Understanding and solving your customers’ problems is undoubtedly the biggest challenge that you will face when starting your business. Customers have to have the drive to want to get what you are selling, and the products that you are selling to them have to solve their problem. However, making sure that the products that you are selling fit the needs and demands of the market is only the tip of the iceberg. You still have to figure out how you are going to make some profit out of it. This is where your business model comes in.
A business model can be defined as a company’s plan for making a profit. The business model identifies the products and/or services that the business is planning to sell, identifies its target audience, and lays out any expenses to be incurred. Business models are not only important for new businesses joining the market but also beneficial to more established ones. Business models help new, developing companies recruit talent, attract investors, and motivate the management staff.
Simply put, an effective business model must answer who your customer is, what value are you creating or adding for your customers, and how can you do that at a reasonable cost.
Difference Between a Strategy and a Business Model
A business model simply refers to the logic of the company- how it operates, creates, and captures value for the company’s stakeholders in a competitive marketplace. Strategy, on the other hand, is the plan to create a unique and valuable position that involves a distinguishing set of activities. This implies that the company chooses how it wishes to compete in the marketplace. The system of making choices and the consequences that come with the choices made are a reflection of the strategy, but it is not a strategy; it is the business model. The strategy simply refers to the contingent plan about which business model to go with.
Components of a Business Model
Business models act as both the blueprint and the roadmap to its success-or failure. There are several things that a business model can help clarify, including:
- The business concept: the market opportunity that the business capitalizes on
- The customer base that the business caters to
- The customer problems that the business is trying to solve
- How the business creates customer value through its solutions to their problems
- The operating model of the business
- How the business acquired its customers
- How the business generates profits to stay afloat and the expenses that come with it
How to Make a Successful Business Model Template
Identify Your Target Audience
Targeting a broad audience cannot guarantee that you will get customers that truly need and want your products and or services. Instead, you should try and narrow your audience down to two or three detailed buyer personas when drafting your business model. Outline their demographics and the common challenges they are facing, and then try to develop a solution that your company will offer them.
Make A Business Process
Before officially opening your business, you first have to understand the activities required to make your business model work. Determine the main business activities by first identifying the critical aspects of your business’s offerings. Are you looking to provide a service, offering a solution, or shipping a product? Make sure that you first understand all these aspects before you launch your business.
Record key Business Resources
What will your company need to be able to conduct its day to day activities, find a new customer base, and reach your business goals? List down all the essential business resources to ensure that your business model is adequately prepared to sustain all the needs of your business. Some of the resources you should check for include; capital, intellectual property, warehouse, and customer list.
Define Your Value Propositions
How will your company be able to stand out among your competitors? Will you be providing any innovative services, revolutionary products, or a new twist on your customer’s old favorite? Defining what your business offers and why your products and services are better than those of your competitors are the beginning of a strong value proposition. Once you have managed to get a few value propositions defined, link all the products and/or services delivery system to determine how you will remain of value to your customers.
Select Your Chief Business Partners
There is no single business that can function properly, let alone reach its target goals, without having key partners that contribute to its ability to serve its customers. When drafting your business model, select your key partners like your suppliers, strategic alliances, or your advertising partners.
Devise A Demand Generation Strategy
Unless you are looking to use a radical approach to launch your company, you will need a strategy that builds interest in your business, generates leads, and is well designed to generate more sales. Your strategy should be able to answer how your customers will find you and, more importantly, what they should do once they find you. Creating a demand generation strategy creates a roadmap of your customer’s journey while at the same time documenting the key motivators for taking action.
Add Uniqueness Or Innovation
When you are developing a business model or launching your company, you will, in most cases, base your business plan on many assumptions. After all, until you begin welcoming paying customers, you don’t truly know if the model that you chose for your business will meet their ongoing needs. For this, it is imperative that you leave room for further innovations. Don’t make the mistake of thinking that your initial plan is a static document. Instead, review if often and implement all the changes as required.
Types of Busines Models
Just as there are various types of businesses, there are various types of business models. For instance, direct sales, brick-and-mortar stores, advertising-based franchising are all examples of traditional business models. Consequently, there are hybrid models as well, such as businesses that combine brick-and-mortar stores with the internet.
All business plans are different and unique within these two broad categories. For instance, let’s consider the shaving industry. Gillette, for instance, is happy to sell its Mach3 razor handles at a lower price so as to get and maintain its steady customer base for its more profitable razor blades. Their business model rests on giving away the handles to get more blade sales. This type of business model is referred to as the razor-razorblade model. However, it can apply to any business that sells its products at a discount so as to supply a dependent product at a considerably higher price.
Another business model that is on the rise is the subscription business model. In this business model, customers get charged a subscription fee to gain access to a service. Even though newspaper and magazine subscriptions have been around for a while, the model has now spread to online services and software and is even springing up in service industries—E.g. Salesforce, Netflix, Hulu, Spotify, etc.
Download our Business Model Templates
Creating a business model template from scratch can be a daunting task for most people. To make the entire process easier and manageable, download our free and premium templates to help guide you step by step through the entire process.
Business Model Template for Word
Business Model Template PPT
Frequently Asked Questions
A business model canvas abbreviated as BMC is a strategic management tool to quickly and easily define and communicate a business concept or idea. It is a one-page document that outlines all the fundamental aspects of a business or product, structuring the concept or idea in a coherent manner.
A properly laid out business model can help you figure out key elements such as business concepts- what problems are you looking to solve for whom; how will you create customer value; how your products and/or services will get to your customers, and how your business will rival your competitors as well as the revenue boost that you can anticipate.
Creating a business model for your business allows you to carefully think through every step of starting and running your company to better prepare and handle any challenges that come your way. A great business model can help you get through your thoughts organized. It can also provide you with a guideline so that you are not stuck looking at a blank page trying to figure out where to start.