What is a business model: concept, examples and features
Several approaches to assessing the prospects of an idea and the possibility of implementing the project as a whole. Step-by-step instructions on how to work out a business idea using various techniques.
The business idea itself is just the beginning of a long journey. Without testing this idea in market conditions and preparing a plan for further scaling, it will carry practically no value.
Let's take a look at what needs to be done to work out the idea for the prospects of further development.
Step Writing a Business Concept
Developing a business concept means working out all the important aspects. Without such elaboration, you can only count on your own luck.
The business concept includes:
- identification of the target audience and its features;
- study of competitors, their advantages and weaknesses;
- identification of risks and ways to minimize them;
- identifying options for further development;
- working out ways to attract customers;
- working out a mechanism for selling products.
How is a business concept different from a business plan? A business plan is needed to show potential investors how promising a project is or to get a bank loan. The business concept is prepared for their own understanding of the situation.
Step Validate Ideas
Idea validation is a way to validate your offer for economic viability. First, we draw up an MVP project - minimum viable product.
Essentially, this is an early trial version of the product that can solve at least one of the customer's problems and has the minimum set of features that is suitable for the final product released.
The purpose of launching this version is to check the interest of the target group. The minimum number of functions is needed to quickly launch a project with a minimum investment of time, resources and effort. After a trial period of such a trial version, you will understand what your product lacks and whether it is worth putting it on the market at all.
After the MVP of the project, you can start directly validating the project, that is, to check how interesting the product is to the target audience, whether it is ready to give money for it.
I took a course from Sberbank on entrepreneurship and in the very first lessons the speaker talked about what a business model is and why it is important. At first I did not understand why this was necessary, but over time, the realization came.
At the end of the article I will show the business model that I made for my project.
Why build a business model?
I am guided by the rule of what you call a ship, so it will float. First you need to understand how to work at all, and only then start to implement.
If you don't build a model, you get an example of Krylov's fable "Swan, Cancer and Pike". Where to go, what is the main thing, how to make money, what is the value? Without answers, the business will collapse at the very start.
A business model in my understanding is a representation of how your idea or your future business will work. Let's take a look at my example.
How does this template read? Quite simply, block by block:
- customer segments
- value proposition
- sales channels
- customer relationship
- revenue streams
- key resources
- next key activities
- key partners
- cost structure
In this article I will analyze the first 4 blocks, in the second part I will analyze the rest of the blocks. According to the assembled scheme, I will work on my project. I want and will be engaged in creating custom-made presentations of any complexity and for any purpose.
First block Consumer segments
What is this? And these are directly those with whom you will work. The main thing to understand here is that if you have multiple target audiences or "consumer segments", then you need to separate business models for each segment.
There are more formal segment definitions:
- mass market,
- niche market,
- diversified enterprise (serving several segments that differ from each other), li >
- fractional segmentation (several segments that are similar to each other)
- multilateral platforms (for example, a freelance exchange, one order, another employees)
The concept of "business" is quite broad, including business relations, entrepreneurship, a field of activity, certain circles of society, etc. Most often, the word business reflects an activity, the ultimate goal of which is to make a profit. The closest synonym for “business” in Russian is “entrepreneurial activity”. Entrepreneurship is an activity independently carried out by registered entities, associated with certain risks and aimed at making a profit from such actions as selling goods, using property, providing services, and performing work.
In view of the fact that entrepreneurship and business are synonymous concepts, we can distinguish certain characteristics inherent in them equally:
- Independence - means that the subject has independence in its business activities. It should be noted that independence in this case is divided into organizational and property. Property independence is inherent in entrepreneurs whose business has separate property as an economic activity. Organizational independence is the ability of a subject to make decisions on all significant issues related to his entrepreneurial activity.
- Risk. The implementation of any business idea involves risks. Entrepreneurial risks are not only a negative factor, but also an incentive to develop a business plan more clearly and calculate business methods. Business risks should be understood as the potential for the onset of a set of events that entailed unfavorable consequences for entrepreneurial activity, and these consequences include not only property and economic losses, but also the loss of business reputation, wasted time and labor.
- Systematic profit making. The implementation of any business plan is aimed at making a profit, and in order for an enterprise to reach a break-even level sooner or later, such profit must be systematic. Making a profit gives a business a commercial character, which is not lost even if the company incurs losses in a certain period.
- Business activity is expressed in the sale of goods, the performance of work, the provision of services or the use of property. This quality of business activity is defined by law, however, such a narrow definition is very unfortunate, since it cannot cover all the diversity of entrepreneurial activity, the variety of which only grows over time.
- A certain property of a business entity - it must be registered in the manner prescribed by law. If an entrepreneur conducts his activities without proper registration, his business is illegal and may fall under the Criminal Code of the Russian Federation or the Code of Administrative Offenses of the Russian Federation. Thus, state registration is a prerequisite for conducting proper business activities.
Principles of doing business in the Russian Federation
Certain principles of doing business on the territory of the Russian Federation are enshrined at the legislative level. In order to clearly understand how the state supports and protects entrepreneurial activity, it is necessary to present these legislative principles:
- Freedom of business. This principle has been enshrined in the Constitution of the Russian Federation and other regulatory legal acts. In accordance with it, everyone has the right to freely use their abilities and property for doing business and other economic activities not prohibited by law.
