We see many entrepreneurs come to us with brilliant ideas an inventions, but the business model is lacking in some element. We believe that this may be due to the fact that many entrepreneurs, being from all backgrounds, may not all have experience that helps with considering all elements of a business. For instance, we may find someone that has a background in sales that is excellent at establishing relationships, but has difficulty understanding the cost structure. Or a software engineer with an amazing product, but little knowledge of the key partners and channels necessary for profitability. Understanding the business model helps entrepreneurs to see the ‘big picture’ and how they integrate to construct a successful company. In this post, we outline the subjects to consider when constructing a business model. This is the approach that we take before we even begin drafting your business plan.
Key Partners: These are the people necessary to help your business achieve its goals, which may be external from the company. If you have a technology consumer product, which retailers will you have a relationship with and what manufacturers? Consider if there are is any potential for strategic alliances with similar companies.
Key Activities: What your company needs to do in order to function within operations, finance, and the people components of your company. Focus on just thinking of the core functions that your company needs to do in order to deliver its product or service and how that relates to the rest of your model.
Value Proposition: The unique value your company creates in the market should be your key activities and they should make sense with the rest of the model. The key activity is the driving force behind your company and the problem you solve. We believe that this is among the most important parts and requires market research.
Key Resources: The commodities required to produce your good, human force behind your service or products for operations are your key resources. Having a solid understanding of the resources necessary can help to accurately estimate costs later on and uncover new relationships or uses of existing resources if your company engages in corporate venturing.
Cost Structure: The key resources and activities required to deliver your value proposition are outlined in your cost structure financially. This is where we compute how much money you need to operate, which can help with pricing now and avoid budgeting issues later on.
Customer Relationships: This is an important part often neglected and is very important for many service industries. Maximizing the lifetime value of your customer and knowing exactly how to do so from the very start is critical. To learn more about this, research customer relationship management or discuss the matter with us.
Channels: How and where you will distribute your product or service make an amazing difference. It may be infeasible to launch your product in every country simultaneously and to every person. You must understand who will use your product, where they will and how they purchase in order to do this effectively.
Customer Segments: This plays a large role into the channels to know where to target the customer segment and the value proposition, to know what the customer segments want. Are there opportunities to target one segment in the market that is underserved or create customized services for each segment? Questions such as these can be answered and impact the entire business model.
Revenue Streams: Understanding the customer segment and the value proposition, along with your competition and costs can help your price your product or service. These will develop more accurate revenue streams and generate more profits in the long run as prices are based on research, rather than mimicking competitors or setting them arbitrarily.
The business model can be extremely helpful in the pre-business planning phases and are a necessary step we take to map out the big picture of your business. We see it as a vital part in constructing any business, just as an architect does not place more value on one part of a building than the next. A stable building is constructed with a solid blueprint and a winning business model is just this.
