As Australia emerges from lockdown, companies need to revisit their business model

December 3, 2021

By Dr Jana Matthews | 6 min read

Australia is emerging from lockdown! Residents of NSW and VIC are already flexing their purchasing muscles, QLD expects the border openings to stimulate tourist trade, and SA, a COVID free state, is welcoming everyone who is double jabbed.

Having adapted, pivoted, become leaner and more resilient over the past two years, many companies are poised for growth. But post-COVID growth is not going to happen if your business model – how you make money – is out of step with post-COVID reality. Accordingly, if you want to set up your company for success, every business owner should check their pre-COVID assumptions about customers, products, marketing, costs, and competitors – and change their business model, as needed.

SOURCE: BUSINESS MODEL/INSIDE SMALL BUSINESS

An edited version of this article first appeared at Inside Small Business

Five elements of your business model, i.e., how you make money

1. What are you selling?

Before you can sell anything, you need to understand what problem your product or service is solving! As the co-founder of Revlon once said, “In our factory we make cosmetics; in our stores we sell hope.” Women don’t buy cosmetics just to put colour on their face; they buy cosmetics because they “hope” cosmetics will make them look more like the attractive women in the ads.

What problem does your product/service solve? Has COVID made this problem better or worse? Is your solution something a customer really needs and “must have” or is it something that’s just “nice to have”. Once you’ve answered that question, decide what you need to do or need to change to make your solution a “must have”. Michelin ads, for example, were not full of statistics about the quality their tires, but featured a baby holding on tight to a tire, with a tag line, “So much is riding on your tires.” Michelin was not just selling tires – they were selling peace of mind.

2. Who are your customers?

Once you have identified the real problem you are solving, decide who wants it solved (e.g., an individual, the government, a single company, or a whole industry) – obviously the more the better.  How badly – or how quickly – do they want it solved?  Has COVID moved your “nice to have” product or service to a “must have” for your customers – or just the opposite?

Once you’ve determined who wants the problem solved, take the time to do some market research on that company, that industry, or the issues facing that government entity. Or if your customers are individuals, study their demographics, psychographics, and develop some personas of different types of customers you think would want to buy your product or service.

The more customers the better.  So, make sure there are enough potential customers to make it worth your while to build a business to serve them. And if there aren’t, then either find a different and bigger market for your solution – or focus on a different problem to solve.  Plenty of “problems” have popped up in the last two years, e.g., materials shortages, supply chain delays, manufacturing capability, mental health, skills shortages, unemployed youth, the increasing price of houses – to name a few.

3. How do customers hear about you?

Your marketing strategy needs to target customers who want “that problem” solved, because they will be the ones most likely to buy.  You may have been using direct marketing strategies, e.g., advertising, website, social media, sales, but in the post-COVID world, it may make sense to consider indirect marketing strategies, e.g., partners, resellers, systems integrators – or some combination of direct and indirect. Then target your marketing messages to the kinds of customers that have the problem your product or service addresses and are willing to pay money for your solution.

4. What is your cost structure?

What kinds of expenses does your company incur to design, develop, market, sell and deliver this product or service? Consider how your cost structure has been impacted by COVID-19. For instance, “just-in-time” delivery was once a way to reduce the carrying cost of inventory, but recent shortages of steel, timber, computer chips and the increased costs of transport now make stockpiling inventory a more attractive option. Maybe it’s time to bring some operations back in-house and to champion your products as “Australian-made”. However, before you make a change, take a few minutes to calculate the impact of that particular change on your cost structure and see if it makes financial sense to implement.

We’ve all heard about the “great resignation wave” rolling across America; there’s no reason to believe it won’t roll across Australia. COVID, lockdown, and working from home has altered many people’s perspectives about what they want in life, where they want to live, and who they want to work for – and with. If someone leaves, the cost of replacement is likely to be 120% – 150% of their salary to replace them, depending on whether they are an employee or a manager, so factor that into your cost structure as well. It might make business sense to get ahead of the wave and provide an end of year bonus, or a salary increase, more flexible working conditions, or more emphasis on creating a great culture and a great team to work with.

Estimate how much revenue you expect to generate each month, when you will break-even and begin making a profit – and then calculate what impact the product or people changes noted above will have on these projections. Take time, each month, to compare reality vs. what you projected would happen.

It goes without saying that you need to figure out how to be profitable, because if you want to grow, you’ll need to re-invest some of that profit in more people, new products, different marketing, and so on. How much profit you make depends on four variables:  how efficient you are in making and delivering your product or service; running the business; the amount of products or services you sell; and the margin you have built into the price of each one.

Finally, you also need to consider how you structure payments and when you get paid (if possible, before, or soon after, you incur the costs). Getting paid up front vs. on a recurring/monthly basis vs. at the end after delivery will have a vastly different impact on your cashflow, so make sure you have sufficient working capital to cover your expenses between completing the job and getting paid for the work you’ve done.

5. How are you different from your competitors?

Why do customers buy the product or service they need from you vs. a competitor? Is your point of difference price, speed, quality, access, customer service, or something else?  Ask your customer why they buy from you.  It could be that you actually have a different unique selling proposition than the one you’ve been selling. Are people buying a product like cosmetics or are they buying hope?  Are they buying tires or safety?  Are they buying shoes or using their purchase to support a belief system, e.g., “If I want to save the planet, I will buy Allbirds shoes because they tred lightly on Mother Earth.”?  In short, look at your mission, your why, and your product or services from your customer’s perspective and figure out how you are different from your competitors.

Re-evaluating your business model

It’s likely that some of your customers’ needs and wants – and what they value                                                                                                                   – will have changed since COVID. Over the past two years there has been a major shift toward recycling, purchasing more sustainable products, wanting more time with family and friends, seeking different kinds of living and working spaces, more equity and equality, and support for companies trying to slow climate warming.

Asking yourself these five questions will help you understand your customers’ new priorities and provide guidance about the price they may be willing to pay for your product or service.  Once you recalibrate your business model and make the necessary adjustments in each element, you’ll be surprised how quickly revenue and profit growth accelerates!

Like this article? Click here to read more, Ask Dr. Jana | How to Stay in Front of your Customers and Continue to Add Value.