Robust business models should be based on a clear proposition with a plan for profitable activity.
Each model is essentially a road map of how money will flow from activity.
Business models are a financial expression of the company’s business plan in a way that summarises the strategy, funding, organisation and processes used to achieve objectives.
Given that unforeseen roadblocks and successes will occur, business models should be reviewed regularly and adapted depending on new circumstances and new information.
Tools for refining the model are also useful, such as a SWOT analysis to identify Strengths, and Opportunities to be exploited and Threats and Weaknesses to be avoided.
While arguably, few businesses and especially SMEs, will have had plans to cope with the coronavirus pandemic, it has affected most businesses in ways that were not foreseen. The lockdown has also exposed how little resilience they may have built into their business models to protect from such a crisis.
To a large extent, the situation has exposed a lack of financial resilience but it has also highlighted a lack of character among leaders. The behaviour of leaders in particular will be remembered by those who deal with them, whether employees or other stakeholders.
It is alarming how many directors have been paralysed by the situation and not taken calls or failed to answer with awkward questions, often hiding from the fact that their problems will not go away.
While leaders may not know the answers, they should be visible, they should be looking for the answers and telling everyone what they are doing to find them.
The government is a good example of leaders trying to communicate, I leave it you to decide whether or not their messages are believable or they are doing a good job of leading in a crisis.
James Ball, writing in the Guardian, provides an excellent illustration of two examples of flawed business models, Uber and Deliveroo. At a time when it might be expected that their services would be more in demand than ever as people are required to stay at home and preserve social distancing, he points out that they are not structured to make a profit, but instead rely heavily on growing rapidly, not growing sustainably.
“This is the entire venture capital model,” he says. “….This is a whole business model based on optimism. Without that optimism, and the accompanying free-flowing money to power through astronomical losses, the entire system breaks down.” Indeed, this reinforces my view that the Silicon Valley approach to venture capital has parallels with a giant Ponzi scheme by using new investors’ money to provide returns to early backers.
Will Hutton also looks at business models and considers how the economy might recover from the lockdown in a more sustainable way: “equity investment: the venture capital and private equity industries must transmute themselves from their default role as predators and asset-sweaters to long-term, patient investors”.
I believe the short-term, profit-driven motives of early investors looking for a return before their investment makes a profit is a flaw in most companies’ business models and has contributed to the weaknesses that have been exposed by the measures that have been needed to contain the pandemic.
Some might say ‘buyer beware’ in a world where animal spirits and greed drive behaviour but this argument exposes a lack of character among leaders who should show courage and moral fibre.
Perhaps it is time for a bit more moderation and longer-term thinking in the construction of business models for the future.
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