How do you build an effective company? By effective, I mean a company able to grow quickly, gain traction and have a strong brand while becoming financially viable in a relatively short time frame.
With that question in mind, I’ve studied hundreds of companies and looked at several frameworks and toolboxes for entrepreneurs.
I’ve come to the conclusion (so far) that an effective business model is built on two dimensions:
The people dimension
The financial dimension
These two dimensions walk hand in hand. Yet the people side is what makes the business thick from the economic standpoint.
The people side comprises the following elements:
A compelling value proposition: How do you want your people to think about your brand?
A unique brand positioning: What do you offer to your people that make them want more?
A 10x goal setting: Can you offer a 10X better product or service? (compared to existing solutions)
This people dimension will help you build a solid brand. A solid brand builds up a tribe, a group of people willing to follow you anywhere. Once you have a solid brand, you can focus on the second dimension: the financial dimension.
The three elements of the financial dimensions are:
Customer segments: Who is your customer? (to notice here we’re not talking anymore about people but customers, those willing to pay for your product or service)
Distribution channels: How do you get your product or service to your customer?
Profit formula: Is the business financially sustainable?
Let’s see why these elements are critical and why each of the matter so much for the future success of your business.
The two key business model dimensions
While people and financial dimensions are tied and often create a feed that is hard to untie, it is essential to keep them apart, have the people dimension as a foundation.
Indeed, people that love your brand and product might also make your distribution, and finances look better. And as your finances look better, you might be able to invest more in making those people happier.
However, by placing the people’s dimension first, makes it possible to start building a business by neglecting – initially – the financial dimension.
The assumption is simple. If you do build something great, then money will follow.
This assumption is not to confuse with the conventional startup wisdom where companies get along for years without finding a monetization strategy or never becoming profitable.
Profitability is a key ingredient, for long-term business success.
Thus, once you’ve figured out the people dimension, you better off focusing on the financial dimension.
More precisely, having people that love your brand isn’t enough to create a business that is financially viable.
You’ll need to identify who of those people will be willing to finance your businessgrowth.
That jump is not immediate. For instance, of the many people using a product, many of these people won’t be willing to pay.
This dimension is critical to start building a solid brand even before you make a buck. I know it sounds counterintuitive, as there are companies making money for years without ever building a brand.
This is fine. However, a brand is what makes your company unique, what makes it recognizable at the eyes of your tribe. These people willing to save it when the financial side doesn’t work as well anymore.
Thus, even before start making a dime you need to start building up a solid brand. And it all starts from a compelling value proposition.
A compelling value proposition
How do you want your people to think about your brand?
In this dimension, we’ll refer to people as these are the individuals part of your tribe, independently from becoming your customers.
These are your supporters and fans. If you’ve done a great job in the people dimension, chances are it won’t be hard to build the financial dimension.
However, for now, let’s focus on building up a great product, and making it unique in the eyes of those people that will carry our organization to the marketplace.
When Google built its search engine, it wasn’t the first, and it would not have been the last. However, it was recognizable for its clean style, focus on the quality of its searches and speed. By the early 2000s Google became a verb:
How “googled” and “google it” became common verbs thanks to a strong brand built on top of a 10X better service. A strong brand builds a strong culture!
That relentless focus created a strong brand quickly.
A unique brand positioning
What do you offer to your people that make them want more?
A product and service that can build up a viable company have to be sticky. This implies a focus on what makes your people coming back, and want more. There was a time when the web was AOL; then Google took over.
Everyday billion of people keep going back to Google. In part, this is due to Google seamless experience and quality of its service. However, there is also a strong brand component.
For instance, as Google has grown and scaled up, it has also lost some of its tech-savvy people focused on privacy, now are switching to alternatives like DuckDuckGo.
A 10x goal setting
Can you offer a 10X better product or service? (compared to existing solutions)
This element is connected to the first two. And it is as important as these elements. A 10X better product or service is the fastest route to build a strong brand.
This also requires massive focus. You can’t ask to be everything to everyone at every level. Instead, chose one aspect, one feature, one element of your product; and to make it way better than anyone else out there! The focus is the key.
The financial dimension
The three elements of the financial dimensions are:
Customer segments
Distribution channels
Profit formula
In this phase, it becomes critical to identify the people among your tribe willing to make it financially viable. You’ll need to tap into the proper distribution channels and make sure you make it profitable.
Customer segments
Who is your customer?
This phase can also be named “from people to customers.” It is the first time in the life of your business when you start having a “business conversation” with your tribe. This is the time to understand what monetization strategy and business model patterns will work best.
If your tribe doesn’t feel like to pay for your product or service, you’ll need to find someone willing to finance that for them. Take the case of a portal made of professionals. The portal is free, these professionals love to use it. Yet they don’t feel like paying for it.
For that matter, you can build up a job board, where your tribe can find valuable job opportunities, while companies (your customers) will pay a commision for each candidate that gets hired.
In the case in which you’ve found among your tribe those willing to pay for the service, a freemium model will work out quite well. In these cases, it is important to establish a monetization strategy that doesn’t break the trust and support of your tribe.
Distribution channels
How do you get your product or service to your customer?
A great product without proper distribution won’t go far. Distribution requires you to think in terms of how to make your service and product scalable.
From a financial standpoint, it is critical to look at the bottom line. Things like profit margins and cash flows will be your north star.
When focusing on growth profitability might become less important in the short run. However, a successful business has to be able to repay for its expenses and still generate a substantial margin for its owner.
When companies give up profitability, they must do it with a goal in mind. For instance, when Amazon has given up to its margins and lowered its prices and profitability it also built up a cash machine business model pattern that made it possible for the company to grow quickly and expand at exponential pace!
Key takeaway
An effective business model is built upon two dimensions: people and the financial dimension. Even before you make a buck, you need to take care of your people and build up a solid brand.
It is counterintuitive for many business people, yet if you did a great job taking care of the people dimension, you’d also be able to master the financial dimension.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the businessmodel. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable businessmodel.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
