why your business model is in trouble(and what you can do about it)

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businesses and franchises

Why your business model could be in trouble(and what you can do about it)

You may have set your business up using a tried and true business model—but the trouble is, in today’s fast-changing business environment, what’s tried and true one year may be tiredor irrelevant the next.

Not surprisingly, bad business models are the No. 1 cause of the failure of Australian businesses.*

Should you be concerned? Perhaps ‘vigilant’ and ‘prepared’ are more appropriate.

That‘s where we at No Ordinary Businesses and Franchises can help.Recognising the need for a simple yet powerful framework for assess-ing the relevance of your current business model, and identifying fresh new business models where required, we have not only devel-oped our own exclusive No Ordinary Business Model Canvas, but also three new services for those looking to start a new business or give their current business a new lease of life.

Contents One-page Executive Summary for busy people 2

3 ways to tell if your business model is in trouble 3

Why do some businesses grow so much faster than their competitors? 6

Why your business plan is not your business model (and why it matters) 10

A new framework for business model generation 12

Announcing the No Ordinary Business Model Canvas, a �ex- ible and practical tool developed exclusively by us to meet the needs of speci�c industries, plus three new services designed for each stage of the business model development process 15

Don't have time to read a 20-page report? Turn over for a one-page Executive Summary.

Executive Summary

What is a business model?

A business model describes how your company creates, delivers and captures value

Because a business model is about a business’s core strategy, it is quite di�erent from a business plan, which describes how a strategy will be executed

Most business owners don’t know the di�erence between a business model and a business plan, and don’t realise that preparing a business plan without �rst developing a robust business model is e�ectively setting your business adrift

As a result, poor business models are the No. 1 cause of business failure, in larger as well as small �rms

How can I develop a more robust business model?

Much thinking has gone into this question over recent years, but

recently a group of strategists have consolidated the di�erent theories and proposed a standard Business Model Canvas

Because this Business Model Canvas is such a simple yet powerful tool for systematically understanding, designing and implement ing new business models, or analysing and revitalising old ones—all on one page—it has been widely accepted by both academics and business people, and is now used by thousands of �rms throughout the world

Although the Business Model Canvas is designed to be applied to any business type, it can also be used as a platform for developing specialised Canvases for the special needs of industries such as franchising, services and e-commerce.

Because of this, we at No Ordinary Business Consultants developed the Business Model Canvas into a far more �exible and practical tool for speci�c industries such as franchising, retail and e-commerce.

See page 15 to preview our Busi-ness Model Canvas for Franchisors

Why it’s wrong NOT to be concerned about your business model

A business model describes how your company creates, delivers and captures value.

Here’s an example of how it works. For many years, I was a serial gym member. I was sucked in by o�ers of three free months’ membership if you joined for a year, or low weekly automatic payments that cleverly disguised the exorbitant annual total. The o�ers were usually made by wil-lowy young women wearing t-shirts and track pants two or three sizes too small for them. I looked at them and then looked at myself, and thought, “I have seriously got to get in shape.” Invariably I joined on the spot, only to �nd when I went along to the gym that it wasn’t open or if it was, there were three hundred people waiting to use the rowing machine I wanted to use. My record was six visits to the gym over the course of an annual membership. When I �nally did the maths and worked out that this was costing me over $200 per visit, I gave up on gyms altogether and resigned myself that my shape was always going to be out-of-shape. Until a new kind of gym opened nearby that o�ered no contracts, genuinely low fees, 24/7 access and worldwide coverage. I was hooked. I may even go there one day.

The fact that Anytime, Jetts and other chains of these new kinds of gyms are popping up everywhere while the “traditional” gyms seem to be fading away indicates that the new gyms’ business model is shaking up the industry. That is, it’s a “disruptive” model which is creating, delivering and capturing value in ways that no one had thought of before.

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With new and disruptive business models popping up as frequently as new gyms, in industries you’d never expect them to, it has become essential for all business owners to con-stantly ask themselves, “Is my business model in trouble?”

3 ways to tell if your business model is in trouble

There are always early symptoms that a business model is in trouble, but theyusually get ignored or dismissed.Why? Because the people at the top of most companies got there because of their success with the current business model, so why question its endurance?

