For a More Profitable Business Model Focus on Those You Can Serve Well While Using Few Resources
66615
Business
Feb 10, 2008
donmitch
For a More Profitable Business Model Focus on Those You Can Serve Well While Using Few Resources
Successful organizations know that business models need to be continually improved in order to add profitability and effectiveness. A good place to start is to be sure you understand what customers, users, and beneficiaries really need. Most organizations are providing offerings that match what they want to offer rather than what is desired. After you know what the actual needs and desires are, you still have a big task in business model innovation: Every organizational leader knows that you cannot be all things to all people, or you will fail to have a distinct image and competence advantage. The best business models work on that basis to move in the opposite direction: Do the fewest number of things for the most profitable customers where the organization can gain or increase a competitive advantage. A nonprofit organization can stretch its resources by focusing on beneficiaries it serves less expensively and better than anyone else. If we consider parallels to Pareto's Law (such as the law's restatement by Dr. Joseph M. Juran, the Quality Management pioneer, into Pareto's Principle), we usually find that 80 percent of the profits of any business come from 20 percent of the customers. When enough customers are involved, 20 percent of those most profitable customers (4 percent of the total) will provide 80 percent of the profits from the most profitable customer group (64 percent of the total). Attract more customers like these, and profits soar. Specialization can definitely help. In a nonprofit organization, 80 percent of the people served will typically require only 20 percent of the organization's resources. If you serve a large enough population, 64 percent of the people served require only 4 percent of the organization's resources. If you can focus on serving only those beneficiaries, you can help a lot more people. If the impact of your help is similar in its benefit to all beneficiaries, specialization can be a wise move. This case for specialization is enhanced if other nonprofits specialize in inexpensively serving those you cannot serve nearly as efficiently. In this way, more people are helped . . . or fewer resources are required. But don't stop there, look deeper. Start with those you don't serve at all. How do they compare to those you can serve most efficiently? If there are enough of such businesses, organizations, and people out there, you may be able to specialize further. The ideal is to find a large enough customer, beneficiary, and user base so that you can eliminate the least attractive offerings, and the inefficient aspects of your business model, and make the tasks of delivering perfect results for your remaining offerings simpler and easier.
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at http://www.2000percentsolution.com .
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