3 Steps To An Irresistible Business Model

Larry Myler
Entrepreneurs
I write about B2B sales strategies.

A business model describes the rationale of how an organization creates, delivers, and
captures value…The process of business model construction is part of business strategy.

-Wikipedia

I would disagree somewhat with the second sentence of the above definition because your
business model is not just a part of business strategy; it is the heart of it. For that reason, we
should closely examine the three components mentioned in the first sentence of the
definition—how to create, deliver and capture value.

1. Value Creation. Value can be created in two ways: First, by producing an offering (a good
or service) that is worth more to customers than its cost to produce; and second, by preventing
the production of an offering that is worth less to the market than its production cost. Clearly,
expending more to produce something than its market price destroys value. Value must be
created and delivered to customers before any of it becomes available for capture by your
company. Value creation is the “buy low” part of the old adage, “buy low, and sell high.”

2. Value Delivery. This phrase is a bit of a misnomer because it implies that all you need to
do is be willing and able to deliver something to be successful. If we take a more customer-
centric view, we will realize that value is less “delivered” by you, and more “accepted” by
your customers. The ultimate decision to do the deal always lies with the customer.
Customers are willing to accept and use your value because of their awareness of your
company (nurtured by your marketing message), their belief that your offering will solve a
business problem (reinforced by your sales approach), and their expectation of improved
operations (made credible by your customer service practices). If you can provide effective
marketing, sales and support, then you will inevitably be asked to transfer more value to an
ever-expanding number of willing customers.

3. Value Capture. This is the stage at which your organization gets paid. The question is,
how much of the total value should you take? Simple math dictates that you would get
whatever amount is left after subtracting your costs of value creation and delivery from the
offering’s sales price. But it’s never that simple because of other considerations; such as,
your competitors’ pricing, the amount of surprise-and-delight you are trying to create for
your customers, and your longer-term market strategy—just to name a few. For example, you
could divide some of the excess value (above and beyond a reasonable profit margin for you)
with your customers so that their value-capture opportunity exceeds expectations.

Business Case

Optimal IdM won “best in show” in the cloud-computing category at Microsoft’s TechEd
North America 2013 Conference. That accomplishment speaks to their technical competence.
I want to analyze their ability to create, deliver and capture value. As you will see, they have
one sweet business model. What can we learn from their success?

Value creation: Optimal IdM solves the massive problem of employees having to remember
multiple user names and passwords for all of the applications they use at work, by
“brokering” login authentication through their software in a seamless way (an over-
simplification of their offerings). This results in a completely secure system for users to
access multiple applications…with one user name and one password. Security is maintained
while time and hassle are reduced. This translates into peace of mind and more productive
employees for client companies. Customers are willing to pay more for this product than the
cost of production. Lots of value being created here.

Value Delivery: Optimal IdM’s execution of marketing, sales and support is both efficient
and effective. Their efficiency comes from fulfilling all of these functions over the Internet,
with very little time lost in travel. Effectiveness is evidenced by their hit rate in converting
prospects into paying customers, and paying customers into raving fans. Those conversion
rates are sky-high. Their methods of delivering value are flawless and fast, but they remain
unsatisfied with current performance. “We listen to our customers whenever they have a
suggestion about how we can improve the value we give,” says Mike Brengs, co-founder,
co-owner, and Director of Sales. “All product features and operational practices have come
from the people who make the decision to buy our products.”

Value Capture: Because Optimal IdM performs exceptionally well in the areas of value
creation and delivery, they are able to enjoy a healthy profit margin. This is in addition to
giving customers an opportunity to capture some of the value as well, by offering a
substantial number of user licenses for free as a part of most enterprise sales. When value is
properly and plentifully created and delivered, there will always be enough to go around.
Generous distribution of captured value can become one of your best strategies for keeping
your competition at bay.

How can you know when you’ve got an irresistible business model? Track your customer
retention. When asked if they have strong year-to-year renewal rates, Mike Brengs told me,
“We did have one customer leave us about four years ago, but that’s the only one I can
remember.” Enough said.

Do you know of entrepreneurs who have exhibited a crucial characteristic necessary for
success? I’d like to write about them. Contact me directly at lmyler@bymonday.com

Larry Myler

Founder and CEO of By Monday, Inc., a consulting firm that accelerates B2B sales revenue
through strategic alignment and innovation. I previously worked as president of… Read More