Does your business model require a makeover?

Photo Credit: Wikicommons

Photo Credit: Wikicommons

On a Friday evening in December we went to listen to an opera at the Roodepoort, Theatre. The main draw card was South Africa’s top tenor Stephan Louw. If you’re not interested in opera don’t worry because the fascinating part of this opera was the business model.

Opera audiences in South Africa aren’t big and running an opera in a small theatre such as the Roodepoort Theatre was probably the right size venue because even though we were to watch and listen to a top tenor, the theatre was about half full.

The opera was a mini version in that it’s included a tenor and sopranos, a narrator and pianist This small team of performers is far less than you would have in a European opera, where you would have a 64-piece orchestra and a choir. But the local opera that we saw was just about economically viable because of the small operatic team.

Afterwards, we heard from Stephane Louw himself that to run an opera with a full orchestra and choir would cost something in the region of R500,000 per night. Such expenses can’t be covered by ticket sales alone; you require sponsorship.

What is a business model? Some experts see a business model as a representation or way of how a business makes money. It shouldn’t be confused with a revenue model which is really the way that you charge customers and can include straight cash, a service fee or subscription and so on.

Business models are important because small businesses need to find new and innovative business models to compete not only against increased competition but also determine how to attract customers when costs have become astronomical such as the example of the opera production.

Take a look at the airlines. If you do any travelling, you will have found that the price of airline tickets has become far out of the reach of the ordinary person. People would rather choose some alternative even though those are expensive too such as car travel with the rocketing fuel price, fuel taxes and toll fees.

The runaway costs of airline tickets has enabled a sharp low-cost airline to enter, cut the frills and offer customers a new value proposition. This includes pricing airline tickets according to demand which basically means that if you get in when demand is low, you can secure a lower-priced airline ticket. As demand increases, so does the price of the airline ticket. I heard recently that the airline even asks customers to tidy up their seat places before landing which helps to minimise the costs involved in cleaning and service staff.

Business model innovation might seem far off for the small business owner but just take a look at what’s happening in the restaurant market. Prices of basic meals in restaurants are rising above the R100 mark rapidly. How are restaurant owners dealing with this?

If you’ve been to a restaurant lately, you will notice that the frills are being cut away. Some restaurants offer you your protein meal with one starch and a vegetables or salad, which they call a side order, is priced separately. Restaurant owners have had to do this as the costs of labour has risen as has energy such as electricity and fuel as well as rentals.

Those restaurants who have not bothered to change their business model with meals and have merely jacked up their prices have turned away customers. The sharp restaurant owners who have changed their business model have to turn customers away because they are so booked up.

Business model innovation is covered in “Breakthrough Ideas”, a resource that is available for the person who wants to start something from scratch from a mere idea or concept and will also be of value to the existing business owner who needs to innovate. Go to the “Books” section on this website for further details.

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By Chesney on March 11, 2016 · Posted in Main Content

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