Company Z has developed a business model that summarizes the purpose of its new venture. It has clearly defined what it will do and how it intends to make money. Armed with a buttoned-down strategy that’s well integrated with a sound business plan, the company opens its doors as a brick-and-mortar retailer.

Over the next eight years, Company Z witnesses changes in the marketplace. Its customer base has increasingly gravitated toward online purchasing. The regulatory environment has ramped up. And customer product and service expectations have shifted, although the company’s business model has remained unchanged.

As one might expect, Company Z is struggling because it has failed to respond to market shifts. It has failed to meet customer needs, recognize opportunities, create value, and generate revenue. It has neglected to evolve its business model.

Change is inevitable
The market is always in flux, and exploring new business models in order to adapt them is crucial to an organization’s survival. While a spirit of innovation and flexibility is important, gradual shifts in a business model are generally recommended over radical transformations.

Picture the revolving restaurant. It continually makes subtle turns so that in the course of an hour, diners will look out onto an entirely different view from what they first observed at the dinner’s start. Likewise companies can make small but significant and incremental changes to their business models, sticking to their core strengths while journeying toward new and creative revenue streams and opportunities.

Many of today’s companies rely on multi-models and pursue multiple revenue streams—by industry, customer segment, channel, and so forth. The key is to tinker, adapt, and develop one model at a time; to move from an inflexible model (just bricks and mortar), to a dynamic model (adding an online e-business).

Elements of model evolution
New business models emerge from market changes and should act as profit engines. They are simple diagrams outlining how products or services will provide value to customers, and demonstrate how the business will work.

When it’s time to examine, edit, and evolve your business model there are several key questions you should consider.

What business are you in? A deceptively simple question, it requires that an organization ask itself what customer problem or need it’s really addressing. The answers will help lead to a strong value proposition—what value your organization will provide to customers. 

Who’s your target market? Has it shifted? Is there more than one segment of customers who can benefit from your offerings? What traits influence their purchasing decisions? Define the profile of the customers you want to reach. 

How’s your value chain? It may be time to review how your organization is structured to deliver its goods and services. Examine infrastructure, processes, and management to uncover necessary adjustments and introduce efficiency options.

How’s the cost structure and revenue generated? Consider your financial model. There may be better or new sources of revenue, ways to increase margins, and improve profitability.

Change brings new business opportunities that will challenge your business model. Make your model adaptable and you’ll be well positioned to make the most of those opportunities.