Refining your business model

Introduction

As you build a track record of operation and impact, there will be an on-going iterative refinement of your business model. This is an important philosophy to highlight at this stage of your organisation’s development – your business model should be viewed as a work in progress, often for a considerable time after start-up. As you learn from your operating environment, internal and external factors that you didn’t know about or changes and trends that take place post start-up will affect where and how you should operate for maximum impact.

To this end, the diagram below aims to provide a simple overview of on-going business modelling and planning activity, highlighting the iterative nature of this function:

Formal adoption of this model is often reflected by an organisation’s business planning and evaluation cycle, typically 3 or 5 years (or perhaps set to be the expected duration of your pilot phase); however, within each of these cycles, your role as the leader of your organisation should include using a framework such as this on an on-going basis, enabling you to react to changes in your operating environment flexibly and quickly. Note that this approach can be applied at the level of the entire organisation as well as in relation to an individual component of your operations (e.g. service delivery or marketing).

The inputs to the initial cycle in this framework are a clear understanding of any key changes to your internal and external operating environment. Your review step at the end of each cycle should enable you to understand what’s working and not working in your existing operation in the form of delivering operational outputs and social and environmental impacts. These in turn will form inputs (together with any new changes in internal/external factors) for the next iteration.

It’s again worth stressing that this is more of a philosophy of business planning rather than a hard and fast framework. For example, the duration of each cycle is never set in stone, and at any one point in time you may be at the start of the process in relation to one aspect of your business model and at the review stages in relation to another.

Adopting an on-going approach to reviewing and enhancing your business model can be a valuable asset for you as an entrepreneur and business manager. However, we should highlight a few issues:

Reviewing and refining your business model does not mean changing it just for the sake of it. Changes should be driven by the goal of creating enhanced impact, however that is defined for your organisation. Often, if a business model is not functioning as desired, entrepreneurs will start extending the model to encompass a broader range of services/products, for example, thereby making the business less focused and more complex. Try to avoid this (common) path for your start up; you are much more likely to succeed if you define a narrow, well defined and focused business model that really addressing the needs of those you serve and plays to the specific strengths of your organisation. As introduced earlier in this theme, focus should be the over-riding principle when designing or refining your business model.

Don’t underestimate the time required for this type of analysis. Planning for your business can be a long and time-consuming process, and can easily be pushed down the priority list since there are always more urgent things relating to the here and now of your business.

When reviewing your business model and its effectiveness, it can often be helpful to hear the perspective of someone with appropriate experience, but who is outside of the day to day running of your organisation. If appointments have been made well, your board / management committee / advisory group should ideally be able to advise and guide you with certain aspects of your strategy and business model. Mentors and advisors can also be very valuable in this regard.


Some typical drivers for changing your business model

We’ve already mentioned that refining your business model should be something you do within the context of maintaining a focused approach to delivering the social impact you’re aiming for. However, a business also needs to have the flexibility to react to changes in the environment in which it operates, maximising opportunities and mitigating threats. The bullets below set out some typical examples of developments that may lead to you refining your business model:

  • Working with customers and beneficiaries, you may learn that certain adaptations to the way in which you might deliver your product or service can help meet their needs more effectively, or meet a broader range of their needs. Modifying these aspects of your business (and operating) model may enable you to grow more quickly.
  • You may identify new ways of ‘packaging’ what you offer to your customers or new ways of making your customers aware of what you offer. Although these are marketing relating issues, they may sometimes lead to a broader refinement of your business model.
  • Changes in your external environment may necessitate a change to how best you should operate in that environment. For example, changes in the way in which social care services are funded and commissioned may require you to build relationships with a new set of stakeholders and customers.
  • Another driver for change is also stakeholder-related. As you begin operating, you may realise that your selling might be much more effective if you can sell to ‘meta-customers’ that are able to make decisions that will, in effect, deliver multiple sales in one go. For example, if you’re selling a workshop personal development service to schools, is it possible to work with a local authority to secure their commitment to delivering your service in 20 schools across the borough?
  • Once you have started-up, your day to day work will bring you into contact with a wide range of organisations and individuals that are directly or indirectly involved in your work. As you learn more about what your organisation does well and where there might be value to adding further capabilities, you may uncover partnership opportunities that enable you to grow quicker by focusing on a narrower part of your business model or building a broader, more attractive, offering to your customers. Partnerships are a fundamental feature of many social enterprise models and this topic is discussed further below.
  • Conversely, you may discover that some element of your business model could be completed more effectively or more efficiently by out-sourcing it to a third party supplier, enabling you to focus on the core elements of your business (i.e. the ones that really create value for your customers and beneficiaries). Note that this may sometimes also work in reverse; you may decide that you should bring a function in- house in order to control the quality or reliability of its delivery.

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