Who it's for
An owner whose usual actions no longer bring the usual results, and who can't tell whether to push harder or change the structure.
Key idea
A model is exhausted when local improvements stop adding up to an overall result. At that point, pushing harder only burns through resources faster.
Contents
- Six signs of exhaustion
- What exactly changes in a transformation
- The sequence that reduces risk
- On resistance
- What to do this week
Take the self-assessment
The symptom is always the same: what used to work has stopped working. From there, two explanations diverge. The first: these are temporary circumstances, and you need to hold on and step up execution. The second: the model is exhausted, and stepping up execution will only burn through resources faster.
A mistake either way is expensive. A premature transformation breaks what was still working. A late one leaves the company without the resources for the transition.
The distinction
A downturn is when the usual actions bring smaller results. Exhaustion is when the usual actions have stopped bringing results at all, and improving individual parts doesn't change the whole.
Six signs of exhaustion
No single sign is proof on its own. Three or more, observed at the same time over several quarters, are serious grounds.
- 01
Improvements don't add up
Departments show progress while the overall result stands still. This indicates the constraint lies in the structure.
- 02
Acquisition cost grows faster than the average order
You have to pay more for the same attention, and you can't raise the price. So the value of your offer in the market is falling relative to the alternatives.
- 03
Retention is falling for no obvious reason
Customers are leaving, not for a competitor with a better price but for a different way of solving their problem. This is a sign that the category is shifting.
- 04
Growth requires disproportionate resources
Each additional percent of revenue costs more than the last. The model is running up against its own cost structure.
- 05
The best people leave first
They sense the ceiling before everyone else. Strong people leaving while weaker ones stay is an early indicator that's usually put down to personal circumstances.
- 06
A player with different economics has appeared
There's now another way to create the same value more cheaply. Catching up with it the old way is impossible by definition.
What exactly changes in a transformation
The word is used broadly, so it helps to draw a line. At least one of four things changes; otherwise it's optimization.
Element of the model Question Example of a change
Who we sell to Which segment is the core one From a broad market to a narrow one with a higher willingness to pay
What we sell Which customer problem we solve From a one-off service to supporting a process
How we get paid The structure and timing of payment From paying per project to a subscription or paying for results
How we deliver The cost structure and the way work gets done From manual delivery to a platform or partner model
The boundaries
A new sign, a website redesign, a new CRM and reorganizing departments aren't transformation. They can accompany it, but on their own they don't change what you get paid for.
The sequence that reduces risk
The main danger of a transformation is destroying what works before the new thing starts working. Hence the sequence.
- 01 Determine what in the current model still makes money. This is your source of funding for the transition, and it must not be touched first.
- 02 Formulate a hypothesis for the new model in four elements: who, what, how we get paid, how we deliver.
- 03 Test the hypothesis at small scale: in one segment, in one region, with five customers. Without stopping the main flow.
- 04 Measure the economics of the new structure separately. Not "better overall," but the margin, CAC and deal cycle for the new model.
- 05 Only after confirmation, shift resources. Gradually, in reversible steps.
- 06 Name in advance the result at which the transition stops.
A transformation funded by a model that still works moves more slowly and almost always gets finished. One funded by a loan needs everything to work the first time.
Related service: Business Model Review
When you need to take apart the four elements of the current model and understand which one is exhausted.
Related service: Business Model Transformation
If the hypothesis is formulated and you need a managed transition without stopping the current flow.
On resistance
There will always be resistance, and it's rational: people protect the role, skills and predictability they built inside the old model. Trying to explain that "change is an opportunity" usually deepens the distrust.
What works is different: say honestly what changes, what stays the same and what will happen to those whose work disappears. Uncertainty causes more resistance than bad news. The second step is to name the role of each key person in the new structure before the transition starts, not after.
A practical rule
Resistance to change is directly proportional to how much a person loses and inversely proportional to how clearly they see what they get in return.
What to do this week
Questions to ask yourself
Checking whether the model is exhausted
- 01 How many of the six signs have you been observing at the same time over the last two quarters?
- 02 Over the past year, did improvements in individual functions add up to business growth?
- 03 What in the current model makes money and could fund the transition?
- 04 Which of the model's four elements (who, what, how you get paid, how you deliver) have you gone longest without changing?
- 05 Has a player appeared in your market who creates the same value fundamentally more cheaply?
Materials that continue the topic
- Strategy as a list of refusals
- Launch: a sequence of cheap tests
