A company's business model is a general description of its operations. Its components address all of a company's functions including its revenues, expenses, corporate structure, operating strategies, marketing and sales procedures, and all its day to day functions. Each company needs to create and define a viable business model before it thrusts itself into the marketplace. But companies must also understand that over time it may be necessary to tweak, adjust, or make radical changes to their business model if they are to have sustained success. The key is to be able to identify when your business model is outdated and in need of change.
Loss of Market Share
There are a number of signs that your business model has become outdated. One sign is a continuing loss of market share. If your business model is what has led to your success and you notice your company has begun to lose its market share, then one of the things you should do is take a close look at your business model. The quality and pricing of your product is a direct result of your company's means and methods of production and marketing. Consistent and continuing loss of market share is a clear indication your business model needs to be modified or scrapped altogether.
Mass employee dissatisfaction, declining productivity, and burnout are other indications that there may be a problem with your business model. Ideally, your business model should lead to increased productivity and employee satisfaction. When you have a good, effective business model, things get better with time. Once employees understand the goals of the business and become accustomed to its practices, production and your staff's satisfaction with their roles should also increase. If this is not happening, your business model may be at fault.
If you notice a pattern of dwindling return on your investment, your business model may be to blame. When a business is new, it may take workers a little time to understand what is required of them and what is necessary to get the most out of the machinery and business practices. A reasonable expectation is that in time the return on investment should increase. If the opposite is true, then your business model may need to be tweaked, reworked, or replaced.
Declining sales is another indication of a failed business model. When there is little or no competition in an industry, even a company with a flawed business model can do well. However, if the presence of new or increased competitors leads to a pattern of declining sales, you should reassess your product or service. If they are still of high quality, then the culprit may be your business model. It is essential for continued success that you do not become so wedded to your business model that you are unwilling or unable to change it.
Escalating Production or Marketing Costs
Another sign of problems with your business model is escalating production and marketing costs. In most industries, the initial outlay of capital often causes production costs to be higher than the company may like. However, over a period of time it is expected production costs will gradually decline and profits will increase unless you are constantly upgrading or replacing equipment. If you are using the same equipment but production costs continue to rise, the problem may be with your business process management or your business model.
A good business model should create a virtuous cycle resulting in a competitive advantage over time. Companies with winning business models understand the process of strengthening their virtuous cycles. If instead your company is losing touch with its target market, experiencing escalating production costs, seeing profits dwindle, and staff dissatisfaction increasing, it may be time to replace your business model. It may be your company doesn't offer the correct or enough payment options, job responsibilities need changing, or the business strategy you've chosen is ineffective. The bottom line is a new business model may be warranted.