"Can You Guarantee Our Business Model?"
5 min read
“Can you guarantee our new business model? Can you put a warranty on it?”
That’s what my customer asked me after we worked with their team to develop a new solution in the market. I was baffled at first, but it actually makes sense.
ATTN: Innovation consultants, strategists, business designers and digital agency leads.
What would you do if your client makes this request. Would you say no?
First, let’s acknowledge that what they are trying to do is to de-risk themselves by shifting the risks of failure on you. If the business model doesn’t work, you’re to blame.
Let’s face it. They don’t want to screw up the project. They don’t want to get fired by the senior management if it fails. They want you to fail if the project fail.
Despite knowing this intention, you can still provide a guarantee/warranty for your customer’s business model that you co-created with them - only if they give you control and reward.
Let me tell you what your customers must provide you in return for the guarantee/warranty.
You must be able to determine key success metrics of the business model. An ideal success metrics should be leading indicators to determine engagement of your solution. Without the success metric, the situation will end up becoming “he says, she says”.
You must be able to determine the unit economics considering all factors in your calculations. If the input figures they provided you are wrong, it’s on them. Input figures including the cost of customer acquisition : lifetime value of customers, payback period, and OPEX.
You must be able to track the agreed metrics of the business model in a dashboard with a shared access. Pulling data and integrating analytics into dashboard is crucial. The dashboard analytics is where your success and failure are evaluated.
You must be able to control what channels to utilize and how to exploit them in order to generate leads. Messaging, budgets and offers. This activity impacts the cost of customer acquisition.
You have to be able to experiment the business model under different variations - target market, messaging, pricing, place, sales approach, and offers.
You have to set a time period for how long the guarantee/warranty should last. Ideally it’s until you are no longer participating because the system you created will likely to change, and you cannot be accountable for the results. Therefore determine what levers can and cannot be changed in the system before your engagement ends.
And lastly, you must be monetarily compensated to execute these activities. These activities take time and resources to achieve, in addition to the amount of risk being placed on you. Therefore high monetary compensation is required. This could be anything in combination of service fee, royalties, revenue or profit share, subscription, retainer and even joint venture.
You don’t have to say yes. It’s a lot of risks. But if you do, you should not blindly say yes without negotiating these requirements to make sure that the business model works within a time period and what you want to get in return to make sure that you’re rewarded for the risks placed on you.
Do these and you’ll earn your clients trust while becoming part of their inner circle. This is key to becoming their trusted partner.
Remember: The money you earn is proportionate to the problems you solve and the risks you take.
Say yes without any of the missing requirement, and you’re setting yourself up for a failure.