In this episode, we talk about your business model. It is
one of the most critical elements of business. We talk about what business
models are, where you might be in the business model ladder, the importance of
having the right model and its indicators.

Business Model Ladder

Based upon where you are in this framework, it gives you an
idea of what you need to focus on.

No Model: Most
starting entrepreneurs do not have any business model. Value is also not created. It
simply is an idea and there is no cash flow. A decision is required to begin
the transition and start making money.

A Model: You have
elevated the idea to a hobby. Now you know how to get your products out there
to serve consumers. We need to define the things in our business model to cross
the money line.

Workable Model:
You have to put in a lot of work and cash comes in. We need to refine it to get
rid of the things that aren’t working and elevate the things that work.

Viable Model:
Things are flowing and we need to start to scale. We have to elaborate the key
value drivers to the customers, team and ourselves.

Optimal Business
Model: We are at a stage where we know who, why, what and how we’re
serving. We are creating value that is high in our consumers’ eyes.

Your Position on the Business Model Ladder

To know where you are on the ladder, look at the following
symptoms or indicators:

• No Model:
  You have negative cash flow, no systems in place and you are not making
  efforts.
• A Model:
  The cash flow is sporadic, the system is dysfunctional and you need to put frenetic
  effort.
• Workable
  Model: Regular cash flow but with inefficient systems which require a lot
  of effort.
• Viable
  Model: A flowing cash flow with effective systems in place and you can delegate
  it.
• Optimal
  Model: There are high cash flows, efficient systems and leveraged efforts.

Business Model Failures

Business model failures come from one of these four things:

1. Extraneous:
   When what you’re providing is not valued by customers.
2. Erroneous:
   It’s when we’re in the wrong business for where we’re going.
3. External:
   Environmental changes can cause your business to fail.
4. Execution:
   Bad or sporadic execution is a reason behind business model failure.

— Begin Transcript —

Hey there, I’m Mel Abraham, the author of the number 1
best-selling book, The Entrepreneur’s Solution and the founder of Business
Breakthrough Academy, where we teach you how to design a business and create a
life: A life of financial freedom and
peace of mind.

And welcome back to this episode of The Entrepreneur’s
Solution show. This one really excited about because we’re going to talk about
or we’re going to begin talking about one of the most critical elements of
business and that’s your business model.
Many times when someone says, “What’s your business model?” they
automatically talk about how they make revenue, how do they make money and it
definitely is that but it’s much more than that. And this is the area that I
think is the result of most business failures because they’ve got the wrong
business model.

So, right after this brief introduction we’re going to come
back and we’re going to give you an idea of what happens with business models
and then in a later episode we’re going to talk about how to structure a
business model, the key elements of a business model. So, you can go out and
build your business and your business model in the correct way to have:

• Optimal growth,
• Optimal success, and
• Optimal profitability.

So, I’ll see you back here after this brief introduction and
then remember that every episode has a downloadable tool, template or worksheet
or guidebook. And in order to get that for this episode go to MelAbraham.com/session030.

And if you’re not at your computer or you’re out running or
you’re at the gym or you’re driving, go ahead and text. In that way, you’ll
have the link right on your phone when you get back to the computer. Just text
MYLEGACY one-word no-spaces to 38470, we’ll get that link to you right away.

So, I’ll see you right back here after this brief
introduction. See you soon. Bye.

Hey there, welcome back to this episode of The Entrepreneur’s
Solution show. I’m Mel Abraham the founder of Business Breakthrough Academy and
the author of the number 1 best-selling book, The Entrepreneur’s Solution. And
in this episode we’re going to talk about business models. Give you an idea of
some of the elements of business models and the things that will indicate
whether you’ve got the right business model or not. And then, in a later episode,
we’ll talk about the ingredients, the things that you need to design the proper
business model in this context.

Some people say,

Well what is a business model?
What does it take?
What happens with it?

And I think that most
of the great business successes and failures are successes and failures of
business models. And I think we need to think through this and with what’s
going on in today’s world and today’s economy; we see business model
modifications, business model innovations coming out regularly. You look at
things like just what seems to be inconsequential but it’s dramatic.

For instance: Gmail and what it’s doing to the US Postal
service or Netflix. In fact, Netflix was created by Reed Hastings back in 1997
because Reed rented a movie Apollo 13 and he got 40 dollars of late fees from
Blockbuster Video and he got so upset he decided, “I got to do
something.”

And so, he came up with this idea of Netflix and this was
before Netflix was streaming and it was sending of the DVDs and that type of
thing. But Netflix from 1997 to today has gone from inception to over 60
million subscribers.

Now did he really
modify or come up with new inventions and new creations?

