Set Clear Business Goals and Build a Better Business Model
And how both can create business value!
by Chia-Li Chien | Jan. 10, 2013
I was in Amy’s (not her real name) state-of-the-art boardroom, working with her key management team, which typically includes just the senior level management who reports into her. For the 3-day strategy session, I advised Amy to include a few high potential line level managers flown into the headquarters to attend this first strategy session since Amy started in her business in 1997.
People want to feel they are needed! And people prove how smart they really are if you give them the opportunity or a platform to apply their talents toward your business goals.
We divided the key management team (KMT) into three groups and started asking the team to define their expectations of business goals or their understanding of the business goals. To their surprise, each group defined different goals for the next three years. Amy was quite surprised to hear it, but I had expected the groups to react differently. It was an eye-opening experience for the teams to realize that they were working toward different goals.
There are three deliverables of the 3-day strategy session: 1) A properly aligned business model; 2) A high-level business plan, and 3) Creation of the right organization to support the execution of the plan for the next three years. Of course, throughout the session, there should be plenty of leadership and team-building activities to help the KMT collaborate better in executions.
If I were to ask, "What does your business do?" you could probably answer in 30 seconds. However, if I were to ask, "What is your business model?" you might pause for a while before coming up with an answer. Many business owners can't effectively answer this question. It’s a very foreign concept for the KMT and most owners. If you want your people to help you achieve your business goals, your KMT, as well as your employees (or contractors), must have a clear understanding of your business model. The better they understand how the business makes money, the better they can help you execute your goals.
There are three components in a business model: 1) Your business purposes; 2) Your business core competencies; and 3) Profit formula. Imagine your business sits on top of a three-wheel car. What if one of the three wheels is somewhat deflated? What would happen to the car? Most of you would say that it would get into an accident. That’s very true if the wheels are not properly inflated or aligned. No matter well you drive the car or how expensive the premium gas is you put into the car, it won’t move forward efficiently and could potentially result in a deadly accident.
Each component of the business model is like the wheel of this 3-wheel car. It must be properly inflated and aligned, enabling for the car to move forward in the right direction with the right efficiency. Unfortunately, most businesses have misaligned their business model, so they don't have a sustainable economic engine.
As my team and I took Amy’s KMT through their business model, three sets of different answers were revealed for each component. The potential of this business becomes clear only if the KMT has just one business model to work toward. With healthy collaboration and team effort, at the end of the second day, the KMT concluded with one set of answers pointing to the business model.
There is no right or wrong about a business model. However, by asking the right questions, the most fitting business model is created through collaborative design. Of course, the business model is not set in stone. It needs consistent and constant review as well being consistently challenged based on customer needs and industry trends.
Growth in revenue alone won’t translate into business equity value for owners. With the right business model and appropriate platform of key resources (such as people) and process, it can help execute the business plan and translate that into business equity value. It is the best equity value creation method for owners (and or investors), customers and employees.
Create a business model as you set your annual business goals. Download our Business Model Canvas to get the right questions that will jump start your business in 2013.
About Chia-Li Chien
Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY,” Succession Strategist of Value Growth Institute, dedicated to helping private business owners increase their company equity value. She is the award-winning author of the books Show Me The Money and Work toward Reward and a faculty of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. Contact her at firstname.lastname@example.org or (704) 268-9378 .