A business model is a strategy for determining how a firm will make money. This can be simple or complex. It includes details on all operations, as well as short- and long-term plans for the company’s growth. Without a business model, investors and owners will have no clue how to grow the company, making it far more difficult to build a solid and long-term enterprise.
1. Value Proposition and Market Segment
These elements of the business model indicate how the product or service meets the needs of the customer and the product’s value from the customer’s point of view. According to QuickMBA.com, the value proposition describes the company’s unique combination of product, service, customer interactions, and brand image.
The value proposition aids the organisation in standing out from the competition and concentrating on offering core value to customers.
A similar component is the market segment, which outlines the type of customers or market sector that the company will target.
2. Value Chain Structure
The value chain is a description of a business’s activity chain. This encompasses all of the steps involved in developing and selling a product or service. The product or service gets value as it moves through each link in the chain.
A business model will include explanations of value chain operations as well as a discussion of how the company intends to use the chain to boost the value of the product or service being developed.
3. Revenue Generation Strategies
This section of the business model describes how the company will earn income. Revenue can be earned in a variety of ways, including:
- Sale of a product or service
- Subscriptions
- Third-party sponsored advertising on the company’s website
The overall cost structures and estimated profit margins should also be included in this section of the business plan.
4. Position in the Market
Also called position in the value network, this component identifies competitors and how your product or service will differ from theirs. Differences can include:
- Lower pricing
- More features
- Better service
You can also identify complementary products or services that may help you sell your product or service. Example: PayPal helps sites such as eBay and Amazon.com do business, so it is complementary to those businesses.
5. Long-Term Strategy
Outline how you’ll build and sustain a competitive market position, such as:
- Low-cost approach
- Value-added strategy
- Pioneer strategy
- Growth plan
Most businesses eventually build a sophisticated strategy or series of strategies, but you may only wish to describe the strategy for the initial positioning of your product or service on the market in your initial business model.
The 7 Properties of a Strong Business Model
1. Identify Your Specific Audience
Targeting a wide audience won’t allow your business to hone in on customers who truly need and want your product or service. Instead, narrow your audience down to two or three detailed buyer personas. Outline each persona’s:
- Demographics
- Common challenges
- Solutions your company will offer
Example: Home Depot might appeal to everyone or carry a product the average person needs, but the company’s primary target market is homeowners and builders.
2. Establish Business Processes
Before your business can go live, you need to have an understanding of the activities required to make your business model work. Determine key business activities by first identifying the core aspect of your business’s offering.
Example: Ticketbis, an online ticket exchange marketplace, focuses on marketing and product delivery management.
3. Record Key Business Resources
What does your company need to carry out daily processes, find new customers, and reach business goals? Document essential business resources to ensure your business model is adequately prepared to sustain the needs of your business.
Common resource examples include:
- Website
- Capital
- Warehouses
- Intellectual property
- Customer lists
4. Develop a Strong Value Proposition
How will your company stand out among the competition? Do you provide an innovative service, revolutionary product, or a new twist on an old favourite?
Once you’ve got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.
5. Determine Key Business Partners
No business can function properly (let alone reach established goals) without key partners that contribute to the business’s ability to serve customers.
Examples of key partners:
- Suppliers
- Strategic alliances
- Advertising partners
Example: Home Depot may rely on lumber suppliers, parts wholesalers, and logistics companies.
6. Create a Demand Generation Strategy
Unless you’re taking a radical approach to launching your company, you’ll need a strategy that:
- Builds interest in your business
- Generates leads
- Closes sales
Determine how customers will find you and what they should do once they become aware of your brand. This strategy outlines the customer journey and documents key motivators for action.
7. Leave Room for Innovation
When launching a company and developing a business model, your plan is based on many assumptions. Until paying customers arrive, you won’t truly know if your business model meets ongoing needs.
It’s important to leave room for future innovations. Review your plan regularly and make adjustments as needed.
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