6 Situations when it's time to change your business model and value proposition

Via Strategyzer.com
How you adapt your business idea to what you've learned in the field is critical. While iterations of the core idea are fairly easy, pivoting to a radically new business model and value proposition is a tougher challenge. Entrepreneurs and intrapreneurs must react quickly. The longer they wait, the more vulnerable they get. Keep an eye on these 6 situations that indicate when it may be time for you to pivot

Failure, learning and adapting are part of the journey when you are searching for the right value proposition and business model. In this phase, you iteratively test the hypotheses underlying your idea, learn about the market/customers, and improve your idea until you achieve product-market and business model fits. There are two types of adjustments you can make when you're in the 'search': the 'iteration' or the 'pivot'. Let's quickly look at why they are distinct moves:

  • Iterate: the adjustment is minor; you reorient your business model and value proposition but your new models are still closely related to the initial core idea. 
  • Pivot: your core idea is undermined so you explore a radically different business model and value proposition. A pivot happens when you ‘make a substantive change to one or more of the Business Model Canvas components’.

While entrepreneurs and intrapreneurs easily make iterations to their idea, they struggle to pivot to a radically different business model and value proposition. Failure to pivot usually occur because an entrepreneur or intrapreneur is too late to kill an idea they love, or too slow to realize substantial changed are needed. It is crucial to react quickly when you need to pivot. 

I have listed 6 situations to help you identify when you may need to pivot to a new business model and value proposition. Stay on the alert if you're in one of them!

1. You don't generate enough traction from the customer you targeted:

  • The customer you intended to create value for doesn’t actually care about the problem you are trying to solve. It's a common failure in new ventures. The jobs, pains, and gains you intend to address are not important enough to the customers. You need to focus on their critical jobs, pains and gains.
  • You get some traction from customers but soon realize that the market isn’t as big enough for your business to survive. You need to offer something that a small group is willing to pay a lot for, or focus on a larger pool of paying customers. You could also change your model to diversify your revenue streams.
  • You are talking to the wrong customer: the end user is excited about what you offer but the buyer or decision-maker isn’t convinced. How can you address some of the buyer’s most critical jobs, pains and gains to get him/her to pay?

2. Your value proposition doesn't resonate with customers

  • Your customers care about the jobs, pains and gains you intend to address, but you chose the wrong product features. Or your product doesn’t solve your customers’ problem well enough. How can you build features that maximize the value you create for customers?

3. Your acquisition & retention strategy doesn't generate the growth you hoped for

  • Your value proposition brilliantly solves your customers’ jobs, pains and gains. The problem is that you haven’t found the right channels to reach out to customers. Put yourself in your customers’ shoes to figure out how they hear about new products, where they purchase them and how you can get them to come back.
  • You have found the right channels to spread the word about your value proposition and deliver it to customers! But you end up paying more to acquire a customer than the revenues this customer will ever generate for you (customer acquisition costs > customer lifetime value). How can you play with the numbers to lower customer acquisition costs or increase the revenues you'll get from customers?

4. Customers are not willing to pay the price

  • You found a critical problem to solve and customers are crave for your value proposition. Unfortunately, they can’t afford it or are not willing to pay for it. Can you lower your price? Can you get rid of costly nice-to-have features and only charge for what matters the most to customers? Can you generate new revenue streams? Can you target additional customer segments and expand your market?  

5. You can't build the product and/or your costs are too high

  • This one is really straight-forward. Your financial equation is wrong: costs > revenues. Can you  outsource some activities and/or find cheaper ways to produce and deliver your value proposition?
  • What seemed simple on paper turned out to be a serious headache. You can’t build the product you wished to offer because of unavailable resources, a complex manufacturing process, a slow technology etc. Can you address issues related to key activities and resources by substituting or outsourcing them?

6. External forces are threatening your business model

  • As Bill Gross in his TED-talk explains, wrong timing can mean death to your venture. In this case, there’s already too many competitors and great products available. Or you’re too early in the market and people need to change their behaviour to adopt your value proposition. Be on the look out for opportunities to enter promising markets that will soon experience a strong growth.
  • The market you’re entering is maturing and sales are declining. Other businesses are trying to get out of that space. Figure out why sales are declining and where customers are going to spend their money.
  • Laws, political forces or the right economic infrastructure are not in place for your business to succeed. How can you leverage the opportunities in your current environment?

Aan de slag met uw businessmodel
Focus Conferences organiseert in samenwerking met Business Models Inc tweemaal per jaar de tweedaagse masterclass 'Business Model Innovatie'. Tijdens deze masterclass combineert u het business model canvas met andere innovatie technieken en visuele tools, om tot een vernieuwende strategie en innovatief business model te komen waarmee uw organisatie in de toekomst succesvol is.

Daarnaast organiseren we dit najaar ook de unieke masterclass 'Alexander Osterwalder over waardeproposities'. Met Value Proposition Design biedt Osterwalder u een verdieping van het Business Model Canvas. Het helpt u te kijken naar wat klanten echt willen: welk probleem lost u voor hen op, waar liggen hun pains & gains

Geschreven door Strategyzer op 18 augustus 2015

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