All  business pass through various life stages starting with incubation and ending in decline. The locus of value creation shifts depending on the life stage. Different business models tend to be more appropriate at different times. Each model has strategic implications. Match your business model to your life stage.

There are five primary business models. Each of these models holds the advantage at a different point in your company’s life cycle. Each model leverages that advantage to supplant its predecessor. Explore the five models and how they might line up with your company’s life stage.

Line Up Your Business Model with Your Life Stage

The current life stage of your business impacts the choice of your business model and your strategy.  Align your life stage, model, and strategy for greater success.

1. The project model. Newly emerging business categories lack sustaining infrastructure. Sustainability is a challenge since there’s no guarantee the category will ever establish itself beyond a few early adopter customers. This is the world of venture investing, where success may require establishing not just a new company, but a new category as well. Employ a project-based business model if you are in the incubation stage.  Encourage visionary customers to sponsor projects that pair a disruptive innovation with an expert-services organization to enable a high-risk, high-reward opportunity.
2. The solutions model. As growing demand creates a new category, the project model’s high margins attract competition from lower-cost, prefabricated solutions. In this stage, your product differentiation is still strong; especially among highly customized solutions focused on a single vertical market. In this stage your valuation jumps and the market realigns around the new leader. The project model must either retreat to the very high end of the market or redirect itself to another category. What’s the alternative? The solutions model.  This is now where you build out the category, segment by segment.
3. The product model. As the solutions model continues to scale, it solidifies around a standard architecture or infrastructure. Profit margins attract competition from generic products at even lower costs. Special user needs are met through configuration rather than customization. This one-size-fits-all approach fosters a mass market, enhancing the sustainability of the category.
4. The consumables/transaction-services model. As products become commodities, companies often increasingly discount their prices as a way to seed new customers for their consumables, making the stand-alone product model even less attractive.  This is the stage in which value migrates from the product company to the service provider, enabling a transaction-services model. Move to this model when your products can function as “platforms” so you can migrate value creation to either a consumable or a transaction service.
5. The maintenance/outsourcing model. When solutions are highly complex, they go directly from a solutions model to a maintenance model, where more and more revenue is earned from existing customers. This is highly predictable revenue with high margins.

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Multiple Business Models Can Exist Simultaneously

As your organization moves into maturity, long-term success is going to require innovation and transformation.  Therefore it is possible that you will have several business models in play at the same time. For example,  you may be in an outsourcing/maintenance model for a mature part of your business that you may be sun setting or potentially selling off, a project model for a venture in incubation and market validation, and a solution model for a line of business moving from market validation to market traction.

Tuning your model to your company’s life stage helps you be more strategic in your planning.  It provides insight into the personnel, partners, investments, customer, and market decisions you will need to make.  Different data is often required for different stages to support your decisions.

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