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Your business model: facelift or overhaul?

In a recent MMWU, I wrote, “The economy has created a new reality that requires your business model to adapt at a faster pace: The moment you think you have your business model just right - start questioning it and exploring what needs to change. ... If you and your company are resistant to change today, your business model is already behind the curve.” On my blog, I received a number of comments asking me to explain my statement in more detail.

About 12 years ago a mentor of mine suggested that I consider publishing a version of Strategies magazine for travel agencies and agents. Initially it sounded like a good fit; mostly entrepreneurial businesses in need of business guidance and advice. There was only one issue to consider - how was the Internet going to impact the travel agent industry? At the time, Expedia and Travelocity were just ramping up. After some consideration, I told my mentor that the title of the first issue would be, “The Internet: Kiss your ass goodbye.” The travel agency business model crumbled as consumers and business travelers began booking travel at their convenience online.

Blockbuster’s business model was based on “brick and mortar” locations for video rentals. Netflix took an entirely different approach with a web-based monthly subscription that mailed selected DVDs to your mailbox. The two business models competed head to head until Netflix shifted its business model to streaming on-demand video selections. I stopped going to our local Blockbuster when Apple TV was released. Now, Netflix, Hulu and the new kid on the block, the Roku, are bringing the convenience of streaming video of a massive array of affordable on-demand content to your TV. Blockbuster hesitated to change its business model and is now fighting for survival to catch up while closing stores en masse.

Newspapers and magazines are shifting their business models away from print. Book publishers, spurred on by the success of Amazon’s Kindle, are shifting to digital downloads. Analysts predict that digital book sales will increase 68% in 2011. Meanwhile, the brick and mortar Barnes & Noble and Borders of the world are fighting the same catch-up game as Blockbuster by introducing their own digital book readers.

Over the past two decades, salons have been jumping on the spa bandwagon business model. In the process, gift-card revenue became a vital cash flow. Then along came the economic downturn hitting a U.S. spa market that was already saturated. Add stretched-out hair appointments and more reserved consumer spending on gift cards, and expansion efforts that would have proved fruitful in good times, put enormous strain on cash flow today. I’m not suggesting that salons get out of the spa market or that spa-only establishments should open salons. My message is to brutally question your business model and isolate what’s working and what’s not. Go “no compromise” on your customer-service standards and practices. Maybe getting smaller today is the key to getting bigger tomorrow. Raise the bar higher. The worst thing to do is assume that you can’t change your business model. You can. Every business can.

As for Strategies, after repeated blows to my head, I shut down my beloved Strategies magazine after 14 years. It was costing us $1.50 for every dollar it brought in and selling an $89 subscription was always an uphill battle. For me it was an agonizing decision that I readily admit I took too long to make. The magazine was a mere 7.2% of Strategies’ revenue and sapping time and resources from our primary business of education and coaching. We needed to change our business model and we did.

It doesn’t matter if you own a medical practice, dry cleaning business, retail store or if you manufacture automobiles, every business model must adapt and be reinvented in order to survive. And here’s the kicker - the viable lifespan of a business model is shrinking faster than anyone realizes.

So, does your business model need a facelift or an overhaul? Those are the only two choices you have. Well, there is a third and that’s to do nothing.

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Please share your thoughts with me about today’s Monday Morning Wake-Up. Click below to comment.

Neil Ducoff, Founder & CEO of Strategies and author of No-Compromise Leadership

Pass this e-mail on to your business colleagues, managers and friends. They’ll appreciate it.

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