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Sep 25, 2023

What is Viability and Why is it Important?

Sponsored Content provided by Holly Segur - Strategist, Coach, Accountability Partner, Lead Intuitively – Corporate Coaching

In a previous article, I discussed the Desirability portion of the Business Model Canvas, which is pictured below. It was invented by Alex Osterwalder of Strategyzer.com, who argued there are three building blocks required for assembling a successful business, with a total of nine different components.
 
The graphic below is certainly eye-catching and Osterwalder makes some good points, but my thinking is that the image should be arranged more like a pyramid. A strong business, of course, requires a solid foundation—the Value Proposition element of the Desirability building block. 
 
As the name implies, the Value Proposition simply outlines why a business needs to exist. To be successful, a business must offer a product and/or service a customer wants or needs. And significantly, it’s common to see headlines in business publications describing how the best way to generate value for a business is to focus on providing value for customers.
 
From a 20,000 foot perspective, it seems obvious. But how can a business ensure its success into the future?
 
That’s where the Viability portion of the Business Model Canvas moves to the foreground. Whereas the Value Proposition and Desirability portions relate more to idea formation and the early stages, Viability relates to the strength of a company moving forward.
 
Imagine the modern business world is like a teeming, vibrant jungle of competitors, where only the strong survive. Viability refers to the strength of the balance sheet—whether a company can deliver a return for the owner(s), while also generating enough cash to cover interest payments.
 
Of course, it’s no accident the portion below is in green.
 
Viability
 
Revenue Streams
Generating a Revenue Stream is essential. All prospective business owners should figure out how much profit can be generated from various customer segments. If customers are the heart of a business model, Revenue Streams, as described by Strategyzer here, are like the arteries, bringing the cash required to pay the owner, employees, shareholders and creditors.
 
Business owners need to consider that every Revenue Stream may potentially have different pricing mechanisms, such as fixed list prices, bargaining, auctioning, market dependent, volume dependent, or yield management. A successful business model is likely going to involve two different types of Revenue Streams:
·       Transaction revenues resulting from one-time customer payments
·       Recurring revenues from ongoing payments to either deliver a Value Proposition or provide post-purchase customer support

The most successful businesses are typically able to generate more than one Revenue Stream from each Customer Segment. This is why the Software-as-a-Service business model is so popular on Wall Street (think of Apple or Salesforce). After all, if a company only sells a product and/or service one time, it only results in a one-time fee.

Customer acquisition typically represents a substantial cost for businesses. This is why so many believe that generating a recurring stream of revenue from one customer is so essential. 

Cost Structure
This refers to the costs that are required to build a Revenue Stream. As described here, the Cost Structure relates to a variety of concepts under a particular business model, such as the amount of input materials, employee payroll, permits, taxes, insurance, etc. 
 
If nothing else, delivering on a Value Proposition requires time and effort. And, it is important to note that some business models are more cost-driven than others. So-called “no frills” airlines, for instance, have built business models entirely around low cost structures.
 
To determine the viability, growth prospects and potential flow of capital, an entrepreneur needs to first understand the costs involved. These will be subtracted from revenues to create an idea about potential earnings. Defining Key Resources, Key Activities and Key Partnerships is also important, but more on that in a future article. 
 
Before getting started, a prospective business owner should evaluate whether the idea can solve a problem. Determining the level of competition, researching the market and identifying the business model are also important factors in building a thriving business, but there are many other areas to know about before moving forward. 
 
For more guidance on how to ensure the viability of your business, reach out to me at [email protected], or on LinkedIn: https://www.linkedin.com/in/hollysegur/.

Holly Segur is a 30-year veteran of the corporate world with experience navigating C-suite reporting. A retired senior executive from a Fortune 300 company, Holly positions her clients to attain the best possible work/life balance ‘sway' and understand the emotional choices required to ‘have it all.’ By helping her clients develop short- and long-term strategies for their personal and professional lives, Holly helps her clients achieve their goals with relationships, health and passions intact.

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