Many entrepreneurs I run into on a regular basis are extemely “fly by the seat of their pants” type business owners.  They are “movers and shakers” and go from “zero to hero” rather quickly.  These types tend to grow faster than most and also run into substantial problems faster than most.  Growth is a “double-edge sword” if you are not ready for it… (wow, enough buzz phrases yet?).  I work closely with one that has built up and nearly lost it all several times!  Granted, the economy played some tricks on this person but how necessary was it? During the hot times, enough money was flying out of the business on hair-brained ideas to have likely floated the business through some rough waters if a more strategic approach had been taken.  The challenge faced by most of the “entrepreneurial faith” is when to say no to an opportunity or the next “shiny object” that will apparently make business double in no time. I’ve taken this bait enough times to be bigger than Deloitte if it were true. We tend to spread ourselves, our organizations, and our budgets too thin.

So what is the secret?

Well, it is important to first setup your business’ set of core values, mission, and vision. These are meant to be guiding lights within the organization and decision making processes.  Without real parameters, it is difficult to know when to say no.  But these alone can be difficult to judge by as each scenario is different.  Well, if they are built into a model-of-sorts that can almost decide for you, life gets much easier.

Enter the Business Model…

I would venture to guess that more than 9 out of 10 businesses have not put together a business model.  Now, naturally you have one (however poor it may be) just by doing business.  The fact remains that most entrepreneurs think through aspects of their business model but in a compartmentalized fashion, never putting all the pieces together in a more holistic approach. This model is meant to take most key aspects of your business and put them together to make sure they play well. It is also key to keep it relatively simple otherwise it becomes nothing but a fun, theoretical exercise in your final year of graduate school (fun being loosely defined).  The process of thinking through it will definitely bring a certain level of clarity but having a model you can use will transform the way you do business and make decisions.  It has also been said that a great entrepreneur with a mediocre model will fail while a mediocre entrepreneur with a great model will gain phenomenal success.

So what is a Business Model?

Well, it is define as follows by Alexander Osterwalder, in his book “Business Model Generation“:

A business model describes the rationale of how an organization creates, delivers, and captures value.

Their are a few key elements to consider when putting together your model.  I will list these here as they are the next step in your own design. Define these elements for your business.

• Value Proposition – what you offer to your customer, your product or service that creates value.
• Customer Profiles – ideal customer
• A revenue model – how you make money
• Distribution Methods – from value proposition to customer directly
• Fulfillment Process – from your business to value proposition
• Cost Structure
• Competition, competitive strategy
• Resource Management
• Value Network position – recognition of position in overall value network, i.e. from raw materials provider to partners to end users.
• Key Partnerships
• Core Purpose defined – mission, vision, and core values or principles.

I will elaborate on these points in future posts and unveil the construction of the model itself.  For now, begin working through the above mentioned points, defining them for your own idea or business. Once you have a workable model, you will be able to forge ahead with more confidence and surety that you are making wise business decisions.