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 business growth.
That jump is not immediate. For instance, of the many people using a product, many of these people won’t be willing to pay.
Therefore, if you’re trying to build a subscription business model, it will be critical to understand if these people left will be enough to sustain the business.
In the opposite scenario, you might want to experiment with other business model patterns.
Enter the FourWeekMBA business model framework
The people dimension
The key components of the people dimension are:
- A compelling value proposition
- A unique brand positioning
- A 10x goal setting
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.
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:
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.
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.
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.
Is the business financially sustainable?
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 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!
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.
Key Highlights for Building an Effective Company:
- Two Dimensions: An effective business model consists of two critical dimensions: the people dimension and the financial dimension, both working in harmony.
- People Dimension:
- Compelling Value Proposition: Craft a value proposition that resonates with your target audience and shapes their perception of your brand.
- Unique Brand Positioning: Offer something distinct that keeps customers coming back for more.
- 10x Goal Setting: Strive to provide a product or service that is ten times better than existing solutions.
- Financial Dimension:
- Customer Segments: Identify your target customers and understand their willingness to pay for your product or service.
- Distribution Channels: Determine how you will efficiently deliver your product or service to your customers.
- Profit Formula: Ensure that your business model is financially sustainable, considering factors like profit margins and cash flow.
- Prioritize People Dimension: Initially, prioritize building a strong brand and customer base over immediate financial gains. A solid brand can drive financial success in the long run.
- Compelling Value Proposition: Your value proposition should shape how people perceive your brand, even before they become paying customers.
- Unique Brand Positioning: Offer a product or service that is sticky and keeps customers returning, fostering brand loyalty.
- 10x Goal Setting: Strive for exceptional quality and performance to quickly establish a strong brand presence.
- Customer Segments: Transition from focusing on people to identifying customers who are willing to pay for your offerings.
- Distribution Channels: Develop scalable distribution channels to ensure your product or service reaches your target market effectively.
- Profit Formula: Evaluate the financial sustainability of your business, considering profitability, margins, and cash flow.
- Long-Term Profitability: While growth is important, aim for long-term profitability to sustain your business over time.
- Amazon’s Example: Understand that sacrificing short-term profitability can be strategic if it leads to a scalable business model.
Other resources for your business:
- Business Strategy: Definition, Examples, And Case Studies
- Successful Types of Business Models You Need to Know
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- How to Write a One-Page Business Plan
- How to Build a Great Business Plan According to Peter Thiel
- What Is The Most Profitable Business Model?
- The Era Of Paywalls: How To Build A Subscription Business For Your Media Outlet
- How To Create A Business Model
- What Is Business Model Innovation And Why It Matters
- What Is Blitzscaling And Why It Matters
- Marketing vs. Sales: How to Use Sales Processes to Grow Your Business
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