The practical implementation of the “business model” concept dates back to the earliest days of organized business when businessman sought to have a better return of their investment, a more practical and efficient way to open markets, and a pragmatic manner to “see” into the future of their business ventures to counter the unpredictability of markets, costs, and sales.
A business model simply depicts in detail the company plans to make money by offering a service, or a product. Depending on your own natural concept and your quintessential idea of a business model, your business model can be very simple, narrow, and straightforward, or it can be very complex, detailed, wide-ranging, and far-reaching, as you want to make it. A supermarket’s business model is to make money by offering customers as many products as possible beneath one roof, in a convenient and pleasant place, putting the convenience and speed on the side of the client. An internet based business model such a website can be potentially confusing, and with wide-reaching objectives since there are too many different ideas and concepts on how this atypical class of companies try to engender profits. At the end, all these companies will offer products or services like anyone else.
A business model then, is an eclectic term brought into play to illustrate a profit-generating scheme. This business method is in most cases, independent from the set of business models within the same endeavor, although it is an integral part of the general business objectives of a company.
The expansive and flexible structure of the business model is the recipient of an all-encompassing range of pinpointing sales strategies, offering tactics, managerial structures of the human capital, descriptive approaches to attain the purpose of the plan, operational and implementation methods, flexible navigational courses of action, new-fangled market penetration stratagems, original infrastructures models, re-deployable commercial tactics, and updated trading practices to deal with the relentlessly evolving market forces.
What is a Business Concept?
A business concept is a theoretical and intangible design, an abstract idea that represents at its best the company’s offering of the product or services to the market. This sketched business concept must capture in its entirety the purpose and object of the business model. The business concept must lead concisely and evidently a set of activities that define in a distinct, different, and innovative way of presenting the service or product to the market. This should be a 3-minute vocal concept capturing a brand new concept of marketing, which must be swayed into the minds of investors and marketers.
The business concept then must outline exactly what the company will deliver to all relevant targeted constituents. This includes the tangible value that the service or product will provide, the vertical market that will be able to access to, and the sustainability of its business model in the sought-after marketplace. The business concept is the cornerstone for all and each activity supporting the business endeavor. It is fundamental that your business concept soundly testify to your business plan and its original value proposition
Back to the Business Model
The active implementation of a new business model under the guidance of the business concept, will allow companies to have a better and more controlled administration of their products and services, and a better handling and monitoring over manufacturing, marketing, sales, and distribution strategies.
One critical element of particular importance that should never be overlooked in the development of a business model, it is its essential chronology. In developing a business model for a new product or service, the lack of careful and logical planning and timing of investment vs. expenses and cash flow, will always discredit the expected delivery of profits and revenue. The critical path and implementation table of your business concept delivered by your business plan, must be logical, convincing, and most of all, realistic. Investors can smell wishful thinking a mile away and will keep your business at a safe distance from their dollars.
To avoid a certain concept-to-reality failures, some of the issues you need to cautiously percolate are:
– Determine how much of the product or service has to be constructed or established before a customer makes a purchase decision or a purchase commitment. Most mayor clients will not buy more than 10% of your total proven capacity of production. For the client, this will circumvent strategic dependency from you or the product.
– Define the amount of investment that will be necessary to secure contracts and commitments from customers. Clients need to see your financial stability and capacity of deliverance before they entrust you with a long-term obligation. This decision also entails strategic dependency and risk for the client business.
– Extrapolate the dimension of the investment’s cumulative risk factor before achieving net positive cash flow, evaluate contractual to upfront investment, and define an acceptable timeframe to penetrate and secure a steady sales market to generate revenues. The investors must see clearly how you are going to protect their money, how you will amortize the investment, and how you will generate profits within a levelheaded agenda.
The above mentioned topics of concern when not addressed properly, time and again will make, or break your new venture. The business models that call for a reduced and less risky upfront funding need to be optimized to be reasonable, and realistically quicken the intake of revenue, receivables, and cash inflow. Business models that implement consequential actions across the board to minimize and shorten the exposure (in time) of the investment at risk will have a better chance of, and a faster prospect of success.
In the car manufacturing industry, a new model has to be produced and stocked away before any resulting revenues from sales can be obtain. This is an elevated upfront investment with an inherent risk of sales market failure. However, you can’t sale cars by parts to secure a market, so your investment overflows into other areas such as manufacturing facilities, parts, materials, equipment, marketing, etc.
In the food industry, the upfront financial risk is a fraction of the car industry if you are trying to sell bread because of the lower cost of infrastructure, and also because you can start with a scalable strategy by selling small amounts of bread until you can build a steady and growing market.
In both cases, a reasonable, well-thought business model will determine the viability and accessibility of the target market, and the possibilities of success in it. Also, a car is a higher ticket-price item than bread, so the fundamentals of economies of scale also change and differ, and its integration into the business model is of utmost importance.
Not in all business the popular adage “built it and they will come” actually works. If you are risking a lot, you need a more comprehensive, realistic, judgmental, less vulnerable, and proactive means to factually measure risk and success.
To Sell or Not To Sell: The Question is Diamonds or Potatoes?
