Events and
publications

June 23, 2010
Business model innovation
8.00 – 9.00 am
University of San Diego

July 23, 2010
Free webinar: Agile Strategy for New Ventures
An introduction to applying the principles of agile strategy to maximize new venture success. 

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The business model as root cause of short-term challenges

What are your biggest short-term challenges? How can you address them effectively to ensure the survival and growth of your venture?

Critical short-term challenges

In today’s precarious economic conditions, most ventures are facing major short-term challenges in addition to their perennial long-term value creation issues. For many, the most critical challenges fall into at least one of three groups:

Market challenges

One set of top priorities is on the sales and marketing side of the business. The fundamental concern here is that the venture is not securing customers, revenue and market traction quickly enough. The venture is struggling with the following types of issues:

• Pursuing a range of potential markets, but not getting any real traction in any of them.
  
  
• Having difficulties communicating what it offers in a way that prospective customers understand and find compelling.
  
  
• Receiving few inbound enquiries, and finding it very difficult to gain prospective customers’ attention for even an initial conversation.
  
  
• Experiencing long sales cycles with many opportunities stuck in a “black hole” after presenting a proposal.

The net impact of these market challenges is that sales goals are not being met, and the venture is in danger of either never getting to, or falling below, sustainably profitable revenue levels. 

Product challenges

A second set of critical issues for many ventures is on the engineering / operations side of the business. Here the core concern is that the venture is taking too long and spending too much to get to the point where it is delivering on its promise to customers. Critical issues include:

• A current product offering and operational delivery system that is first generation and clearly inadequate relative to future customer needs or competitive offerings.
  

• Frequent internal arguments and lack of clarity on which new products and features to develop, with continual changes in direction and priorities.

• Constant product development delays and “scope creep”, with frequent missed deadlines amidst complaints of inadequate internal staffing and equipment.

• Significant product quality issues and high rates of customer dissatisfaction with both products and customer experience, leading to high product return and “customer churn” rates.

The impact of these product challenges is excessive levels of investment and costs, missed market windows of opportunity, and an inability to retain customers, putting huge strain on the business in terms of short-term cash flow.

Venture challenges

The third set of challenges relate to the primary stakeholders and resources in the business. The key issue is that the venture does not have, and cannot attract, the right stakeholders or the right resources to achieve its goals. These issues include:

• Running low on current funding, and finding it difficult to attract new funding.

• Constant pressure and high anxiety on the board and amongst investors.

• Having in place an incomplete management team, and struggling to attract the right management team.

• Either a lack of strategic partnerships, or partnerships that consume resource and deliver no value to the venture. 

• Lack of true, valuable intellectual property (IP).

The impact of these venture challenges is that the business is severely hampered in executing its plan and pursuing its goals, and may be missing one or more ingredients that are vital for its success and growth.

Root cause of short-term challenges

In our experience, the root cause of all of these of issues is a fundamental flaw in the answers to one or more of three simple but profound questions:

• Which products do we offer to which markets?

• How do we provide these products to these markets?

• How do we make money?

As defined in a previous article (Maximizing the value of innovation through strategic product management), the answers to these three core questions define the three elements of the venture’s business model: product market definition, business system definition (how the venture develops, markets, sells, and delivers its products to its customers), and the venture’s economic model.

While it is hard to believe because it sounds so simple, in our experience most ventures fail to answer these three questions effectively, and as a result have weak business models that are not based on either the reality of their markets or the shared, considered thinking of their management teams. This failure has immediate and dramatic impact – it is the driving cause of the critical, short-term challenges listed above, leading directly to inadequate revenue, high costs and cash burn rates, and unsustainable losses.

Of these three root cause questions, we have found the single biggest problem to be the first one – which products should we offer to which markets? Answering this question correctly almost inevitably leads to success – by fully meeting the urgent needs of a large, growing market with excellent, complete solutions that are clearly better than all alternatives. Conversely, and far more frequently, many ventures make fatal decisions in market selection and product definition – leading to long, drawn out struggles in every business function, ranging from lack of clarity on what product to build, through to endless efforts to convince skeptical prospects to buy products they don’t think they need.

 

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