What KM can learn from business start-ups 2 – an effective business model

Yesterday I started a set of blog posts likening KM implementation to a business start-up. Here is number 2 in the series. 

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In many ways, the initial implementation of Knowledge Management within an organisation is like the launch of a new product into a market by a start-up organisation, and there are many lessons KM can learn from start-ups; their failures and their successes.

(If you want to make a bad pun, you could call KM implementation a “Smart-up”).

This blog series uses this analogy to inform KM implementation by reviewing 5 common reasons for start-up failure and suggesting ways in which KM programs can avoid these failure modes. These common reasons are taken from  a great article by David Skok , and are as follows:

  1. Little or no market for the product; 
  2. The business model fails; 
  3. Poor start-up management team; 
  4. Running out of cash; 
  5. Product problems.

Failure of the business model

The business model for a start-up fails if the cost of acquiring new customers exceeds the value each customer brings. If this happens, the start-up will lose more and more money until the investors remove their support.

As David Skok says, “One of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will beat a path to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer (CAC) is actually higher than the lifetime value of that customer (LTV)”.

KM also has a business model. KM receives funding from senior managers, who are  the investors in the “KM start-up”. Those investors want a return on their investment, in whatever way they define “return”. The KM Implementation must deliver more value to the business than it costs (e.g. deliver a positive ROI), and those costs include the costs of the KM team, KM software, and the costs of implementation, roll-out and support (“acquiring the KM customers”).  This positive return must be documented and justified in order that senior management do not remove their support and their money.

In addition, KM is a long term commitment; survey data shows that it takes over a decade before KM is fully integrated in the majority of companies. This is a long time to take KM value on faith, and the viability of the business model needs to demonstrated on a regular basis throughout that decade if funding is to be secured.

Also, during that time there may well be a change in senior management, and the new bosses may need convincing that KM has a positive business model for the organisation. You need to have your evidence ready that KM is a wise investment. Internal reorganisation, and a change in investor, is one of the most common reasons for KM failure, and you need to protect against this.

In order to demonstrate a positive return on investment, the KM implementation team needs to:

  • Understand the metrics that will convince senior management that KM is delivering a return on investment. Know what they want to see from KM, and know how this will be demonstrated or measured 
  • Conduct short term pilot projects throughout the implementation that deliver demonstrable value, as proofs of concept that KM has a positive business model. These pilot projects should solve business problems, and ideally should impact business metrics. Early in KM implementation the KM Framework will still be in process of development, so use a Minimum Viable Framework – one that does just enough to deliver real value. The pilot will also deliver practical lessons that allow you to elaborate the framework.
  • Collect and regularly report all examples of value delivered through KM, in the form of success stories and/or metrics. These will not only allow you to demonstrate a positive business model to your sponsors, showing that KM delivers more value than it costs; it will also provide valuable marketing collateral for further KM roll-out. 

Bear in mind the business model for KM, and how you will demonstrate that it is viable. Without this demonstration, you are vulnerable to losing your funding. 

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