Entrepreneurs are creative people so it’s not surprising that most are tempted to throw everything AND the kitchen sink into their business model. The trouble with ‘adding in’ is each addition adds a level of complexity to your business. More moving parts means more potential risk.
Let me explain. Imagine you have a yoga studio. On it’s own, it’s a simple enough business model. You leverage your time by teaching students in a group environment. Now imagine you decide to add a few things. Let’s say an organic smoothie bar, nutritional consultations and natural health products.
This is where your simple business gets complicated. Now you need additional staff to run each of those areas, resources to manage inventory, some of which is fresh food, and the ability to finance the unsold inventory. Suddenly you have a lot more risk if you don’t sell enough to cover expenses.
So how can we uncomplicate our yoga studio? For starters, instead of hiring nutritional consultants, bring in solopreneurs to run THEIR own businesses out of your space that way they are in charge of their own expenses and you simply charge them rent. You could do the same for the smoothie bar. All that is left is the health products, which you could incentivize the instructors to sell for you.
5 Ways to Uncomplicate Your Business Model
#1: Minimize Expenses – Be brutal about your expenses. Ask yourself if you really need it and if so, can you find a less expensive alternative elsewhere? Cutting down expenses is the easiest way to shed risk because it means you instantly lower your break-even point.
#2: Scale Down Customer Base – Get rid of the 80% who are usually the source of most frustration and work, and the least amount of profit. For example, a consulting business would simply look at monthly billing and cut off the lowest value clients in order to focus more attention on the higher value ones.
#3: Simplify Internal Processes – Declutter your internal systems and processes. Look for unnecessary tasks, duplication of effort and opportunities to leverage technology. Follow the “Too many hands” rule – if too many people need to work on it, add input, or review it, you need to re-examine the process.
#4: Work with Core Suppliers – Negotiate better rates with your suppliers by giving them exclusive contracts. Doing so also decreases the administrative time required to manage and track these suppliers further cutting your expenses.
#5: Examine Revenue Channels – Compare your costs to your revenues to get a clear idea of the profitability of each channel. This exercise often reveals where you are losing money because the cost to run a particular aspect of the business costs more than you charge customers. Your choices are cut expenses, increase the price, or abandon the channel altogether.
Sometimes the best thing you can do for your business is to uncomplicate it, especially if you are considering expanding the business or exploring new revenue sources. Often what happens is you realize how much more profitable it can be without the extra complication of expanding.