Assessing a Business Model’s Attractiveness

In the first issue of Build, from the team at Inc. magazine, there’s an article with the headline: One way to evaluate the strength of your business model is to assess how difficult it is for your customers to leave you. The work comes from Rita Gunther McGrath, a professor at Columbia Business School.

The idea is to rate the business model’s attractiveness based on 10 questions with a scale of one to seven for each, with a score of one being fully aligned with the first statement and a score of seven being fully aligned with the second statement. Once each question is scored, add up your total score, and if it’s 40 or higher you’re in the preferred zone. Here are the 10 questions to assess a business model’s attractiveness:

1. The cost to a customer of switching to another provider is relatively low
   1 – 7
   The cost to a customer of switching to another provider is relatively high
2. The model is based on individual transactions that must be repurchased each time
   1 – 7
   The model is based on a series of transactions (such as subscriptions) subject to renewal
3. The user interface for the model is nearly the same for all providers (for instance, an ATM)
   1 – 7
   The use interface differs among providers (it’s easier for users to stick with one system)
4. The benefits provided by the model are optional or discretionary
   1 – 7
   The benefits provided by the model are mandatory
5. There are few network effects in this business, we are a late mover
   1 – 7
   We have the potential to create positive network externalities in this model
6. This model solves the customer’s problem once and for all
   1 – 7
   The customer’s problem is ongoing
7. The model is arm’s length or transactional
   1 – 7
   The model establishes some kind of relationship
8. The model has little impact on the customer’s experience, or the impact is negative
   1 – 7
   The model changes the customer experience significantly, and the impact is positive
9. The model operates on a stand-alone basis
   1 – 7
   The model creates a platform others can use to accomplish their goals
10. We create the offer
    1 – 7
    The offer is to some extent cocreated

This is a great methodology for quickly assessing a business model’s attractiveness. As you can see, Software-as-a-Service with strong customer service and high renewal rates score very high in this model.

What else? What are your thoughts on this methodology of assessing a business model’s attractiveness?