A business model is the way your business generates profit for example you can sell door to door, business to business or internet. You can buy wholesale and sell retail or you can manufacture your product and sell it wholesale. The business model for your company is often so ingrained in your company culture that you do not even notice it. It is just the way you do business.
In our home building business our basic business model was obtain buildable lots, pre-sell built to order homes and build the homes. To obtain residential lots we would contract to buy vacant land, go through the entitlement process with the governmental authorities, subdivide the property and create our own lots. We believed this method of obtaining lots was the best for us because we controlled the entire subdivision and did not have competition from others builders within the project. It was also less expensive to bring the lots to market and either we made a larger margin or could use it as a price advantage. It also had considerable risk. It was possible that we would spend money on approvals and design only to never get the project approved or approved with less lots or unfavorable conditions. It also took a good deal more time than buying finished lots.
We always tried to pre-sell a home before we built it. This reduced the risk of holding a house built on speculation and paying interest and taxes until the home sold. Many other builders felt it was easier to build the house without the future home buyer watching you and making last minute or even past last minute changes to the design or materials. We did the sales with our sales people in most cases. Occasionally we would use a local real estate agent if the project was too small to set up our own sales.
Even the methods of building the home changed at times. In the beginning we "stick built" our homes from dimensioned lumber (2X8, 2x12, etc.) During a labor shortage in the late 1990's we began to use factory built wall panels and roof trusses and wood I-beam floors. Not only did it allow us to use a less skilled labor force we discovered the method was better. We were able to build better homes with less call backs.
Whatever your business model is put it down on paper in detail so you can look at it and treat it like a manageable part of your company. Start with how you select your product and end with the warranty process. Then examine each step and ask your self can we do it better? You may just find that much of your business model is habit instead of the best way to achieve you goals.
Original Material copyright 2010 Thomas Robinson
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