You're not alone if you've often heard the term "business model," but you don't know exactly what it means.
Business analysts use it all the time, and even disagree with the precise definition of a business model.
But you know it's important to have a business model.
And that, it is. Your model sets the path to success or failure for your company, so you need to get it correct.
The word "model" conjures up images of white boards with arcane mathematical formulae and discreet processes. However, business models are anything but arcane. They are stories at heart— stories that explain how businesses work. A good business model reacts to the age-old questions of Peter Drucker: who is the customer? And what is considered of value by the client? It also asks the basic questions that every director has to ask: How do we make money in this business? What is the underlying economic rationale that describes how we can deliver value at a reasonable cost to customers?
The right business model can catapult you into glory or collapse, which is no exaggeration.
Innovation in the business model is arguably the largest form of competition in modern business.
Clay Christensen, a Harvard professor of business administration, sums it up well: many managers think that developing new innovations and services is the path to success. But this is not often the case. Organizations need to integrate these developments into innovative new business models to unleash the next phase of development.
On a leaf of paper, you might have some suggestions scribbled down–identifying concepts, product prices, and potential places. That's a great start, but it takes time for a proper business model. Starting a small business is exciting, but to ensure its success, you also need the strongest foundation possible. Don't worry what the consumer interest of your company will be–study! Survey your friends and work with your business network to find the true worth of the retail solution offered by your product or service. Taking time to create your business model will ensure you don’t underestimate – or overestimate – anything.
We have zeroed down on 7 core elements of a successful business model:
1. Identify the target precisely.
Aiming for a broad audience will not allow your business to hone in on customers who really need your product or service and want it. Instead, you will restrict your audience to two or three detailed buyer personas when creating your business model. Specify the demographics of each person, common challenges and solutions that your company is going to offer. Home Depot, for instance, may sell to everyone or bring an item that the average person wants, but homeowners and developers are the company's primary target market.
2. Document the key resources of the company.
What needs to be done by your company to perform daily processes, find new customers and achieve business objectives? Document key business resources to ensure that your business model is adequately prepared to support your business needs. Examples of common resources may include a website, capital, warehouses, intellectual property and customer list.
3.Establish the key departments.
You need to understand the activities needed to make your business model work before your business can go live. Identify key business activities by first defining the central feature of the product of your company. Are you in charge of providing a service, transporting an item or consulting services? Based on the inferences, carve down core business processes involved such as marketing, logistics, production, etc.
4. Develop a strong value proposition.
How's the business going to stand out from the competition? Do you provide a groundbreaking company, creative brand or a traditional classic with a new twist? It is the beginning of a strong value proposition to determine just what your company delivers and why it's better than rivals. Once you have identified a few quality ideas, link each one to a company or product delivery system to determine how you will stay valuable over time to consumers.
5. Determine the key partners in business.
Without key partners that contribute to the ability of the business to serve customers, no business can function properly (let alone meet established goals). Select key channel partners, such as suppliers, strategic alliances or advertising partners, when creating a business model. Key business partners can be lumber suppliers, parts wholesalers, and logistics companies using the previous example of Home Depot.
6. Create a strategy to generate demand.
You will need a strategy that builds interest in your business, generates leads and is designed to close sales unless you take a radical approach to starting your business. How are you going to find customers? What should they do, more importantly, once they become aware of your brand? The creation of a demand generation approach provides a roadmap for the trajectory of the consumer thus tracking the main motivators for practice.
7. Leave space for innovation.
Your business plan is based on many assumptions when you start a business and develop a business model. After all, you don't really know if your business model will meet their ongoing needs until you start welcoming paying customers. For this reason, leaving room for future innovations is important. Do not make a critical error by thinking that your original plan is a static document. Alternatively, update it regularly and make changes when appropriate.
But you don't need to get it right the first time. As they say, Business modelling is the managerial equivalent of the scientific method—you start with a hypothesis, which you then test in action and revise when necessary.
For more guidance on developing a solid business model for a sustainable and fast-growing business, you can register here to book your first free consultation with us.
