Knowing Business Model is Key to Financial Success
6/16/10 at 2:03 PM by The Professor Many vendors and industry pundits promote tools and business concepts as if all IT service companies and solution providers were all the same – as if their concepts for growing a profitable business would work equally well for all companies in the industry. In fact there are at least 10 significantly different business models for IT services companies according to research done by Service Leadership Inc. Knowing your business model is key to knowing the drivers of your business. Knowing the drivers is the key to fine tuning your business and making strategic decisions that actually produce positive results.
The industry leader on this topic is Paul Dippell, CEO of Service Leadership, Inc. Paul has coined the term Predominant Business Model© (PBM©) and has defined the characteristics of the 10 major models. CoreConnex has partnered with Service Leadership, Inc. to provide you with access to a wizard that helps you determine your company’s PBM© and receive financial benchmarks specific to your company.
The PBM© classification is based on combinations of lines of business and the proportions of revenues generated by each. The following table (provided by Services Leadership, Inc.) outlines the characteristics exhibited by each of the 10 Predominant Business Models©.
| PBM© | Characteristics | Blended GM% |
| Product Centric | Leads with product sale. Will discount services to win product deals. Sells on price and availability of technical support. Virtually all account management done by the sales team | 20% |
| Infrastructure Technical | Leads with service. Will NOT sacrifice service margin to win product business. Sells on technical skill, responsiveness, rate per hour. More account management done by service team | 35% |
| Infrastructure Projects | Leads with service. Will IGNORE low margin product business. Sells on technical skill, project management – we have ‘rocket scientists’ work for us, flexibility on project start dates. | 40% |
| Infrastructure Managed Services | Leads with service. Will IGNORE low margin product business. Sells on service quality and reliability, reduced downtime, predictable budget. Service team performs 90% of account management. | 45% |
| Infrastructure Shared Infrastructure Services | Leads with capital cost reduction, high availability, predictive budget. Will often not sell product at all (effectively sells fractional leases). Admin team performs 90% of account management. | 50% |
| Infrastructure Balanced Services | Leads with service. Will NOT sacrifice service margin to win product business. Sells on technical skill, responsiveness, rate per hour. More account management done by service team. | 40% |
| Application Technical | Leads with service. Will NOT sacrifice service margin to win product business. Sells on technical skill, responsiveness, rate per hour. More account management done by service team. | 35% |
| Application Projects | Leads with services. Will IGNORE low margin product business. Sells on technical skill, project management and flexibility in project start dates. | 45% |
| Application Managed Services | Leads with capital cost reduction, high availability, predictable budget. Will often not sell product at all (effectively sells fractional leases). Admin team performs 90% of account management | 60% |
| Application Balances Services | Leads with service. Will not sacrifice margin to win product business. Sells on technical skill, responsiveness, rate per hour. More account management done by service team. | 40% |
Almost all IT services companies have multiple lines of business and tend to start with one and add more as they grow. All businesses have one line of business that generates the largest percentage of their revenues and that is what likely determines how the business owner manages the business. Without recognizing the important differences between business models, it can be unclear how to best grow your business. Knowing your business model, along with the best practices for managing that model and related industry benchmarks, can shed important light on how to successfully move your business forward.
Here are 5 major benefits you can get from knowing your company’s PBM©:
- Obtain best practice information for your unique model. Comparing yourself to the wrong model will create confusion as you move to implement best practices.
- Move from one model to another model. To Move from your current business to a new model you need to understand the structural changes, management skills and business practices required in the new model to help you focus in the right areas to increase your probability of success in your transition.
- Have a deeper understanding of what is happening in the market. All PBMs tend to perform better and worse to different degrees as the economy changes and as new technologies are introduced in the market. Don’t stand still when the whole market is moving.
- Understand when to make shifts in critical management processes. You need to proactively avoid an ‘accidental’ transition to a new business model. This sometimes happens as new market opportunities become available and you start selling a new service or product, possibly as a test drive – this could shift your PBM© in a direction that you are not ready to take.
- Improve performance of your business. Once you know your model, you will know where to set priorities and monthly performance goals. Because performance standards and management practices are very different among the various PBMs, having the right management focus makes all the difference in the end results.
Keep your eyes on the prize – managing the finances of your business is as critical as anything else you do for your company.