Using the Business model as a strategic map for planning

I like to think of businesses as machines, it’s not an uncommon analogy, I think it works really well, since we can think of the business as being made up of parts that need to work together to achieved results. The different parts work in different ways so understanding how each part works as well as how they interact is equally important. 

For a business a blue print of this is the business model, in simple terms the business model should illustrate how money follows through the business, and all the different elements that make the business work and how they relate to each other. On the base level the relationship of these parts helps you to articulate your unit economics and justify certain expenditures in certain areas or justify charging a certain amount.

If you build your business model in Excel to accommodate for being able to add historic data and add formulas to help define future trends then you can build out forecasts and understand how, as the business scales certain parts of the machine may show either economies of scale or require more investment.

In this way, you now have a map of roughly what the future would look like based on various assumptions. Since you know what these assumptions are, you now have a tool that allows you to model based on information you have at present. 

In a recent case, a founder was talking about their ambitions for the rest of the year, so we were able to plug-in the goals into the business model and work back what the targets needed to be for each month, adding into a margin for error. The founder was also clear that they were keen to take a period of time off which meant that there was a gap in sales leadership for certain months. 

Because we had all this information in advance, we were able to look at the situation more clearly and make more deliberate decisions – for example, since the founder would be away and this would affect sales, for the period the founder was away we adjust the sales targets, we also knew that since the founder would be away, they’d need some sales support so hiring a new sales headcount was added into the model with onboarding and commissions also taken into account, we were also ablate define clearly what training and to whom we’d need to give it to in order to allow the founder to talk time off. And we were able to clearly articulate what numbers we’d need to achieve by when before the founder could feel comfortable taking time off. 

Most of the time we’re so focused on driving the business forwards, we forget to use the tools we readily have to help us make more deliberate decisions, here we see how the business model and forecasting can be used to help us plan and determine when and what resources should be allocated, this planning helps keep things calm and reduce our risk.

Leave a Reply

Your email address will not be published. Required fields are marked *