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Do You Need to be Running a Newer Model?
by Glen Ludwig

It is possible that some business owners, managers or employees may not realize that their company has a business model. Trust me, you have one, even if it has never been committed to paper or been a topic of discussion within your management group. Understanding your business model, however informal it might be, is more important today than years ago when life was simpler in the agribusiness world. Business consolidation, an ongoing need to maximize efficiency and more diversified needs and expectations of customers all drive the need to focus on your business model.
First, let’s look at some definitions. The most basic business model is a concise description of an organization’s business principles and practices. A more elaborate and useful business model includes information on the goals, beliefs, values, culture, strategies and internal business philosophy of an agribusiness.
In a country elevator, a business model would define in some detail the company’s role and process in moving grain from the producer to the market channel. In a feed business, it is the process of how the animal nutrition manufactured and marketed creates value for the food chain. A business model is similar, but different than a business plan in that the latter tends to be focused on a specific time period. Business models are more enduring. They tend to evolve and are more linked to the business culture and values of the owners. But make no mistake, business models become outdated, just as the Ford Motor Company’s Edsel did decades ago.
When first introduced to the concept of a business model, it is not unusual for business leaders to lean toward an operational focus. Successful agribusinesses do a great job maintaining operational capability and efficiency. They have new bins, receiving equipment, mills and mixers, trucks and floaters that have all been put in service during recent years. These managers assume, thinking from an operational point of view, that they have a modern, robust business model. But this may not be true.
At Creative Ag Solutions, we believe a business model goes far beyond the age and service capability of fixed assets. There is more to maintaining a vigorous and healthy business structure than simply attracting customers with shiny new equipment and facilities. Interestingly, on the asset side of a business model, we often see significantly more attention paid to the maintenance and care of fixed assets than to development of off balance sheet human resource assets. That, in itself, is a clue that a business model may need a tune-up.
To effectively evaluate your business model, take a holistic look at how your company operates and how it is positioned in the market. Consider target markets, customer segments and positioning of your core enterprises. Take a look at how the organization positions itself to serve customers and create value. What are your corporate priorities? Issues related to ownership, management structure, governance, leadership, succession planning and human resource evaluation are part of your company’s business model, as are financial goals, debt utilization and other balance sheet ratios.
When we support strategic planning initiatives with our clients, we recommend putting at least the basics of the current business model on paper. Sometimes the client’s response is, “Why bother? Most of our leadership and employees have been here for years, and we all know how we operate.” But we have found that until they put it on paper, it is very difficult for all stakeholders in a business to see the company the same way. Until there is agreement on “who we are today,” it is difficult to engage in productive discussion related to how the business may need to change, grow or be modernized.
A well designed business model is closely linked to the long term vision of the business and actually provides significant details on how the company plans to make the journey from its current position to a successful future. Here are some of the benefits of updating your business model.
1. An updated business model will help you understand the evolving expectations of your customers. The tune-up process is all about focusing on key segments of your business and determining if the way you are operating today will help you achieve future goals. If results are at risk, it is time to plan and prioritize strategic change initiatives.
2. A changing marketplace necessitates a review of your value proposition. How will your business create value for customers in the future? Remember, value creation is measured in the customer’s terms. Your business model must profitably create value at a cost to the customer that is less than the perceived value. When that occurs, both your business and your customer win.
3. Finally, if you have a board of directors, a business model is a great tool for bringing recently elected leadership up to speed on your company. The same can apply to new employees. When new employees join a firm, the business model can be used to train and integrate them into your team. This significantly shortens the time frame required for those new employees to become fully productive.

For those who have never done it, developing a hard copy of the business model might seem daunting. But we have found that providing clients with a skeletal format makes the process easier. Once the business model has been defined, it serves as an effective centerpiece for strategic discussion and long-range planning. In the end, strategic planning is all about fine-tuning and polishing your business model. As the strategic plan is completed, the business model is a great place to incorporate and document the change initiatives selected. Thus, you will have created the structure for the continuing orderly evolvement of your business plan.

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