The business model is the foundation of a successful business, and the CFO plays a critical role in building the optimal model for a company. The CFO tests the assumptions and presumptions of the model and will look for potential improvements and enhancements to it. The CFO will help balance the business plan with the company’s evolving culture and recognize when it may come time to revise the model. Evolution does not justify failure to follow the model. A business model adopted and ignored is more dangerous than no model at all.
A business may have a great product or service, but the business model to take the product to market must be designed and executed consistently across the organization. The CFO, with the CEO, should analyze the critical elements of the business model. This will lay the foundation of the company’s strategy and define the key tasks of the CFO. According to Todd Whetstone of FocusCFO, “The CFO must have a strong understanding of the company’s business model and industry to build strategies that create additional value for the company.”
Understanding the Value Proposition
The first element to understand is the company’s value proposition – this is the heart of the business model. Is the customer’s need being fulfilled by the product or service the business offers? Are customers receiving the best possible value? In the market, the product or service may be positioned as a low-cost alternative to higher-priced alternatives, or it may be positioned as superior and come with a higher price. Either way, it must be delivered as advertised. Also, can new or better products be offered to current customers or to attract new customers?
Understanding the Revenue Model
Second, the CFO will evaluate the revenue model. Pricing should be analyzed to make sure it is designed to ensure the highest revenue possible. The price may be too low based on demand or prices of the competition. Conversely, it may be too high to attract more customers. The CFO will also look for additional revenue streams from offerings such as warranties or customer-support subscription plans.
Examining Costs to Bring Product to Market
Next, the CFO will comprehensively examine the costs of the company to find expenses that can be reduced or eliminated. This must be done in context, considering all other elements of the business model. If the company is offering a low-cost product in the market, costs should be as low as possible. A higher-priced product must have sufficient quality to support the price; hence higher costs to create and support the product.
Know Thy Customer
The CFO must understand the company’s customers. Knowing who the customer segments of the business are is key to reaching them. There may be multiple segments already, and there may be segments that can be added. Understanding the company’s customers drives the strategies to sell and market the products, and the CFO will determine if these strategies are designed to produce the best possible ROI. Are all potential sales channels being utilized? Can any be added, and what are the costs/benefits of doing so? These discussions can and will occur on many levels. From the analysis of these elements, a plan can be developed to drive cash and increase the value of the business.
Having a CFO who can play the role of professional skeptic will assure that the business model is well-managed and consistently applied across all segments of a business. This will result in:
- A focused team unanimous in their understanding and execution of the company’s methods, culture and values
- Customers who are receiving consistent messaging and results
- A very nimble company that can quickly detect change and respond to it
- Adherence and constant management to maximize efficiency