Here is a little story about two entrepreneurs who decided to go in business by themselves roughly at the same time, but in two distinct industries, and how it worked for them. The stories are real, so I am concealing the actual names of those performing the business, and the places where they performed their business at, because I have no way to ask for their permission to make these elements public.
Meet Pedro. Pedro finished college and he could not find employment for his career anywhere due to the regrettable state of the economy and lack of opportunities in the country where he lived. His father did not own a business and Pedro really had no place to go, so he decided to start his own business.
Meet Carlos. Carlos also completed college but his father wants him to work in the family business as resellers of Caterpillar equipment. Carlos had a place to go, but he disliked the family business so he decided to start his own. Carlos shared the same lack of opportunities that Pedro had.
Carlos’ Short Story
Carlos was used to a fairly good life. His family’s business was not great, but provided for a comfortable living standard. Once Carlos decided to start a new venture, his family helped him with advise, contacts, and capital. Carlos went into the luxury car business. Carlos did not know much about this business, but he figured that with all the help, contacts, family support, and money available for him, he could have a good business up and running fairly quick. And he did it. After jumping through the trade ropes, permits, and regulations, after 4 months he had a flamboyant European sports car dealer. After the inauguration party of his new and exclusive dealership, and after a few sales to family members, to close friends of the family, and a few sales within a niche market of affluent people in the area that followed the first 2 months after he opened, no one else came to his dealership to buy cars.
In spite of the efforts of Carlos and his family, the glitzy car dealership closed, leaving Carlos and his family with debts and losses. Like most people in that country, I was in no position to buy one of those expensive and non-practical cars (for the economic environment) Carlos used to sell, so I couldn’t contribute. A few months later I run into Carlos and he explained to me the long list of mistakes he made before and after his failed venture.
In short, he did not have a clear business model, nevertheless a sound business plan. Carlos learned dearly from this awful and expensive experience, and so did I.
This might sound unbelievable, or even dumb, but do not be surprised because many business are started this way. In the country where Carlos lives, some people start a business because they “heard people saying that is a good business”.
Pedro’s Less Short Story
Pedro lives in the same country than Carlos, in a different city. Pedro did not have capital, or a family that could help him, neither he knew the business in which he was about to start. But Pedro had an idea, and he took the time to dig out knowledge about his idea, and to see how it could fit it in the business environment he was targeting, and how could he fund his idea. After about a year, Pedro was ready to flight. Pedro explained his business concept to an uncle, he got a small investment and a partner with him, and both went into the French fries business!
This is what Pedro did. Pedro prepared a different kind of French fries. He peeled and grinded the potatoes, then he mixed them with a secret minced compound to make a sort of dough; protruded the mix through a small machine in the form of French fries, next he fried them, and afterward sold them at the beach during the summer.
Pedro and his uncle had an old beaten pick up truck (a re-formatted Studebaker) that they loaded every summer morning with potato sacks, machinery, other paraphernalia needed for the business, and him, his uncle, and a helper went off to sell French fries to the beach. I tried his potato contraption. He offered several flavors: spicy, non-spicy, salty, non-salty, hot-mild, hot-hot, and of course the regular nonsense French fry. His product was exquisite. He named his business “The King of the French Fries”. Little he knew…
I intermittently observed Pedro and his crew almost every day during the hot summer of 1970, and I noticed that he didn’t stay long in the beach we use to frequent as he did at the beginning of the season. He just dropped off his uncle with a helper and after a while he and other person who accompanies him went off somewhere else. Close the end of the summer I learned that Pedro had a total of 7 little stands, just like the one in our beach, in 6 other beaches. “The business went well, but is a lot of hard and hot work”, he told me once after the summer. “I have to get ready for the next summer,” he said, and that was the last time I saw Pedro.
By the following summer I had totally forgotten about “The King of the French Fries” until I did see a small, but colorful add in a local paper at the city I used to spent my summers. The add portrayed a big French fry guy with a crown, in shorts and a Hawaiian shirt standing by a small cart with a awning saying “Make your summer unforgettable, starting with your tummy”. That summer he had grown his business reaching to a staggering 22 beaches! His French fries were the sensation at the beaches and everyone had, at least once, eaten one of his products. That summer went fast as my money, and I catch a glimpse of Pedro’s business now and then in the papers, TV, and radio. Pedro had become the BONA FIDE KING OF THE FRENCH FRIES, the real McCoy.
I have no details, but I know that Pedro became the biggest seller of (these) French fries in the country, and he was dominating the industry at this time not just during the summer, and according to the rumors, he had at least one stand of French fries in each and every beach in the country. As indicated by the local papers, Pedro was still working hard, but now supervising the operation with his uncle aboard of an Italian Red Alpha-Romeo sport car… I couldn’t prevent learning a lot from Pedro. He started his Human Capital Team with 2 people and a business concept, and I believe by the end of the summer of 1973, he had more than two hundred people in his potato Kingdom, and a flourishing business.
Neither Carlos nor Pedro had a business plan to start with, but Pedro had a Business Concept. Pedro never developed a business plan, but he did evolve his business concept into a working tool. Today, Carlos is working in the family business and he is doing just fine, and Pedro, well… Pedro sold the business, retired, left the country, and now he lives comfortably with his family in Florida.
