Creating a business model is not just about completing your business plan or deciding which product to pursue. It’s about how you will create ongoing values for your customers.
For this we need a strategy and nowadays only strategy is not enough to compete in the market. You need to develop sustainable and innovative models that would help you crack open the market. Study reports reveal that 7 out of 10 businesses are engaging in business-model innovation.
Yet many businesses do not have a grip on how to compete through the business models. when enterprises compete using business models that differ from one another, the outcomes are difficult to predict. One business model may appear superior to others when analyzed in isolation but create less value than the others when interactions are considered. Appraising models in a stand-alone fashion leads to faulty assessments of their strengths and weaknesses and bad decision making. This is a big reason why so many new business models fail.
So to find effective way to compete, it is important to understand the realm of business model, strategy and tactics. So let’s get started!
What Is Business Model?
A business model is a company’s core strategy for profitably doing business. Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses. They help new, developing companies attract investment, recruit talent, and motivate management and staff. When evaluating a business model as an investor, ask whether the idea makes sense and whether the numbers add up.
Following are simple steps to secure a strong business model.
1. Identify Your Audience
Targeting a wide audience won’t help to customers who really need your products or services. So narrow down your model to two or three customer personas. Design demographics for each persona, common challenges and solutions your company will offer.
2. Record Key Business Resources
List out your essential business resources to ensure your business model is adequately prepared to sustain the needs of your business. Common resource examples may include a website, capital, warehouses, intellectual property and customer lists.
3. Establish Business Processes
Before taking your business 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. Whether you are providing service or shipping a product or offering consulting or setting up a mockup business.
4. Provide A Strong Value Proposition
Explain how your company will stand out in the competition and how would you convince your audience that your innovative idea is better and different from your competitors. Establishing exactly what your business offers and why it’s better than competitors is the beginning of a strong value proposition. 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. Find Key Business Partner
A business cannot function without key business partners, that contribute to the business’s ability to serve customers. When creating a business model, select key partners, like suppliers, strategic alliances or advertising partners.
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 and is designed to close sales. How will customers find you? More importantly, what should they do once they become aware of your brand? Developing a demand generation strategy creates a blueprint of the customer’s journey while documenting the key motivators for taking action.
7. Leave Room For Innovation
When launching a company and developing a business model, your business plan is based on many assumptions. After all, until you begin to welcome paying customers, you don’t truly know if your business model will meet their ongoing needs. For this reason, it’s important to leave room for future innovations. Don’t make a critical mistake by thinking your initial plan is a static document. Instead, review it often and implement changes as needed.
Example of Business Model
Consider a comparison of two competing business plans where two companies rent and sell movies. Both businesses made $5 million in revenues after spending $4 million on their inventories of movies. This means that each company makes a gross profit calculated as $5 million minus $4 million, or $1 million. They also have the same gross profit margin, calculated as 20% of gross profit divided by revenues.
But things change with the arrival of the internet. Company B decides to stream movies online instead of renting or selling physical copies. This change disrupts the business model in a positive way. The licensing fees don’t change, but the cost of holding inventory goes down considerably. In fact, the change reduces storage and distribution costs by $2 million. The new gross profit for the company is $5 million minus $2 million, or $3 million. The new gross profit margin is 60%. Meanwhile, Company A fails to update its business plan and is stuck with a lower gross profit margin. As a result, its sales begin to slide downwards. Company B isn’t even making more in sales, but it has revolutionized its business model, and that has greatly reduced its costs.
Hope this helped you to get an idea about developing a business model. Now you can create your business plan, keeping the above tips in mind, which will fuel your startup’s success.