When a pandemic crisis like the coronavirus hits the business, the owner needs to evaluate the impact on their business model, both immediately and over the long term. To start, you’ll need to look at the four core dimensions of your business model: customer, value propositions, value demonstrations, and capabilities. Second, analyze the connections between these dimensions. Third, define realistic objectives for your business, both during and after the crisis. Having a framework like this will help you identify the business-model risks and opportunities that the crisis presents.
The dimensions of your business model
First, you need to assess what the crisis means for customer demand. Will overall demand go up or down? How will spending patterns change (e.g., spending more on streaming and less on cinemas)? Do you need to consider new delivery channels (e.g., switching from bricks-and-mortar to online)? Are there any new customer groups to consider (e.g., government or home office customers)? And finally, does the virus create safety concerns (e.g., if you sell services that must be performed face to face)?
You also need to think through how the crisis affects your value proposition. Using post-secondary education as an example. Students are the customers and their needs have not been changed by the coronavirus crisis – students still want to be educated. But if campuses need to stay closed for a long time, colleges and universities will need to rethink how they can create value as an online institution and how they differentiate themselves from competitors.
Value demonstration is used to describe a company’s sales and marketing channels. The current crisis posed restrictions on personal interactions and travel, and shuts down typical value-demonstration channels such as customer meetings, trade shows, and industry gatherings. Do you need to find new ways to demonstrate value? Some businesses are using the crisis as the rationale for faster adoption of video conferencing software and online sales and marketing materials.
Finally, a company’s capabilities are the fuel that drives the engine, which allows your business to create value for customers. A crisis may put a strain on your capabilities, and it may also require that you prioritize different capabilities than usual. Facilities management will take up less time, but IT support for tools like video conferencing may take up more. Supply chain and production capabilities will be top of mind and more resource intensive than usual in many businesses, since international supply chains are being disrupted. Employees’ typical levels of performance and productivity will be affected by the move to home offices, restrictions on travel, and illness.
Aligning the dimensions
Once you’ve assessed where you stand on the four dimensions of your business model, you can think through how potential changes in one dimension can be aligned with the others. Which customer segments value which of your offerings, and will that change because of the crisis? For example, customers who usually love eating in a restaurant may be willing to transition to take out purchases. Or food delivery businesses may find that home-office employees constitute a new customer segment. Likewise, customers may transition from one value demonstration channel to another. For example, from on-site meetings to online meetings, from corner shop to web shop, from in-person advice to YouTube videos. Similarly, due to a shortage in one capability (e.g. production in Asia), local production capabilities may be activated to support value propositions. You may also shift your capabilities from demonstration to value proposition in order to deliver to customers rather than to convince new customers.
In a nutshell, the crisis not only challenges the four dimensions of a business model, it also creates opportunities to adjust each of the dimensions and how they relate to one another.
Moving from diagnosis to response
Before you decide on any significant changes in the business model, you’ll want to think through how the crisis will affect your existing performance metrics. What kind of earnings (or losses) will you encounter? Then you need a plan for embracing the opportunities and managing the damage that these analyses have revealed. The dimensions discussed above can help you develop and prioritize a list of projects to invest in as you move through the crisis. One lesson from previous downturns is that companies that are proactive and growth-oriented will have an edge coming out of the crisis.