4 Mistakes That Can Kill Your Business Model

Added on by Benson Garner.

It's hard to build a new business and failure along the way is inevitable. However, you want the failures you experience to be small, inexpensive and manageable, not lethal. Here are four major mistakes to be on the look out for to avoid failing indefinitely.

1) Solving an Irrelevant Customer Job

Your business model will fail if it is built around a value proposition that solves a customer job that customers don't care about, or that customers don't care about enough. In the start-up world this is called a failure to achieve product-market fit. No business model can survive long term without product-market fit, no matter how great it looked in the business plan. Trivial, right? So why does it happen over and over again?

This type of mistake is often driven by an overly strong focus on products, services, technologies and features. What you want to focus on first, before thinking about features, is figuring out which jobs customers are trying to get done, which pains bother them most, and which gains they are trying to achieve.

Once you understand what matters most to customers, make sure your products and services sufficiently alleviate pains or create substantial gains. Otherwise you'll fail even if you target the right jobs, pains, and gains.

A visualization of customer value creation from our upcoming book Value Proposition Design

Avoid solving irrelevant customer jobs by pre-ordering Strategyzer's new book, Value Proposition Design. Pre-order now at Amazon, Barnes & Noble, or 800CeoRead.

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2) A Flawed Business Model

Solving relevant customer jobs and finding product-market fit is just one of many important factors that make up a business. Great technologies, products and services must also have the right business models to support and sustain them. You will fail even with value propositions that customers want or technologies that customers crave if your business model is flawed (e.g. few people know that Kodak, which filed for bankruptcy in 2012, helped invent the digital camera that crushed its business model). 

The most obvious flaw is when a business model's value propositions generate more costs than revenues from customers. The business will inevitably disappear, even with the most successful value propositions. But it still happens all the time! You might pick the wrong revenue model or pricing structure or underestimate the costs you incur from the activities, resources, and partnerships required to create and deliver your value proposition. 

Further, your business model is flawed if you fail to establish the proper channels to reach and deliver value to your customers. Does it matter how brilliant your value proposition is if your potential customers don't know about it or can't find it?

Your business model might also be flawed if you fail to establish customer relationships that allow you to successfully retain and grow your customer base sustainably (e.g. think Zynga or King and Candy Crush). Finally, your business model will fail if you focus on the wrong activities or lack access to the right key partners and resources to reliably create, deliver, and capture value long term. 

To be successful, design a business model that works not only for your customers but also for your company.

From our upcoming book Value Proposition Design

3) Neglecting External Threats in the Business Model Environment

You can still fail even if you are solving relevant customer jobs and have a sound business model design. This third source of failure stems from external threats.

The most obvious threats are your potential competitors. You may never even acquire customers if your competition's business model locks in customers and prevents them from switching to you (e.g. think competing against Apple products).

Also, your customer's jobs, pains, and desired gains can change and evolve over time, especially as new and improved competitive offerings and substitutes become available.

Changes in the macro environment as well as shifting technological, regulatory, societal, cultural, and socioeconomic trends can have big impacts on the viability of your business model, both in the near and distant future. 

The most successful companies constantly scan their business model environment to stay abreast of impending threats to their business models.

4) Poor Execution

With the previous fundamentals in place, your business model can still fail if you execute poorly. If your company's resources (physical, human, and capital) are not properly aligned around the most critical elements of the business model, it's liable to fail.

Additionally, most companies measure and monitor a lot of things, but rarely do they use the business model as a starting point to define the critical success factors to follow. By regularly measuring and monitoring the key success factors of your business model, you can ensure proper alignment of resources around the model. Good companies execute flawlessly but the best companies seek to improve and refine their business models relentlessly while proactively looking for ways to reinvent them entirely (e.g. Amazon and Hilti).

Search and Create Value Propositions that Customers Want with Profitable Business Models

Failing with any one of the above can mean death to your business, no matter how great your product or service is. Great products and services must have great business models to support and sustain them, be deployed in the proper business model environment, and be executed flawlessly for the best chance of success.

That's exactly why we invested so much time, energy and money in writing Value Proposition Design. To make the necessary balance between the components of a company's value proposition, the business model that supports it, and the environment that influences it more explicit. We believe the book and its online companion tools will help you learn the process of true value creation, so that you can create and deliver what customers want and stay at the forefront of business evolution.

Learn to create what customers want with Strategyzer's new book, Value Proposition Design! Pre-order at AmazonBarnes & Noble, or 800CeoRead.

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What great products and services have you seen fail? What business model mistakes did they make that led to their failure?