The Business Model Canvas is an invaluable tool for designing, challenging and improving your business model. But the one thing the Canvas doesn’t outline is risk.
DJCAD Masters student Rebekka Merget has identified the value of risk underpinning everything in The Business Model Canvas.
There’s an element of risk which underlies any business, whether it be in your model or in the market. Your business model is ultimately based on assumptions, and if you’ve done your market research well, these should be fairly accurate. However, there’s still a possibility that your assumptions about consumer behaviour, the economy and your competitive environment could be wrong.
Numerous other factors beyond your control such as sales volume and the current economic environment can also cause potential risk through lowered profits. Calculated risks such as in the economy allow you to make better informed decisions about your business.
So, how can you go about considering risk in your business plan?
PESTLE Analysis (or PEST analysis) is a marketing concept which is used to keep track of your business environment. It can also be used as a tool for strategically identifying and calculating the various elements of risk within your business model. The framework is universally applicable to any business and it’s at the core of strategic business management. You can access a PESTLE Analysis template here.
So, what does PESTLE stand for?
Political, Economic, Social, Technological, Legal and Environmental factors. These are the different areas you can analyse for potential risks. The acronym gives a wide view of your whole business environment so you can consider risks from every angle.
Here’s some key questions you can ask yourself for each area of risk:
- Political Risk
How might the political situation in your country affect your business model? For example, if you import EU goods, how might Brexit impact tax and trade?
- Economic Risk
How might economic conditions such as exchange rates impact an investment?
- Social Risk
How might social and cultural conditions impact the market? Think about how your consumers’ needs and mindsets are shaped by their lifestyle attitude and education, for example.
- Technological Risk
How could innovations in technology disrupt the market, such as automation?
- Legal Risk
How might certain legislation impact your business such as copyright and patent laws or health and safety laws? (Or GDPR— aargh!)
- Environmental Risk
How might environmental factors impact your industry? These could include weather and climate change or the use of eco-friendly products and services.
The Main Takeaway
The PESTLE Analysis model is an invaluable tool for giving a comprehensive view of your business model. And when used creatively, it allows you to assess the various financial risks in the delivery of your product or service. Combine this with The Business Model Canvas and the creative possibilities for designing and challenging your business model are endless!
At Ashton McGill, we take a design-led approach to accounting and business growth. We use tools like The Business Model Canvas with our clients to help them make strategic and informed decisions about their business. And to help them put their customers at the heart of the process.
We hope you’ve found this series valuable. If you have any quips or queries, feel free to drop us a comment below or email us at firstname.lastname@example.org. We’d love to hear from you.