And the answer is “No”. What he really did was he
took current capabilities, current capacities, current technologies and said,
“Let me put them together differently” to serve what was a perceived
need at least in his mind and that was to be able to do things with movies. To
have movies out without getting hit with a bunch of late fees and to give
access to it and serve the consumer at a higher level. And so, that’s where
Netflix came into play.

And they continue to grow now with their streaming service
and like I said, they’re over 60 million subscribers and we know what’s
happened to Blockbuster Video in that timeframe because Blockbuster Video:

• Refused to change their business model.
• They refused to move with the times.

They refused to look forward and say,

What’s happening?
What’s developing?
What can we do that’s different?

What can we do that takes into consideration:

• What our current consumers are?
• What our future consumers are?
• What the current technology is?
• Where the future is going?

And use that in a way:

• To serve their market space.
• To serve the people.
• To serve the needs of their constituents, of
  their consumers.

And that’s really what we’re here to do as entrepreneurs and
that’s to continually serve. And if we’re not coming from a place of service,
if we’re not looking at it from the perspective of our market, our consumers,
our customer saying,

• What are their unmet needs?
• What are the problems they’re looking to solve?
• What are the things that we can do?

And without putting the boundaries on, at least momentarily,
the boundaries of what’s been done in the past, how could we serve it at a
better level and that has been the death nail of Blockbuster. They wanted to
rest on their lorals. They wanted to say, “No we’re a bricks and mortar
store.” And they did not want to shift with the times. They did not want
to take into consideration new technologies, new ways to deliver service to
their current customer base and we see what’s happened with them. And Netflix
has overtaken them and now Redbox is out there and Blockbuster Video is no more,
for the most part in that context.

We see this in a lot of different industries. In fact, look
at what Apple has done with Tower Records; with the iTunes store and with
music, in that context. When iTunes, when Apple was able to negotiate the
ability to buy one song instead of a whole album in that process:

• It changed the dynamics of an industry.
• It changed the dynamics of how artists get their
  music out there.
• It changed the dynamics of how consumers were
  able to consume the music that they wanted.
• To get access to the music that they wanted.

We effectively have the ability to have all the albums,
everything we want right here on our phone or on our devices or on our
computers or on those types of things. And when you look around, you see things
like this all the time.

Wikipedia and Google, and how it had an impact on
encyclopedias. Look at Amazon and the impact on Borders Books or the bookstore
industry. So, when we look at business models, they’re constantly changing,
they’re constantly shifting. And it’s not just about revenues.

• It’s about the whole model.
• It’s about service.
• It’s about serving the consumer needs.
• It’s about serving the market needs.
• It’s about serving a lot of the needs of the
  people that we’re working with, the team that we work with.

So, what I want to do in this episode is really start to
talk about the business models and the concepts of business models so we can
understand why it’s important and what are the dynamics of that? And I’m going
to talk to you about this Business Model
Ladder that I have because in that process you’ll have a chance to look at
this ladder and say, “Gosh this is where I might be.”

And based upon where you are in this model, and in this
framework, it gives you an idea of where you need to focus and the things that
you need to do in doing that.  So, let’s
just start off with this concept and its understanding what gear you’re in.

The first thing is that most entrepreneurs that I see, not
most entrepreneurs, most starting out entrepreneurs, they get an idea. They don’t really have a business model,
they’ve never really thought about, they’ve never really looked at it and so
they just go out and start to do things.

But what happens in the process is they’ve got no business
model, there really is no value created to themselves or to the consumer and
it’s simply an idea. And in order to transition, to start to make money; in
order to do some of the things that are necessary to become a viable business,
the piece that we need to do is make a
decision.

We simply got to make a decision that we’re going to be
serious about. And when we make a decision, we then start to look for ways to
serve a community. And we create A Model.
It may not be the right model but we’ve created A Model. And when you create a
model,

I now know how I’m serving the consumer.
I know how I’m getting my product out there.
I know what channels and some connections that
I’m doing.
I know who the customers are, and
I’m doing stuff.

The challenge is that when you just grab on to any model. In
fact, some models you grab on to because they’re what’s been done in the past.
If you look at what Blockbuster did or look at even the industry that I came
out of, the CPA industry. The concept of swapping hours for dollars, it’s an
antiquated concept. The timesheet was created in 1990. Things have changed
since 1990 and our industry, the industry most of my colleagues in the CPA
world haven’t changed along with it.

And so, they’ve got a model that doesn’t serve. It doesn’t
serve, it doesn’t support, it doesn’t allow them to create a good life for
themselves as well as take good care of their clients in a way that is most
appropriate but they’ve got a model. And you’ve got a model, the question is
that,

How did you take on that model?
Where did it come from?

