions or the “self-evident truth” about businesses

Here at Obligent we start with the assumption that most businesses want to grow. All startups want to succeed, and every Social Enterprise wants to make a difference. We do recognize the fact that those may not be true for all at all times.

Small & medium size business leaders have different priorities challenges from year to year. But most businesses would like to grow – though the definition of growth may differ.

What does growth look like?

That leads us to the question what does growth, success, or impact look like to you? How do you measure these? How do you keep your customers happy as you grow your business? For most businesses an increase in revenue is growth. The assumption is that higher sales means more profit.

This implies that to grow, a business needs better marketing and new customers. Other factors, like customer retention, are afterthoughts or nice to have goals. So lead conversion is the only process that contributes directly to business growth. Or, a better sales force leads to better business results.

Is it that simple? Why does data from the SBA show that one third of businesses fail within the first two years? The chances of survival increases with the number of years the firm is in business. Only 50% of business survive the first five years of existence.

What is the magic wand or the secret formula? Entrepreneurship, business strategy & management are not yet a science and may never be. But there are strong trends that suggest some approaches work better than the others.

The risks and rewards of Growth

Before we get into the factors other than marketing, here is a a quick detour. Any way you define it, what ever you do to achieve it, growth results in increased revenue. What they are downsides or risks?

Rapid growth may lead to increased headaches, missed deadlines, and inconsistent performance. It also exposes the business to new risks. Growth increases costs. The business owner’s personal attention to customers may be stretched thin. That may lead to some customer attrition.

So why bother? Besides more money in the bank, that gives you the ability to experiment in your business. You can diversify your product mix or try out different ways of operating your business.

It makes your business less vulnerable to competition. Increased revenue also gives you the ability to enhance the value of your business. Value builds up long term wealth for the business.

“It’s the Business Model, stupid!”

If all that are in stake then isn’t it worth having a robust approach to growth? The saying “it’s the business model, stupid!” has been circulating for a few decades now. The way investors approach a funding opportunity has changed over the recent past. They want proof that the business model has been designed well and the story adds up. It is only then that they are interested in the business plan.

So what is a business model? A business model is the way a business makes profit. A business modeling approach helps you to grow your business and create value as well. At Obligent, we use an open source tool called the Business Model Canvas. With this approach we answer these nine questions to build up the blue print for your business.

  • Who are you helping? (That is, who are your customers?)
  • What do you sell & what problem does that solve? (Why should they come to your business?)
  • How do you reach them?
  • How do you engage with them? (What is your customer relationship process?)
  • Who helps you? (Who are your business partners?)
  • What “stuff” do you would you need to produce what you sell? (What resources do you need?)
  • What do you do to produce that? (What are your business processes & activities?)
  • How much would it cost? (What is your cost structure?)
  • How much will you make? (What is your revenue & pricing model?)

It seems simple, right? Who said strategy has to be complicated? But yes, your business is a rarely a simple two dimensional operation. You, most likely, have many layers in your business where each layer is a customer segment and what you do for them. The layers would stack up much like cheese singles in a pack.

Once you have this view of your business it is easier to see how the layers interact with each other. It also becomes easier to manage the elements in each layer. All this would result in decisions on what lever to push to accelerate your business. But wait, that is not all.

No business operates in a vacuum. There is an entire world out there. There are the market forces, general business trends, industry forces and the overall global economy.

Obligent would be happy to provide you with consultation on how this process may work for you. You might be able to have a preview by visiting our Strategic Growth Plan page. Once you are ready for a conversation give us a call to discuss how we can help.

Ways to grow

The growth plan for your business would be unique to your business. Here are some of the ways that may work out. You may want to move things around a bit by tweaking or working on some of the levers we spoke about. If the opportunity growth by doing that is not significant you would choose between one of two paths.

You may choose the inorganic growth path where you buy a business with a similar model. In that case you would have to decide how the new business would work. Would you merging the businesses into one operation model? Or would you create autonomous units. A third way would be a hybrid overlapping model with shared services.

For organic growth you may decide to replicate current success by doing more of the same. In that case you would try to have more clients like you current ones. You would need to establish the unique value that you currently bring to the table. Then use new channels and relationship mechanisms to deliver such.

Another way to replicate success is to reach audiences that you did not address earlier. Partnering with similar businesses help. “Similar business” sell different products to the same audience in a different market.

You could also expand into different products for the same audience. Most of the nine levers discussed earlier would be in play here. But you would have the comfort of relationship with the existing customers.

Next Steps

Where do you go from here? We hope that we have provided you with more answers than questions. We hope that we have given you some information that will give you some ideas. Do not wait for too long to try out those ideas. If you need discuss that a bit with us, we at Obligent, will be happy to oblige.