4 Major Reasons why Business Models Fail

It’s not enough to create a product that sells well and that customers love. If it costs you too much to create and deliver the product or service, you will fail. If it’s difficult or too costly to acquire customers, you will fail. If the customer lifetime value is too low, you will fail. Or if your pricing model is generally flawed, you will fail.

Here are the 4 major reasons why your business model may fail according to Alex Osterwalder from Strategyzer:

🙅🏻‍♂️ irrelevant customer job.

It’s when your business model (BM) value proposition helps customers get the job done they don’t care about. Many executives are deeply obsessed with their company’s value proposition which is actually removed from customers’ reality. 

📉 Flawed business model

Unfortunately your BM can fail even if you have a great value proposition that helps customers get the job done. BM is considered flawed when you customer acquisition cost is high enough than what you can earn from them directly or indirectly over time aka. customer lifetime value. 

⚠️ External Threats

Let’s say you have a great value proposition that solves a relevant customer job and acquisition cost is less than customer customer lifetime value. You can still fail.

There are external threats emerging from the outside of business environment. It could include such things as competitors might offer the same value proposition at the substantial lower price, new technology innovations might undermine your BM, or stock market crash occurs etc.

⚙️ Execution

Even with all the fundamentals in place, there is still a big potential of failure - poor execution. You can screw even the best BMs when you incapable of building the required infrastructure, if you assemble the wrong team or lacking of leadership skills to turn the concept into reality.

📌 How to avoid

  • Are you helping customers solve the problem they are strongly (your product should be a “must-have” instead of a “nice-to-have”) care about?

  • Do you have the BM that is profitable and scalable?

  • Is todays environment the right context for your business model? Is your BM designed to excel in that given context.

  • And finally, does your team have the right skills to execute your BM and make it reality?