Building Long-term Value: Plan on It
"Everything has a price, as the saying goes, but a lot of p...
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At some point in the lifecycle of your business, you’re going to need to change your business model. “Just as every product has a lifecycle, so does every business model,” advises Larry Gable, founder of Arlington, Massachusetts-based business consultancy LDG Associates. “The pace of change in technology and society continues to accelerate, thus shortening product and business model lifecycles.”
Once you’ve accepted the fact that change is about the only constant in business, the best defense against “business model stagnation” is performance monitoring, Gable adds. To that end, operators have several Key Performance Indicators that can be used to keep the pulse of a business, but it almost always comes down to cash flow. It’s the best early warning system any business has.
While declining cash flow is a clear red flag, “you’ll need to analyze the situation—perform a root cause analysis—and initiate a corrective action plan that may well cause your business plan and model to change,” Gable says. Certainly, cash flow is one indicator that it may be time for a shift, but other indicators include:
In a broader context, disruption continues to be a factor in business model innovation. In the Harvard Business Review article, “When Your Business Model Is in Trouble,” Rita Gunther McGrath, assistant professor of management at the Columbia Business School, points to three key areas pushing disruption. “The first is the increasing speed of everything. Product lifecycles and design cycles are getting shorter. When the pace of change gets faster, people realize that they need to look for the next big thing,” she says. “The second issue is inter-industry competition. Competition is coming from unexpected places. Who could have anticipated that the iPad’s success would put all kinds of display devices—like electronic photo frames—out of business? And the third trend is disruptions from business models that offer better customer experiences instead of simply products. Traditional toy retailers are struggling, but Build-a-Bear gets people to pay good money to provide free labor and make their product themselves. Maxine Clark, the entrepreneur who thought that up, was brilliant.”
When it’s time to consider a business-model reboot, Gable offers this seven-step process to help guide your thinking:
To learn more about business model change and innovation, check out: