The secret to building simple verifiable business models

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Many business models used by enterprises have never been calibrated using the organisation’s own historical data which seriously undermines their usefulness. This is generally not due to the lack of historical data but because of the way the models have been designed. So can you build business models which do not suffer from this fatal flaw? Absolutely!

1. Brainstorm potential dilemmas

See my previous blog on the topic of dilemmas and select the 2-3 dilemmas which seem most important for the business area you are exploring. You are looking for dilemmas which are both ubiqitous and high impact.

2. Define the chosen dilemmas.

For each dilemma:
– Identify the horns of each dilemma ( ie competing decisions)
– Identify the impact of each decision on your key business outcomes (financial and near market)
– Draw the simplest model (Causal chain) which links these decisions to these outcomes (The Essential Model)

3. Expand the Essential business model into its 3 key sub-models :

  • The Empirical Model. This is the underpinning verifiable model of the part of the business under consideration. This should be totally objective.
  • The Value Model. This captures the value produced in money terms when key objects (customers, users, orders, staff …) transverse the Empirical Model.
  • The Causal Model. This covers the dilemma decisions, how they relate to each other and the impacts they have on the Empirical Model. This will be subjective but should be based on real life experience.

If you follow this approach you will produce business models which can be implemented in Excel or specialised simulation software and are highly valuable for scenario plannjng and leadership development because they can be calibrated and verified using your prior years data.

Republished with author's permission from original post.

Ken Thompson
Ken Thompson specialises in four key business areas: 1. Creating High Performing Teams in enterprises including Virtual and Mobile Teams, 2. Establishing effective Collaborative Business Networks, 3. Development of graphical on-line interactive Business Dashboards and 4. What-if Simulators for organisations to support Performance Improvement, Strategy Development and Executive Team Development.

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