"We can build any deck we can draw." My friend Mark told me that the day I asked him to help me build a deck off my first house. That was back in 1983. The drawing allowed us to see the interconnectedness and interdependencies of all the parts. It revealed the order of operation, and it synchronized our work. Our drawing gave us a shared perspective.
I have been drawing models ever since. Instead of decks I have been drawing models of businesses for my customers. And they have the same effect on my clients and their staff as that deck drawing had on Mark and me.
You can run and grow any business you can model.
Peter Drucker who is often referred to as "the inventor of modern management" said that business models should answer the following questions: Who is your customer? What does your customer value? How do you deliver value at the optimal cost? Adding to Drucker's foundational principles, here are some tips for creating or updating your own business model:
1. Keep it simple.
Keep your models "essential" and simple (not simplistic). The art of modeling is what you choose not to include in the model.
2. Accept that it will never be perfect.
Keep in mind that all models are wrong - some are useful. Models are abstractions. They are always incomplete.
3. Look around for inspiration and then upgrade for your business.
Don't reinvent the wheel. The fact is you do not have to start with a blank sheet. Chances are your business has already been modeled. After modeling hundreds of businesses, it is clear to me that there are really only five business models, and your business fits one of them. The five business models are:
- Product: makes and sells physical products (e.g., Black & Decker, Harley Davidson)
- Service: sells time (e.g., law firms, consultancies, system integrators)
- Operation: sells a capability (e.g. data centers)
- Channel: connects makers and buyers (e.g., Amazon)
- Exchange: establishes and brokers the market between many buyers and many sellers (e.g. Etsy)
A well drawn model of your business will result in the following:
Employees will understand and agree on what flows into the business (people, money, materials, orders, etc.), where it accumulates, where things get delayed, and what controls its rate of flow.
Employees will understand that the organization is interacting with customers directly on all levels, from the way the phone is answered to the communications that customers receive, and they will strive to make the customer's every experience world class.
Employees will be able to see and understand how the actions of one person or one department in an organization impact every other part of the business. Areas where communication breakdowns are happening will become glaringly apparent.
And most importantly, performance constraints and opportunities for growth become apparent, directing the team's energy to critical areas of focus.
This is what you get from taking the time to model your business. Do you have an explicit and elegant model of your business rendered and displayed for all to see? Is this model presented during new employee orientation? Can each employee see themselves in a specific part of the model, thus clearly understanding how their activities are connected to and depended on by others?
Sharing the model with your staff can help them expand their thinking beyond their job function or business unit, reduce errors in the back office, and make clear to all which area of the business is currently restricting performance and warrants attention.
Models will also get your new staff up to speed and make clear to them how they fit into the company.