Our experience with this is supported by recently published �ndings of Professor Rita Gunther McGrath of Columbia Business School, who says that owners of struggling businesses initially go into denial mode, followed by desperation as they try to squeeze the last drops of pro�tability out of the existing model. The result is that change only happens when it’s too late, and when the change is considerably more painful than it needed to be.

1. When any new improvements you make to your business model make less and less di�erence to the business’s performance, and you and your team have more and more trouble coming up with new ways to improve your o�ering

2. When your customers start asking for more from what you have been o�ering them and ask about alternatives

3. When your business’s performance starts to falter, usually in ways that are so gradual you’re probably put- ting them down to the sales cycle or economic climate

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There are three ways to tell if your business model is in trouble:

Read about five businesses which turned their busi-ness models around ... with amazingresults

5 businesses that have had to change their business models to survive

Disruptive business models have been around for a long time. Who would have thought that the US railroad moguls of the 1800s, who became immensely wealthy, would be ruined by the burgeoning road transport industry in the 1900s? And who would have thought twenty years ago that the postal arm of most of the world’s postal services would be struggling today?

What the railroad moguls should have done, as any Marketing 101 student knows from the famous Marketing Myopia article which seems to be required reading in every university in the �rst week of the course, was to take a broader perspective on the market they were in. The railroad moguls shouldn’t have assumed they were only in the railroad industry rather than the transportation industry.

To their credit, many postal services such as NZ Post have now taken a broad perspective, seeing themselves in the delivery and communi-cations industry. They’ve not only diversi�ed into the courier busi-ness (the delivery market rather than just the postal market) but also leveraged their branch network into retail banking. Smart. In 2011, they even took on an Innovation and Strategy GM. You can spot him straight away in the executive team photos on their website because he’s the only one wearing a t-shirt instead of a tie.

Even some of the world’s most prominent high-tech businesses wouldn’t be where they are today if they hadn’t flipped the whole business model they started with, often several times, over very short periods.

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Believe it or not, Google started with no business model at all. After trying out all sorts of ideas, most of which were unpro-�table, they hit on the simple idea of allowing businesses to advertise to people using their search engine. Hey presto, Adwords was born, last year earning a staggering USD$42.5 billion in revenue, about one-quarter of New Zealand’s total GDP for 2012.

Apple was struggling in 1997 when, in an act of desperation, they brought Steve Jobs back. Jobs refocused the company on doing what it does best, creating beautiful consumer elec-tronics and serving the graphics, video editing and digital production markets. The rest is history.

Technology companies aren’t the only ones which need to change their business models to survive. Like department stores throughout the world, New Zealand’s Farmers Trading Company has morphed several times during the last thirty years to cope with completion from shopping malls and power retail centres, taking an “if you can’t beat ‘em, join ‘em” approach by going into the shopping malls and power centres.

Franchising businesses have often been slower to change because, unlike man-aged businesses, they �rst need to ob-tain the buy-in of franchisees. McDonald’s was able to leverage their strong relationship with franchisees to make substantial and expensive changes to their menus and store for-mats in the noughties. This was a return to form for McDonald’s which, after all, was founded on three disruptive business models— fast food, franchising and property leasing.

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Why do some businesses grow so much faster than their competitors, even when there doesn’t seem to be much difference between them?

Seen in a ‘Businesses for Sale’ ad in a newspaper in Brisbane:

2012 Adjusted Business Earnings—$308,453 Strong regular reliable cash �ow and steady stream of new clien tele with limited marketing Top Brisbane location with secure long term lease, great street appeal and very high visibility. Low owner involvement with virtually no stock, working capital, few sta�, and limited customer interaction. Proven business model with all systems and operations well established.

Here’s how the ad ends:

Price: $1,100,000 PLUS $3,000 STOCK

The perfect business comes with a hefty price tag. We don’t know if it sold for that price. But we do know that it was a Jetts Fitness franchise and that, according to Jetts, their aver-age gym set up costs around $500,000. So as long as the owner got more than $1 million, he or she doubled his or her money.

And he or she didn’t have to slave to build up the business like many business people. Jetts reckon their franchisees only need to invest around �ve to ten hours of their time per week if they employ just one sta� member working 38 hours per week.

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Could this be the

perfect business?

And is it any wonder

that the franchise

that this business

is part of is one of

the fastest growing

in Australia and New

Zealand?

No wonder so many of their franchisees end up buying multiple franchises. That’s a big part of the secret of the franchise’s phenom-enal growth since it started in 2007, growth that has seen it establish more than 150 franchises.