And most cases what you’ve done is you’ve elevated yourself
slightly from an idea to what I would call is a hobby. And until we really get
serious about it, in Define which is
the next transition point. And define the things that are really important in
our business model, we can’t cross what I call the Money Line.

So, what this is really about at this stage is being
extremely intentional about:

• Who you’re going to serve?
• How you’re going to serve them?
• With what you’re going to serve them with?

In a way:

• That it creates revenue.
• That it creates cash flow.
• That it creates profits.
• That it creates value that is what I call holistic
  value.

So from A Model you get what’s called a Workable Model and when you get a workable model, all of a sudden,
now you’re working it. I mean you’ve got to put a lot of work in but now all of
a sudden cash is coming in. You’ve got things working in a way that you can
say, “Yeah, you know?”

This might be a good idea.
This might have some legs.
This might have some room to run, if you will.

The key here is that when I get to the stage where it starts
to prove itself out, I now need to Refine
them. I need to get rid of the things that aren’t working and I need to bring
on more things that do work. I need to elevate the things that are working. And
I need to start picking things apart and when I do that I elevate myself to the
next level of model which is what I call the Viable Model.

Now things are flowing and now we’re looking at it and we
start to grow and we start to scale and what we need to do now is now further
refine which is what I call Elaborate.
Really elaborate on those elements that are really the key value drivers:

• To our customers,
• To our team, and
• To ourselves.

> Until we find ourselves in a place where this is the
ultimate goal.

Where we’re in what I call the Optimal Business Model. When we’re in the optimal business model,
we are at a stage that:

• We know who we’re serving.
• We know why we’re serving them.
• We know how we’re serving them.
• We know what we’re serving them with.

We’re creating value that is value that is perceived as high
value in our consumers’ eyes, in our market’s eyes, in the people that surround
our business. This is really the key behind all of it.

Now some people say. “Well, how do I know, how do I
know that where am I on this ladder?” And so the way to figure it out in
some cases is to look at the symptoms. It’s not a whole lot different than
going to the doctor. They check your symptoms, they check your temperature,
they check your bloodwork, they check your symptoms and try to figure out the
cause of those symptoms and this is the same thing.

If I have no model, what you’re going to find is that:

• Your cash flow is typically negative,
• You’re going to find that you have really no
  systems, and
• You’re not making a whole lot of efforts.

So I mean, this, if you identify all those things and I’m
not criticizing you in any way, shape or form. I’m just, it’s to create
awareness and when we create awareness, we can then make some shifts and
changes to start to move in a direction that’s more appropriate or more
desirable depending on what you want to do.

Remember, this isn’t about me telling you what’s right and
wrong. It’s about you living intentionally by defining what it is that you want
with your life, with your business and being intentional about it. So, if you
find that you’ve got negative cash flow, no systems, really no efforts then
you’re still dealing at that idea stage—you have no business model.

At the next stage, you start to see that we have sporadic cash flow. And may be, you’re
doing some t-shirts and one or two t-shirt sales come in and friends are buying
for them. So, you are getting some cash flow but it’s sporadic and from a
system’s standpoint it’s really dysfunctional. Every time you got to do an
order, you’re on the phone, you’re doing it, you’ve got no real systems in
place and the effort that you need to put
in at that point is really frenetic.

And so, if you identify with those things and may be you’re
sitting down at this level of what I call A Model but not a workable, viable or
optimal model which we need to cross the money line and move beyond that.

When we cross the
money line and we get to that workable model what starts to happen?

We start to see that the business starts to have regular
cash flow. We have regular systems although many times those systems are
inefficient and we are working. Now putting in a lot of hours and we’re putting
in a lot of work, we’re putting in a lot of effort. So, we may see and I know a
lot of entrepreneurs that are at that stage and so what we need to do is start
to refine—remember the keyword here is to refine the business model— so we can
move to a more viable business model or the optimal business model, if that
makes sense.

And when we do that, now all of a sudden the cash flow is flowing. You’ve got effective systems in place and now you’re
able to delegate the effort out to
other people that starts to relieve you a bit from the business. And I know I’m
throwing a lot at you but I think it’s important for you to try and understand
the dynamics of this.

And at the same time, it may be helpful for you to make sure
that you download the guidebook on this so you have this graphic in front of
you and you can actually see it pictorially because I’m throwing a lot of terms
and things at you.

Now, once we have a viable business model we’ve got cash
flow that’s flowing, we’ve got effective systems in place and we’re able to
start delegating the work. We can now elaborate some of the systems, processes
and the business model that we’re creating. Now all of a sudden we get
ourselves to what I call the Optimal Business
Model.

And the optimal business model allows us to have:

• High cash flows,
• Efficient systems, and
• Leveraged efforts.