Of course there are many details, and countless boring steps missing in these two stories that I did not bother to include, but the point is that a little serious and responsible preparation and planning can go a long way in your new venture.
The Mighty Human Capital
In my view, Human Capital is the only and sole dynamic resource of indispensable value any company will ever posses that will evolve synchronically with its business model. Pedro would have never been able to grow his business without the support of his reliable human capital.
What is the Capital Value of the Human Element?
When writing a business plan, normally a great apportion of its content deals with industry, sales, projected revenue, competition, the product or services, investment opportunities and capital amounts, risks, local and foreign markets, and market availability among other valid points, however, very little of the business plan is devoted to the most important element of the entire system: The Human Capital.
The real risk of an investment does not reside in the speed of recuperating the money, or how much inventory will be sold, or what size of the market can be captured, or how profitable the company will be in the years ahead. At the end of the day, the entire risk of the company rests on the shoulders of its human capital and its ability to make it all work. All your money is bet on you managers and their dedicated and loyal crews.
You always end up investing in a management team, and if you don’t, your business venture is condemned before starts. The business hell is full of entrepreneurs without crews. Why do you invest in your management team, your essential human capital? Because what is established in the business plan will not come to fruition, or will never will be executed without an adaptable management, capable of carry out the objectives of the business plan that are always in need of change and adaptation. Business plans are like a vehicle. It doesn’t matter its size or capacity, they all need a skilful driver to maneuver them safely to their final destination. That driver is you human capital!
The single most important understanding of an entrepreneur is to recognize, appreciate, and embrace his/her human capital strategic potential, so he/she can utilize it and apply it towards the success of the business. You need to comprehend the important characteristics and virtues your human capital provides as a whole, and how it stands out compared to other management teams.
As long as you acknowledge that the human capital is the most important positive feature your company will ever have, you will be not alone, but empowered to conquer a successful future. It is important to groom your work force to work as a team, to work together, evaluate its past performance, and use the learned lessons to put the teams’ work in perspective for the future. It is important to ask yourself who’s missing in the team. It is important to find natural leaders among your lineup, it is important to publically or privately recognize manifest member’s abilities and skills, it is important to promote advancement and progress, and it is important to multiply these capabilities as much as you can among your human capital members.
The Capital Value of the Human Element is the entire investment in the endeavor.
Avoid Single Points of Risk
No business model is guarantee of success. Only humans dare to guarantee things, knowing that there are no guarantees for anything. The only guarantee in business is that risk will be ever-present.
Some people think because he or she is the only person that can perform well a specific task, because it is difficult, or requires and advanced level of skill, or otherwise they are the only ones capable to execute such task, they have achieved job security. This can’t be farther from reality! As a business owner or responsible manager of an industry, you can not bet the future of the enterprise in one single point. If that employee becomes sick, or goes on vacations, or dies, then the industry stops. Ridiculous! If that “critical employee” decides to ask for more money or other benefits, he or she will hold the company hostage until the demands are satisfied. Ridiculous! If you are the only one able to perform certain tasks in a company, you are at the highest risk to be eliminated as soon as possible if not before. And this includes the entrepreneur.
Make sure your team is interchangeable, capable, well trained, and everyone of its members is taken care of. Good management and good care of the human capital can be de most decisive and accelerating reason for success or failure. Always consider making available prospects for growth and opportunity for your work force.
Our glorious US Marines are lethally effective in their indivisible team cohesion. Any member of the team can and will perform the other member’s duties at any time and with the same efficacy, they work together, they support each other, they relay blindly on each other, they all fight for the common goal, and they deliver. This is a perfect example of the ideal strength for a human capital team. Turn your human capital into a Business Marines Team.
The Perfect Business Model
The perfect business model is your own business model. Think about it. You will give birth to this baby in any and each way you want this business to be. You will plan every piece of it, maneuver every decision, design every strategy, define each goal and purpose, architect your human capital, and impregnate your business plan with your ideas, wishes, desires, objectives, output, and imagination. You have the exceptional opportunity to create the perfect business model for your own business.
In order to accomplish this, you must honestly apply sound business principles, market knowledge, and experience. You need to bring to existence a solid, cohesive, and well organized management team (human capital) to help you to fill all the blanks within the lack of knowledge and expertise you might have. You will not find honesty, loyalty, or responsibility in any market, product, or service. These virtues can only be provided and embraced by your human team, and if you are the chief leader of your human team, you must lead with those principles deeply rooted in your conduct first.
Your business model is not a logistic regression where you can predict the probabilities of success of your venture, but a carefully crafted document, a detailed roadmap, a planned strategy, a calculated input and output, a blueprint of the market, a tactical assessment of the risks, an archetype configuration for human capital, a powerhouse for accomplishment, an exact compass for direction, a financial chronograph, and your legitimate keystone for success. Design it well!
Perhaps we all need to be a little like Pedro, but carrying our business endeavor preparation to the next higher, logical steps, and turn it into an innovative Business Concept, a solid Business Model, and an accomplished Business Plan.