Entrepreneurship: 4 Factors of the Business Model Environment – Innovate or Exit

By making a Business Model Canvas or BMC, you have taken into account and organized many of the factors that you can control. However there are many factors that you cannot control. These are part of the business model environment and greatly affect the success of your business.

Business Model Environment Factors

1. Market Forces

The first factor in the business model environment is market forces. Market forces are constantly changing customer segments and their expectations. These include growing and shrinking market segments; changing needs and demands of customers; market issues; switching costs; revenue attractiveness. You need to determine which customer needs are unsatisfied, which segments deserve more attention and any major issues affecting the customer landscape.

2. Key Trends

The second factor in the business model environment is key trends. Key trends encompass the evolving parameters of the law, culture and technology which may change whether the idea is possible or acceptable. This includes trends such as:

• Socio-economic trends
• Societal and cultural trends
• Regulatory Trends
• Technology Trends

You need to analyze which emerging technologies are being adopted by your customers. You need to identify the distribution of income and wealth in your market. As well as outline key societal trends that may cause a shift in cultural and societal values. You need to determine which trends most affect your business model.

3. Industry Forces

The third factor in the business model environment is industry forces. Industry forces are other businesses offering a similar value proposition to similar customers. This includes:

• Suppliers and other actors in the value chain
• Stakeholders
• Competitors that already exist in the market
• New entrants who could be potential competitors
• Substitute products or services

You need to determine who the dominant players in your particular sector are and what their competitive advantages and disadvantages are. You will also need to analyze the specific business model customs these substitute products are derived from. Some industries are require a much greater investment to enter as compared to others. For example entering the automotive industry is far more expensive than starting a catering business. You need to explore the barriers of entry to the industry you will be becoming a part of.

This is also when you need to solidify your competitive advantage and push this advantage to its maximum. Many major businesses that have collapsed have done so at the cost of giving up on their competitive advantage. For example, department stores were thriving because their competitive advantage was convenience. However, as technology shifted, so did the definition of convenience. Convenience was no longer just shopping for everything at one store, but rather shopping for anything on the internet without having to go to a physical store.

4. Macro-economic Trends

The fourth factor in the business model environment is macro-economic trends. Macro-economic trends are the financial health of the society and each person in it. Macro-economic trends affect our customer’s willingness and ability to pay for different things. These trends include:

• Global market conditions
• Capital markets
• Commodities and other resources
• Economic Infrastructure

Customers are always thinking about money and emotions play a big part in how they spend it. You need to understand how the economy will affect the customer’s decision making. You need to be able to get a sense of how they feel in the given economic conditions and adjust your model to match their spending ability.

The Business Model Environment factors such as market forces; key trends; industry forces and macroeconomic trends are not on the Business Model Canvas because these are factors we can not control. The Business Model Canvas contains the factors we can control. These are factors that we simply have to stay alert and aware about so that we can quickly adapt to the dynamic business environment that exists.

Although we can not control these factors, we can prepare for them and the challenges we may face from them. As an entrepreneur it is your job to be up to date with the industry you are in and on the same page as your customers. It is better to look out for red flags and learn about the issues and challenges beforehand so that you can work around them, rather than make a large investment only to discover your business model is obsolete.

https://isaacjeffries.com/blog/2017/6/5/bmc-part-sixteen-the-business-model-environment