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When is it time to change your revenue model?

Most industries today are changing faster than ever before due to the rate at which new technology is advancing. With the latest data analysis tools we can learn more about our customers, test new markets, and compare against our competition faster than ever before. It may seem like in the ever-shifting world of apps, dApps, and SAAS, we have all the tools to make our business better, but when do we know when it’s time to use these tools to change your business model? 

First off, let’s define what a business model is. A business model is simply the way a company generates revenue, and how they plan and operate in order to do so. When a company is still in the “start up” stage, they are defining their business model, and putting it into play. Although for most new companies take 2-3 years to generate a profit, once a company begins to understand its customers and the market better, it will have to stay agile and flexible to know when it should adjust or change its business model. 

Here are some of the biggest reasons why you might consider adjusting your business model, and how you should approach the change. 

1. The Market is Demanding Something New.

Remember when MySpace was the top “social media” platform? Then Facebook came in with a “no rules” mentality, pretty much allowing users to determine where the platform was going. Farmville wasn’t in Facebook’s original business model, but the leadership allowed the users to determine what they wanted from the platform. 

On the other hand, MySpace (controlled by media company News Corp), took more of a planned approach, but failed to listen to the market. Despite their size and experience, News Corp. made the wrong call by not listening to what the market was demanding, and ultimately Facebook won.

When you are faced with a new competitor who is doing something new, turn to the market and your users or customers to determine if it’s time to make a change.

2. There are Changes in the Industry.

Who would have thought that fast food giants like McDonalds and Burger King would ever serve vegan burgers? Well, in Q1 of 2019 dozens of the biggest fast food companies that have made their claim to fame over factory-farmed beef announced meatless menus featuring items like the Impossible Burgers, vegan tacos, and more. 

Although this isn’t a new trend for the food industry, it is for the fast food industry. Anytime large players support a new idea, or try a new product, it’s a good queue that the industry is going to be experiencing changes.

If your industry is experiencing big changes, it’s important to take a step back and consider what challenges you may be facing with these changes. Define those potential or current challenges, and adjust your revenue model as needed. Read the temperature of your industry, and determine if it’s necessary for your company to add a new product, change your tone of voice, or adjust your marketing. 

3. Your growth is stagnant.

Most new companies start out with one revenue model, and if they survive the test of time, over the course of 5 or 10 years, their model will look much different. The final and most obvious reason for a company to adjust their business model is because what they’re currently offering to the customer is not lining up with the customer’s wants and needs, creating a flatline in growth. 

Most startups, especially those that have taken on venture capital funding, are looking to scale and provide their investors a 3X or 5X return on their investment. To do so, founders must ensure that they are on a growth trajectory that is hitting milestones in revenue, profit, users, etc. 

If your company is not achieving realistic growth goals after months or years of applying the same strategies, it’s time to make a change. Look at your business from 360 degrees – are you marketing the right products to the right people? Are your operating efficiently? Does your revenue model make sense? Revisit these questions with your core team and advisors, and adjust to determine who your customers really are, and how you can provide them with what they will buy over and over again. 

July 3, 2019

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