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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Analyzing the root cause of your short term challenges

By focusing on the presenting problems – the market, product, and venture issues – management teams become overwhelmed, and waste large amounts of essential time and resources trying to solve a myriad seemingly independent issues. The result is a constant feeling of fire fighting, endless problems, high degrees of stress amongst the management team, and poor venture performance and results.

Rather, you should analyze all your critical short-term challenges to understand which weaknesses in your business model are causing these issues. Doing so allows your management team to recognize the foundational structural flaws in your venture, and to begin to address these root causes.

The table below illustrates this kind of analysis. While a review of the left hand column implies that this venture has a wide range of issues, the analysis shows that all of these issues can be traced to weaknesses in one or more of the three components of the venture’s business model. 

	Business model component
Challenges	Sub-optimal or unclear definition of products and / or markets	Poor or inappropriate business system elements (how the venture develops, markets, sells and / or delivers)	Poor economic model (pricing / revenue, cost structure, investment / funding, cash flow)
Market
Multiple potential markets, no real traction	x	x
Difficulties communicating clear and compelling offer	x	x
Few inbound enquiries, difficult to gain prospect attention	x	x
Long sales cycles with many opportunities on hold	x	x	x
Product
First generation, inadequate products and operational delivery	x	x	x
Arguments / lack of clarity on new products and features	x	x
Constant product development delays and “scope creep”	x	x	x
Product quality and customer satisfaction issues	x	x	x
Venture
Running low on funding, difficult to attract new funding	x		x
High anxiety on the board and amongst investors	x	x	x
Incomplete management team, struggling to attract the right team	x	x	x
Lack of strategic partnerships, or partnerships that deliver no value	x	x	x
Lack of true, valuable intellectual property (IP).	x	x

Note: an “x” means that particular business model component is a likely root cause of that challenge / symptom.

Value and urgency of this root cause analysis

The above discussion and analysis demonstrates that there is probably nothing more urgent or more valuable for your venture than to conduct a root cause analysis of your critical short-term challenges, in order to identify the structural weaknesses in your business model.

For many teams with which we have worked, this analysis has been a revelation, and has unleashed an outpouring of energy and creativity to solve these root cause issues. Instead of attacking the challenges in each row of the table independently, these teams have focused on the real underlying problems represented by the business system columns.

Solving these foundational problems has an immediate and very substantial impact:

• Your best market opportunities are identified.
  
  
• Your products are rapidly repositioned to meet real customer needs with solutions that they are excited about and that are clearly better than competitors.
  
  
• Wasted engineering and operational activity and investment is eliminated. Energy is focused on designing the right products and delivering them to the right customers.
  
  
• Ineffective sales and marketing efforts are eliminated, and refocused on productive, receptive markets and customers.
  
  
• This positive momentum brings in new, more appropriate stakeholders, who help bring in the right resources your venture needs.
  
  
• Within months, revenue is growing, costs and investment are under control, and the venture faces a positive future.

*           *           *

At a time when ventures face severe short-term challenges, a root cause analysis of your priority short-term challenges using a business model framework pays huge dividends. Doing so will enable you to maximize your team’s ability to meet your short-term goals – and will lay solid foundation for long-term success.

*           *           *

Additional reading and resources

Afuah, Allan.  Business Models: A Strategic Management Approach

A practical resource covering the main elements of a business model, this book focuses on presenting business model options for customer value, competitive positioning, profitability models, target markets, and business system activities.

Chesbrough, Henry. Open Business Models

In the follow-up to his pioneering book, Open Innovation, Chesbrough explains how to structure your business model to take advantage of open innovation.  He also provides a diagnostic instrument for assessing your business model, and explains how to overcome common barriers.

Johnson, Mark W., Clayton M. Christensen, and Henning Kagermann. “Reinventing Your Business Model” Harvard Business Review, December 2008. (Subscription required)

In a recent HBR cover story, innovation thought leader Clayton Christensen and his co-authors address business model (re)invention.  An effective business model prevents poor results by ensuring market focus, product definition, attractive economics, and an optimal business system. 

Magretta, Joan. “Why Business Models Matter” Harvard Business Review, May 2002. (Subscription required)

An interesting article that attempts to remove some of the fuzziness around the meaning of a business model.  Magretta lists two main reasons why business models fail – the story around the business does not make sense and the economics do not stand up.  When used correctly, a business model forces manager to think rigorously about their business.  Its strength is as a planning tool that focuses attention on how all the elements in the system are working as a whole.

About the authors

Michael Lurie is Founder and CEO and Dan Zagursky is a Manager with Blue Mine Group in San Diego, CA. Blue Mine Group is a strategy firm specializing in innovation and product management.

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