A Business Model is not theoretical – its a combination of real factors that drive the various parameters that lead to specific business outcomes for your specific business. Therefore, a business model is very specific and in that respect, unique to each organization.

A Business Model is not just ‘how I sell what I sell’ – it is also about ‘how I produce what I sell’, ‘how I innovate to stay ahead of competition’, ‘how I distribute’, ‘how I build my teams’ etc – and such factors combined make the business model a unique, living entity that is affected by the market conditions, customers, economy, political situations, etc.

The Business Model should at the very least measure (the effect of) factors such as:

• Market
  
  • Sales Cycles
    
  • Deal Sizes
    
  • Customer Base
    
  • Customer retention
    
  • Competition
    
• Internal
  
  • Productivity
    
  • Costs
    
  • Process effectiveness / Operations
    
  • People
    
  • Supply Chain / Distribution Chain
    
  • Marketing Effectiveness (RoI on marketing / advertising, channel sales etc)
    
• External
  
  • Political
    
  • Economic
    
  • Environmental
    
  • Competition
    
• Financial
  
  • Margins
    
  • RoI
    
  • Revenue Growth
    
  • Cash Flows
    

The effect of all these (and more depending on your business) will determine the ability of your business to generate revenues and profits (at a pace you find acceptable). The Business Model therefore connects the revenue opportunities to how an organization can/will service them.

The Business Model may manifest itself in the form of cash flow statements / projections, P&Ls, market share / growth etc. However, these metrics are a result of the effectiveness of the business model. A Business Model has to be detailed, covering the operation of the business, with parameters that can be reasonably measured and integrated into the Model.

The Business Model therefore aligns the working of the organization to the financial goals of the organization.

In a fast changing environment, the business model needs to constantly revisited, and sometimes revised, in order to be able to respond to market dynamics effectively and continue making profits.

A visionary organization puts metrics in place that measures each factor and helps it anticipate (predict?) changes in market dynamics – whether favorably or otherwise.

For example, while Indian software outsourcing companies, serving customers in the United States, have been measuring the effectiveness of their competition from similar vendors within India and other countries that service the traditional ‘offshoring’ market (China, Philippines, Eastern Europe, etc) – it takes vision to see a possible rise of competition from within the United States itself. This is the result of several external factors – the political push, economic climate and competition from a source that probably didn’t exist earlier.

Given the above, the incumbent needs to review each of the factors and adjust them to meet the new reality.