But Jetts was a little slow o� themark in Australia. Founders Brendon and Cristy Levenson opened their �rst gym in 2007 and sold their �rst franchise in 2008, about the same time as Anytime Fitness entered the Australian market. The Jetts bus-iness model was much the same as the disruptive business model that Anytime had pioneered in the United States in 2002. No contracts, low weekly fees, 24/7 accessibil-ity. But Anytime was already well established and, presumably, better funded. To date, they have sold around one hundred more franchises than Jetts in Australasia.

Where Jetts got the jump on Anytime was in the New Zealand market. Anytime’s master franchisee for Australasia focused on the Australian market �rst, while Jetts jumped the ditch sooner. Jetts now has 44 franchises in New Zealand to Anytime’s 11. But Anytime recently sold the New Zealand-only master franchise, so the race is on.

The Jetts business model was much the same as the disruptive business model that Anytime had pioneered in the United States in 2002.

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Why copy cat businesses have local advantages over the real thing

It may not be true in the Olympics or sport, but in business, sometimes it's better to be the second or third cab o� the rank. Especially with disruptive new business models. And by spotting new business models as they prove themselves in the United States or Europe, where they usually originate,

quick-acting New Zealand and Australian opportunists can make the big time o� the back of o�shore success stories.

The classic local-boy-made-good story in New Zealand, of course, is Sir Stephen Tindall of The Warehouse. I can remember wandering into his �rst store in Takapuna and my �rst thought was: Who's going to buy all this junk? But I answered my own question when I ended by buying a broom for around half of what I would have paid at the hardware store down the road. Thirty years later The Warehouse is a national institution, proving that the disruptive new business model pioneered by Sam Walton of Walmart in the United States more than forty years ago works as well here as it does in the United States and other parts of the world.

How well would Walmart now go if they set up in competition to The Warehouse in New Zealand, or KMart in Australia? Are the Australian and New Zealand markets too small and remote for them? Or is the fact that KMart and The Warehouse are so well-established a disincentive to them?

The fact is that Walmart hasn't generally been as successful o�shore as inside the United States, with the exception of the United King-dom, South America and China. They actually pulled out of Germany

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and South Korea. And they’ve never set foot in Australia, something The Warehouse should have taken note of before making its unsuc-cessful foray into Australia a few years back.

There seem to be two main reasons for Walmart’s mixed reception: local resis-tance in some countries to one-busi-ness-model-�ts-all concepts, and sti� local competition, often from opera-tors such as Aldi in Germany, with sim-ilar business models.

The trick to successful new business model adoption—which may be viewed by some as piracy, but how do you patent or copyright a business model?—seems to be to wait until the model is proven by someone else overseas, then quickly adapt it to the local market and expand rapidly to grab as much market share as possible before the model’s originators expand as far as our fair shores.

Jetts Fitness is not the only early model adopter which has used franchising to achieve rapid expansion—another is Zambrero, a fast-growing fast-casual Mexican food franchise based, like Jetts, in Australia. Zambrero’s store format, menu, commitment to fresh organic ingredients and concern for the community is very like that of Chipotle Mexican Grill, a fast-casual concept (albeit non-franchised) in the United States whose growth has been described by Forbes magazine as “the envy of the restaurant industry”.

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Do you know your business plan is not the same as your business model?

Why your business plan is not your business model (and why it matters)

Here’s where 99% of business owners get confused. They’ve been taught that the tool for developing strategy in their businesses is a business plan.

Not so. Without �rst developing a relevant business model, putting together a business plan is like setting your business adrift. Without a business model, no amount of written visions, missions, goals and action plans will get your business to where you want it to go.

What’s the difference between a business model and a business plan?

A business model describes how your company creates, delivers and captures value. That’s the very essence of business. How well your company does it spells the di�erence between success and failure— and degrees of success. For that reason, a business model has to be responsive to what you �nd in the real world outside your o�ce by talking to customers. It’s dynamic, and it requires you to be agile and continually challenging your assumptions.

On the other side of the coin, a business plan is about execution, taking action. It’s about agreeing and aligning the business’s visions, goals and action plans. There’s nothing wrong with that, but the trouble is that business owners tend to treat a business plan, once written, as the culmination of everything they know and believe.

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How do you develop the ideal business model?

