Business Model Reassessment | Nikolaos Zormpas

A business model can still perform while the assumptions behind it begin to change. The question is when those signals justify serious reassessment.

A business can still generate healthy sales, maintain strong customer relationships and remain profitable while some of the assumptions behind that performance begin to change. Customers may be buying differently, access to the market may be shifting toward new channels, the cost of serving them may be rising, or a larger share of economic value may be moving elsewhere in the value chain.

None of these developments proves on its own that there is a problem with the business model. A difficult period may be cyclical. Margin pressure may reflect temporary cost inflation. A decline in one channel may be related to execution rather than a change in market behavior. For management, the difficulty lies in recognizing when different developments start to connect and begin to challenge the economic logic that has worked until now.

A business model is more than the product

The term is used so broadly that it can easily lose its usefulness. A new product does not, by itself, amount to a new business model. The same applies to adopting new technology, improving a process, reorganizing a function or reducing cost.

A business model connects the value a company offers, the way it creates and delivers that value to customers, and the way that value is converted into a sustainable economic return for the business. David Teece describes a business model as reflecting management assumptions about what customers want, how they want to receive it, and how the firm can organize itself to serve them and be paid for doing so.

A business model can therefore continue to produce revenue even as some of the assumptions behind it begin to weaken. Current performance matters, but it does not by itself answer whether the same mechanism will continue to create and capture value on the same terms.

Assumptions can change before the answer becomes obvious

In practice, changes rarely appear from the outset as clear evidence that the business model itself is being affected. They usually begin as smaller developments that may initially seem unrelated.

A customer who once accepted a particular pricing model may begin to demand greater flexibility. A channel that once gave the company direct access to the market may gradually lose importance to a platform or another intermediary. A service that used to differentiate the offer may become more widely available from competitors. At the same time, serving the same customer may become more costly, require more exceptions or demand greater commercial concessions to sustain the relationship.

Management needs to watch these changes without overreacting to each one. What a customer is willing to pay, for example, cannot be judged from a single negotiation. A rise in cost to serve does not automatically mean that the way the business operates needs to be redesigned. Even a shift toward a new channel may reflect convenience and access rather than rejection of the underlying model.

The issue carries more weight when the signals persist and begin to reinforce one another. If customers are changing the way they buy, the company’s ability to price the value it provides is becoming more constrained, and the cost of maintaining that same value is rising at the same time, the discussion changes. That still does not prove that the business model requires fundamental change. It does, however, provide a stronger basis for examining whether its original assumptions remain robust.

Convergence matters more than any single signal

This is why management should be cautious about relying too heavily on one indicator. Revenue may still be growing because the company is protecting volume through heavier discounting. Margins may be under pressure because of temporary cost increases and later recover. A new channel may be growing quickly without removing the value of the existing one.

What matters more is the direction of change over time. Management needs to observe whether customer behavior and customer choices are shifting consistently, whether the way the company captures value from its proposition is changing, and whether the economics of acquiring, serving or retaining customers are changing. It also needs to watch whether a greater share of value is moving toward another part of the value chain, such as a distributor, a platform or a new type of provider.

This kind of monitoring should not become a mechanical test, and there is no universal threshold that indicates when the moment for change has arrived. Management is trying to understand whether different pieces of evidence are beginning to describe the same underlying shift.

A meta-analysis of 147 studies across 27 countries found a positive average association between business model innovation and performance, but also substantial variation depending on context and firm type. In the same analysis, that relationship was weaker for mature firms than for younger ones. The finding does not establish that changing a business model causes better performance. It does, however, show why a general instruction for every established business to reinvent itself is too simplistic.

The extent of change should follow the evidence

When assumptions begin to come into question, reassessment may ultimately confirm that the core of the existing model remains strong.

The underlying economics may still be sound, while the problem lies in pricing, commercial execution or a process that has become burdensome. In another case, the core model may continue to work, but the business may need a complementary route to the customer or a different source of revenue. There are also situations in which the customer relationship or the point at which value is created and captured changes enough to make a deeper change worth serious consideration.

These are not stages that every company should move through in sequence. They are different responses to different evidence. A sound management decision may be to protect and strengthen a model that still has meaningful advantages.

Timing matters, but it does not justify haste

There is another reason why reassessment does not have to wait for complete certainty. When a business model does need to change, the transition is unlikely to be immediate.

A study by Menter, Göcke, Zeeb and Clauss examined more than 35,000 corporate publications and over 2,300 business model innovation events across 60 publicly listed German companies. The results showed that the positive relationship with performance appeared with a time lag and that different changes to the model could strengthen or constrain one another. The sample does not allow us to conclude that every change takes years or that moving earlier guarantees success. It does suggest that the effects of a transition may take time to become visible.

If the evidence begins to converge, investigation can start before the pressure turns into a clear deterioration in results. At that stage, the company can test its assumptions more carefully and understand which options might make sense if the trends continue, without having already committed to a major change. Waiting for all uncertainty to disappear can create inertia, while moving too quickly can lead to a strategic decision with significant cost.

Changing too early also has a cost

A business model that has operated for years is more than a way of pricing or selling. Customer relationships, skills, systems, working practices and accumulated experience have grown around it. Some of these may remain sources of advantage even as the market evolves.

A major change can therefore create new problems before it has demonstrated that it solves the original one. The business may add complexity, run two different operating logics for a period, or weaken elements that customers still value. Management attention may become divided between the model funding the company today and an emerging model that is still learning how to work.

The transition also has a human dimension, because running two ways of working at once can increase the demands placed on teams. Roles, skills, customer interactions and expectations may be changing while day-to-day responsibilities continue. Management needs to consider whether the organization has the capacity to learn a new way of operating without assuming that people can absorb unlimited additional complexity.

That is why the decision should not become a race. The value of reassessing early lies in creating more room to understand what is changing, not in forcing an earlier disruption.

Continuing unchanged is also an assumption

No management team can know in advance with certainty which development will prove temporary and which will alter the conditions of an industry. It can, however, improve the quality of its judgment by watching not only the results, but also the assumptions behind them.

As long as customers continue to recognize the value of the offer, the economics remain healthy and the company’s position in the value chain is not weakening, strengthening the existing model may be the right decision. When different signals persist and converge in the same direction, however, continuing unchanged also rests on an assumption that the old conditions will continue to hold.

Management can reassess a business model before it fails by examining whether the way the company creates and captures value still fits the conditions that are taking shape. In many cases, that may lead to a decision to preserve the core of the model or evolve it selectively, while deeper change is justified only when the weight of evidence supports it.

The quality of the decision ultimately depends on whether the company recognized in time what was changing, what remained strong and how much change the evidence actually justified.