Business Model Assessment

Every business model has a product and/or service that focus on a customer. Provided below are questions you can ask yourself to assess your business model.

Is your model scalable? How scalable?

Is it easy it is to expand the model without equally increasing its cost base? With only a handful of engineers Facebook created value for millions of users. Zynga, the gaming company by building games for Facebook they benefited from Facebook’s reach and scale without having to make the initial investment. Few other companies in the world have such a favorable ratio of users per employee.

Do you have built-in protection from competition?

A great business model can provide more long-term competitive protection than just a great product. Apple’s main competitive advantage arises more from its powerful business model than purely from its innovative products. It’s easier for Samsung, for instance, to copy the iPhone than to build an ecosystem which caters to developers and users alike and hosts hundred thousands of applications.

Do you earn before you spend?

Dell pioneered this model by assembled  their systems as ordered rather than accounting for an inventory with all its associated costs. The more you can earn before spending, the better.

Do you produce recurring revenues?

Recurring revenues have three major advantages. First, the costs of sales is only incurred once but revenues are repetitive. Second, recurring revenues allow you to better forecast future revenue and expenses. Third, additional, recurring, revenue can be generated from the initial. A computer will require additional memory and peripherals, an automobile will require servicing. A game system will require new games.

Ultimately, customers are the only relevant judges of your business model. Asking yourself these questions and perfecting your model to the greatest extent possible before subjecting it to the market will make you more likely to sustain  long-term competitive advantage.

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