Step One:

Ask the tough questions. These questions are known as ‘the strategic �ve’ and as you can see, they go to the very heart of the business:

Step Two:

Put processes in place in your business which cause you to challenge the existing assumptions in your business model.

Step Three:

Put together a team with a wide range of skills and backgrounds from key areas within your business—IT, marketing, �nance and operations—and people from outside your business who can provide a fresh perspective. The job of this team is to develop hypo-theses about the areas where your �rm should experiment.

Step Four:

Start experimenting—developing and trying out prototypes on a small scale to see what works and what doesn’t before committing the business to larger scale and longer term innovation.

Step Five:

Go back to Step One— business model evolution is a continuing process.

1. What business or businesses should you be in?2. How do you add value to your businesses?3. Who are the target customers for your businesses?4. What are your value propositions to those target customers?5. What capabilities are essential to adding value to your businesses and differentiating their value propositions?

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Now there’s a new tool for assessing, designing and applying business models

It’s all very well to understand the importance of business models to modern commerce, and to understand the di�er-ence between a business model and a business plan. But what use is all that without the tools necessary for designing, docu-menting, reinventing and implementing business models?

Over the years, a range of tools have been devised, but it wasn’t until the publication of a new book, Business Model Generation—itself developed from a completely new business model—that a single business model generation tool began to receive wide acceptance.

The Business Model Canvas proposed by the authors, strategists Alexander Osterwalder and Yves Pigneurat, is a surprisingly simple but powerful tool for systematically understanding, designing and implementing new business models—or analysing and revitalising old ones. All on one page.

Although the Business Model Canvas is designed to be applied to any business type, it can also be used as a platform for developing specialised Canvases for the special needs of industries such as franchising.

And that’s exactly what we’ve done.

“Disruptive new business models are emblematic of our generation. Yet they remain poorly understood, even as they transform competitive landscapes across industries.

Business Model Generation, A. Osterwalder and Y. Pigneurat

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Why we've developed the No Ordinary Business Model Canvas for specifi industries such as franchising

Example: Why franchising is differentFranchising was a disruptive new business model in the 1950s and although it is still one of the most successful business models of all time, today it is having to adapt to meet the challenge of new disrup-tive business models, particularly e-commerce and other online models. Many franchise businesses have already demonstrated that rather than posing a threat, the new models can complement and strengthen their existing business models.

But others are struggling. For example, one third of the franchisors surveyed in the 2013 New Zealand Franchising Con�dence Index Report they were experiencing “business model related issues”, making that their second greatest challenge for 2013.

Franchisors are unique because they have two customers—their franchisees, who are also their channel to market, and their fran-chisees’ customers, the end users of the businesses‘ products and services. One of their greatest challenges is how to create value for both their franchisees and their end users, and still have something in the business for themselves.

The other challenges for franchisors lie in the underlying characteris-tics common to all world-class franchises. One: the need for strategic health, bridging the gap between the franchisor and the end users so that franchisors understand the franchisees’ customers as well as the franchisees do. And two: strong organisational culture, adding vibrancy and enthusiasm to franchisor-franchisee relationships.

We came up not only with an exclusive Business Model Canvas for Franchisors that we believe is the �rst of its kind in the world, but also a range of specialist Business Model assessment and generation services to meet the needs of franchise organisations everywhere.

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Because these challenges are unique to franchising, we identi-fied a need amongst our franchise clients and the wider franchise market for a Business Model Canvas that met the special needs of franchisors.

Announcing the first Business Model Canvas for the Franchising Industry

The No Ordinary Business Model Canvas for Franchisors

How it's different from other BMCs:

1. Acknowledges the uniqueness and complexity of franchising

2. Re�ects the unique needs and challenges of franchisors, including the fact that franchisors have TWO customers—their franchisees, and their franchisees' customers

3. Builds on the underlying characteristics of all best-practice franchises - strategic health and strong organisational culture

Key Partners

Costs

Key Activities

Key Resources

Value Proposition

Customer Relationships

Customers

Revenue

Franchise & Other Channels

Because franchisors have TWOcustomers, not just one, each of the No Ordinary Business ModelCanvas's 9 "building blocks" hasTWO levels - franchisees, and franchisees' customers

How can franchisors bridge the gap between themselves and their franchisees' customers?