And what I mean by leveraged effort is that, at this point
if I step away from a business and it continues to run, it doesn’t decline
because I’m not there, I’ve got leveraged effort.

This is what we want to do. If we are to create a business
that’s going:

• To give us life,
• To give us a future that we want,
• To give us value.

Then it is important to start to find what is that optimal
business model, design it with intent, design it with intentiality so we create
something in the vision of what it is we want. And so the whole purpose of this
episode was really to try and open up your awareness of understanding:

• Where you might be in your business and what you
  might need to do?
• Whether you need to focus on making decisions?
• Whether you need to focus on defining the
  business model?
• Whether you need to focus on refining your
  business model?

Whether you need to focus on elaborating a certain systems
and processes that are in place to allow you to start delegating more until you
can amplify everything and be in a leveraged position with:

• High cash
• Efficient systems, and
• Leveraged effort.

That’s really the key. And to give you an idea of how
important this is, I was reading, I was going through the internet a while back
and looking at businesses and I went to this one business that I’d gone to
before and lo and behold, I’m looking at their website and they’ve shut the
business down. And they shut the business down for business model reason.

And here’s what they posted on their website. This is called
SpeakerMix and says, “SpeakerMix will be shutting down on December 31^st,
2012. In short, we were unable to find a viable business model that made sense.

Most business models,
most business failures are failures of business models and most business model
failures come from 1 of 4 things:

1 is that there is some, that it’s Extraneous. That the, what you’re providing, what you’re creating
is extraneous. In other words, it’s not valued by the customer. It’s considered
trivial by the customer.

The second is that it’s Erroneous.
It’s the wrong business model. We just are in the wrong business for where
we’re going. Look at Blockbuster video in the sense that as things shifted they
didn’t shift with it. They had the wrong business model in place.

The third is External.
There is some environmental change or shift or timing issues. Things like
legislative change, technological change. Those kinds of things can affect your
business model and cause it to fail also.

Then the last and I would tell you that this is probably one
of the biggest reasons business models fail and that is Execution. And it’s bad execution, sporadic execution, not
disciplined execution, not an execution loop where we’re executing, getting
feedback, changing, shifting and moving. This is a dynamic process that is not
a set it and leave it. This is something that we need to continually work on.

And so, the key to your success is getting yourself to a
place where:

• You’ve got a viable or optimal business model.
• That you’re moving yourself up that line.

That you’re considering that the services in those types of
things in the process:

• How you’re serving your community.
• How you’re serving your marketplace.
• The needs that are being served.
• The problems that are being solved.
• The way you relate to them.
• The way you communicate with them.
• The connection that you have.

We’re going to go a little bit deeper into that in the next
episode when we start to break down, “Well what is truly a business model”
and take you deeper into that. This really, this episode was solely to try and
bring the awareness and to what it is that you’re looking at.

So, in the process, it’s really about coming back into this
position to understand what their business model is and we’ll give you more
information in the next session. So, I hope that this raised you awareness as
to:

• What business models are?
• Where you might be in that business model ladder?
• Why it’s important that you have the right
  business model?
• What are the symptoms or the indicators that may
  be you’re in the wrong place right now?
• The ability to change it and how to change it?

And what I would, I ask you to do is again, get the
guidebook. It will start helping you bring this together and we’ll use it in
the next segment also, but by going to MelAbraham.com/session030. If
you’re not at your computer, you can text MYLEGACY one-word to 38470.

And do me a favor if you would. Share this with a friend.
Those that are out there trying to boot a business together, thinking about
putting a business together, may be they’ve stagnated or they plateaued and
they’re trying to figure things out—business model may be the key. Share it
with a friend. Let’s give them the gift of some of the tools, the templates,
the tactics and the strategies that you’re getting to elevate them.

And if you haven’t done so already, make sure you subscribe
so you can get my regular training and this is my way of being your
entrepreneurial mentor through the process. To give you access to the things
that we’re doing and we continue to do in this place.

I am a champion of the entrepreneurial way of life and I see
it as the vehicle to shift and change the things that we’re doing in society.
To give us a life that is a life by our own design and if I have even an
inkling, even a minor little possibility of helping you in that process, I feel
blessed, I feel honored and I feel like I’m doing what I was here to do. And
taking those decades and decades of experience and background as an
entrepreneur and as a consultant, and providing you some tools to move you to
the next level.

So, hope you find that of value. Remember to get the
guidebook. Subscribe, share it with a friend. See you soon in the next episode.
Until we see each other in the next episode,

May your vision be
grand, your journey epic and your legacy significant!

Cheers. See you on
the other side. Bye!!

— End Transcript —

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Like this? Please share it and help a few
more people bring their dreams out of the darkness and give life to them
again.  Cheers, Mel

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