How to Design a Business Model

I recently met a fantastic artist.  Scott Stearman is a sculptor who specializes in bronze work, such as life-size statues and memorials.  The process he goes through to create the end product truly is amazing.  Long story short, Scott actually starts his process with a very small clay model.  This model is then magnified and processed to create a mold for the bronze, which is then finished.  The part of this process that I found most intriguing is that the large finished product is being made from a very small model.  This means that any errors that are made on the model are magnified multiple times when it is enlarged to create the bronze mold.  Having a half inch error on a model can result in a four inch error when the model is magnified to become eight times larger.  

I have found that the same is true with a business model.  If a business does not fully refine their strategy on the small scale, it becomes magnified as the business grows.  This is not always a bad thing, but how much more effective could a business be by being intentional?  If a business model is not intentionally designed, the business will ultimately default on a business model that may, or may not be the most effective model for the business.

Regardless of the size of a business, any business owner can be intentional about the design of their business model by refining four strategies.

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Innovation as a Competitive Advantage

Innovation as a Competitive Advantage - www.businatomy.com.jpg

Finding a competitive advantage is often a necessity for many smaller organizations.  Big companies have economies of scale that give them the edge.  Since small companies cannot obtain the same economies of scale as their larger counterparts, how do so many small business compete?  Through innovation.  The creativity and ingenuity that so many small businesses cultivate provide them with a competitive advantage that big business just cannot compete with.  Innovation can be the key to a small business competitive advantage.  

A competitive advantage occurs when an organization develops or obtains a certain attribute that allows them to outperform the competition.  A very simple example of this is the competitive advantage that large, "big box" companies have.  These large companies are able to obtain products for a much lower cost than a smaller competitor.  Large companies purchase larger quantities which drive down their costs as products are often sold at a lower cost for larger quantities. 

In addition, larger companies are also often able to reduce distribution costs.  In its simplest form, distribution is the process of how a product gets from the maker of the product to the store that it going to sell it.  By establishing their own in-house distribution systems, larger companies can reduce their costs instead of relying on a more expensive third party to deliver the needed product.

So how is a small business supposed to compete when these large companies have all of the price advantages?  The answer is innovation. 

  1. Innovation in larger companies can be a very, very slow process.  Take Starbucks for example.  If Starbucks is interested in innovating their product line, they must innovate on a very large scale.  Planning, preparation, testing, tweaking, and training must all take place before a new product can be rolled out.  In contrast, a small local coffee shop could potentially roll out that same new product in just a few hours (or however long it takes to put the new item on their menu). 
  2. Innovation doesn't always have to be related to the product either.  Innovation in service, delivery, and atmosphere can occur much easier and quicker for a small innovation.  The reason?  Large companies are just too big to be able to "pivot" (or quickly change) like a small business can. 

What innovations have you seen in smaller businesses that would just not have been possible in a larger business?