Strategic Business Modeling: Part 1

August 31, 2011 by  Filed under: Management 

It is hard to drain the swamp while you’re fighting off alligators. Often business managers are so embroiled in day-to-day decisions that they do not find time to step back and plan. Planning goes by many names; we’ll call it strategic business modeling because it is so essential to the business. Why plan? To answer this question, let’s examine the evolution of a business.

When starting a new business venture, one of the first things that an entrepreneur will hear is: “What is your business plan?” No matter how great the idea or concept is, this question is always asked. Why is a business plan so important? Among the many possible answers, three rise to the top: 1) Communicating with others; 2) Fleshing out the process; and 3) Testing results.

As the business grows and matures, do the needs that give rise to these questions go away? Absolutely not! In fact, as a business grows in size and complexity, the underlying needs expressed by these questions continue to grow. This growth mandates the continued preparation and analysis of a business plan. Only now, we change this work and words a little to become a strategic business model.

What is strategic about this model? `Let’s return to our questions.

1) Communicating with others. Initially, the entrepreneur needs to present the business concept to outsiders. At this point, he or she needs to obtain investment capital. No investor is willing to simply hand over buckets of money without understanding the business concept, the competitive environment, potential customers and their requirements, the process to fill customer needs, potential problems to be overcome, and most importantly to the investor, the investment required and the expected return on investment. “Just trust me” is a clear signal to the investor to drop everything and run away.

Does the need to communicate go away? No. It expands. In addition to investors whose questions do not go away, the entrepreneur now has hired other people as managers and employees. These people cannot read minds – either the entrepreneur’s (now the CEO) or each other’s. A failure to communicate precedes business failure.

2) Fleshing out the process. Initially, the entrepreneur needs to “push it thru the pencil”. In other words, committing the process to paper forces decisions and forces thought about supporting processes. All ideas are fabulous while bouncing around inside the brain. Only when they are forced outside the brain’s gray matter will they have essential organization. Only then will gaps and gross assumptions become apparent.

What happens to this requirement as the business grows? It grows even faster. Initially, the entrepreneur is the only person involved. He or she may be able to hold the whole business in their mind and react to needs as they arise. Now there are many more people involved whose activities and results must be coordinated. The business now has become so large that no one can envision more than a small portion with sufficient detail to properly manage it.

3) Testing results. Initially, as the entrepreneur is working with potential investors, they want to know what results to expect. They don’t want to invest millions to test the concept; they want to be rewarded with millions. It is far less expensive to test a concept on paper than to mobilize expensive people, equipment, facilities, and materials. It is far cheaper to fail with paper money.

This requirement also persists and grows as the business grows. Now the investors are a little more removed but still insisting on a return on their investment. The board of directors and upper management now stand in the investors’ place. The need to test and evaluate continues. The business now is mature. However, in today’s business environment, the need to test and evaluate remains.

With the swamp drainage underway and the alligators somewhat at bay, strategic business modeling is more rewarding and reduces the pressure of day-to-day decisions. Our business swamp will never be completely drained but we must still try. Strategic business modeling is our pump. Proper attention to our pump now yields more than fighting off one more alligator.

Most business managers have risen up thru the ranks based on our operational talents and are not formally trained for strategic business modeling. Yet now we must also take a strategic view and balance strategy with our operational excellence. For assistance and resources to model and gain an in depth understanding of your business operations, please come to

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