How can the TWO levels of rela-tionships with Key Partners andSuppliers - national or regional(franchisor) and local (franchisees)- be best managed?

What channels other thanfranchising are available? Is there any conflict of interest?How can new business models such as e-commerce be inte-grated so as to benefit ratherthan disadvantage franchisees?

How does the franchisor make money? How does the franchisee?What is the ideal balance?

What is the franchisees'part in the Key Activitiesand Resources? Whattools and resources willthe franchisor requirein order to support thefranchisees?

How do franchise channelcosts compare with otherchannel costs? Whateconomies of scale and groupbuying power can the beutilised to bring costs down?

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Introducing three new services for those looking to start a new business or give their current business a new lease of life

Every business owner recognises the importance of working on the business, not in it, but that’s easier said than done. Especially when the business owner and his or her team has had a stake in develop-ing the current business model. Challenging the status quo can be seen as career threatening.

That’s why strategy experts advocate getting help with the business model review and innovation process, a third party who truly o�ers a “fresh pair of eyes” and the expertise to guide the team through the process.

Because of our knowledge and experience in this �eld, we have introduced three new services designed to meet the di�erent busi-ness modelling needs of our clients:

Thinking about starting a new business but not sure how the business model stacks up? Or concerned about the robustness of the business model in your current business? B Model Assess provides you with an inde-pendent analysis and reality check.

Designed speci�cally for start ups and new business units, B Model Design utilises a variety of strategies and techniques— including environmental scanning, customer insights and market research - to come up with innovative business model options and prepare them for prototyping

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It’s one thing to identify promising new business models, but quite another to obtain the necessary buy-in from your people, teams, partners and stakeholders, and imple-ment them in your business. But B Model Shift is not just about change management, it’s about developing a whole new culture of innovation within your organisation to ensure your business model remains fresh and relevant in the long term.

Who are we and how we can benefit you In thirty exciting years, Robin La Pere of No Ordinary Business and Franchise Consultants has been at the forefront of tremendous innovation and change across industries as diverse as banking, FMCG,retail and construction. He has combined his wealth of experience as a senior corporate executive, franchise director, business owner and consultant together with the latest think-ing on business model generation to meet the changing needs of modern businesses by producing exclusive versions of the Business Model Canvas for speci�c industries such as franchising, retailand e-commerce.

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Why we broke the mould for business and franchise consulting firmsArguably the biggest risk you can take in business today is to be “ordinary”. As the name implies, No Ordinary Business and Franchise Consultants was founded by Robin La Pere to be anything but ordinary. We believe that by being “not ordinary” ourselves, we can help our clients truly think outside the box and achieve extra- ordinary results.

What puts us in a league of our own?

1. We have developed exclusive tools that will help to unlock a more relevant and sustainable business model for you.

2. We’re renaissance people, meaning we can provide you with a wide range of services to meet your exact needs, whether they be the need for a better business model , business plan, or marketing strategy. Because of this, we’re seen as a trusted long-term busi- ness partner by many of our clients.

3. We’re so con�dent that we will add extraordinary value to your business that we’re prepared to make an o�er no other consul- tancy ever would - that is, to pay us only what you think we’re worth. See our website for more details. Why work with a New Zealand based consultant?That’s obvious if you’re a New Zealand-based franchise. But if you’re Australian-based, here are four great reasons to work with us:

1. We’ll bill you in New Zealand dollars, not Australian dollars. Thanks to the currency exchange di�erence, you’ll save 20%.

2. We speak the same language, share a similar culture, laws, heritage and, if you live in Tasmania, climate.

3. We’re only three hours’ �ying time away, closer than Perth if you happen to live in Sydney, and only a little further than a Brisbane to Melbourne �ight

4. Robin La Pere’s mother was born and raised in NSW. That makes him half-Australian.

Our other services for franchisors and other business owners

Strategy review, development and implementation Business planning Benchmarking and Best Practice Innovation and design strategy

Franchise feasibility, development and implementation Franchise system performance reviews and reengineering Intranets and documentation Franchise recruitment and selection strategy Franchisee development and training programmes

Marketing strategy, planning and development Market and competitive research and intelligence Online and o�ine strategies and campaigns Trade show and event management

Contact details Robin La Pere, DirectorNo Ordinary Company LimitedTel + 64 9 3606063Mob + 64 27 4487881Email robin@noordinary.co.nzWeb www.noordinary.co.nz

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