What Makes a Good Business Model?

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imageThis was the question posed on the McKinsey Quarterly forum.  The responses were as you would expect: a litany of things a business model (plan) should do.

Yet, there is another family of generalities not addressed and which I find typically overlooked.

Yes, if you’re writing a business plan, defining your business’ model, there are a few things a basic business plan needs to address:

  • What must it do?
  • How must it do it?
  • Where is it done?
  • When is it done?
  • Why?

Here’s what is missing:  Just as important, arguably more so, is addressing what the business is NOT:

  • What must it not do (if only for now)?
  • How should it not be done?
  • When should it not be done?
  • Why not?

The NOT component is very important. I speak to entrepreneurs about this monthly, at Ann Arbor SPARK events, and put the opening segment into a post, "Even a Piece of String Will Do."
For instance, as a product manager I may educate the Sales team about a new product offering. I may describe the product as being for customers generating at least $250M/yr gross revenue, in three industries (x,y,z), and typically having at least 1,200 employees. While I told them where the product’s focused, equally important, I told them where -not- to waste their time.

A good business model, a good business ‘plan,’ is of greatest value to the owner/writer. Crafting it helps them work through the issues. It also gives a constructive platform from which to make ongoing decisions—rather than by the seat of their pants.

The best business model? "Having one” is a good place to start.

(photo credit: Steven Goodwin)