- Recognition of the diversity and legal equality of forms of ownership - privileges cannot be established for certain forms of ownership, the state equally protects and recognizes all existing forms of ownership.
- Common economic space - goods, financial resources, services can move freely on the territory of the Russian Federation.
- Freedom of competition, restriction of monopolistic activities. The state does not allow business activities that monopolize a certain economic sphere and unfair competition. This principle is aimed at developing an adequate market economy.
- State regulation aimed at achieving a balance between the private interests of business entities, the state and society.
- Principle of legality. When drawing up and implementing your business plan, you should be guided by the fact that your activities must meet the requirements of the regulatory legal acts of the Russian Federation.
Depending on the methods of generating income and the specifics of the activity, the following types of business are distinguished:
1) Commercial and commercial. The main type of business represented on the territory of the Russian Federation. The entrepreneur in this case does not produce anything, acting only as an intermediary between the manufacturer and the consumer of the product. The basis of commercial and commercial entrepreneurship is commodity-money relations.
Commercial and trade business is more attractive for start-up entrepreneurs, since there is no need to create a production base, the purchase of goods is possible at a much lower price than its subsequent sale, but do not forget about the high level of competition, which does not always has a positive effect on the size of the profit.
2) Production. An entrepreneur on his own produces products, performs work and provides services, and then sells them. Any business based on the idea of creating useful products for which there is a demand and the implementation of which makes a profit can be attributed to industrial entrepreneurship.
Many dream of starting their own business, but only a few do it. Organizing your own business is a very difficult task and requires going through a number of mandatory stages, including psychological, ideological, conceptual and organizational and technical aspects, which we will discuss in this article.
Any start requires a lot of effort, a lot of time, labor and, importantly, emotion. In addition, business is always fraught with risks. The psychological and emotional attitude is of particular importance. Starting your own business, you need to be prepared for the fact that you may have to sacrifice established family relationships, financial stability from the wages received, friendly contacts and personal connections.
But at the same time, you need to be sure of a successful result and give yourself clear answers to the following questions: Am I competent in the area where I intend to create my own business? How well do I know market rules and laws? is it capable of taking risks? Am I good at getting along with people? Am I firm in decision making? Do I have enough physical strength and emotional potential to be successful in doing business? Do I plan and organize my affairs well? How confident am I of success?
Of course, it is hardly possible to give positive and reasoned answers to all these questions with complete confidence, but it is necessary to strive to ensure that there are no decisively negative answers.
Business idea and business plan
A business begins with a business idea, which requires an answer to the question - what type of business should you choose? And there are many difficulties in this matter.
An entrepreneurial idea is the potential and necessity of a person's self-realization in order to solve his own goals by satisfying the needs of others.
Entrepreneurs often take a ready-made, working idea just by looking around, then improve it by eliminating the shortcomings. Indeed, it is relatively reliable, because it is easier to enter a formed market than to form it yourself. However, what is profitable, profitable and seems promising today may lose its relevance tomorrow. Moreover, sometimes in the same niche and in very similar conditions, some people get a profitable and developing business, while others go broke. It's all about competencies. A prospective entrepreneur should understand the field of activity where he is going to organize his business.
The best type of business is the one in which the future entrepreneur is particularly interested, as well as the one for which certain skills have already been formed.
After developing ideas, they move on to drawing up a business plan. A business plan is an analytical document that should contain the following information:
- characteristics of products or services (assessment of their advantages and disadvantages);
- market assessment;
- forecast of production volumes, sales of goods and services ;
- the need for equipment, raw materials, personnel, financing;
- marketing strategy;
- organizational structure of the enterprise;
- financial policy, forecasts expenses and income;
- risk analysis.
A competent plan will not only greatly facilitate the implementation of the process of starting a business, but will also help to attract financial support from lenders and investors, since it allows you to assess the company's prospects.
Business Model Concept
To briefly describe the essence of the business model, it is worth noting that this is a simplified, schematic, conceptual representation of the flow of business processes. This concept arises in response to the numerous challenges of the new economic reality that emerged at the end of the 20th century. More and more newcomers came to the business, and they did not have the time, money and knowledge in order to develop deep development strategies, they needed effective and fast tools to maximize profit. And the business model is a clear, visual way to see all the components of the case and find points for development and increase in profitability.
Approaches to defining a business model
The term "business model" first appeared in works on economics in the 40s of the 20th century. But then it did not become widespread, for a long time it was used in combination with the concept of corporate strategy. It wasn't until the 90s that business models became popular in connection with the concept of online business. Later, the term organically entered the lexicon of managers and economists in various fields, not only online. There are two main approaches to formulating a definition of a business model. The first is associated with an emphasis on the flow of production processes in the company and is aimed at finding the internal reserves of the company for additional profit. The second approach is related to the external environment of the company, in particular, with the consumer and his needs and values. In this case, the company chooses a consumer segment, develops a buyer, establishes a relationship with him. There are also many author's concepts, each of which formulates its own interpretation of this concept. In its most general form, we can say that a business model is an analytical tool that, in a schematized, visual form, describes all the processes in a company and helps to find points for making a profit.
The main goal of creating a business model is to find a way to develop the company. It helps to identify the advantages and competitive differences of the enterprise and to evaluate new business processes. Also, the business model allows you to determine the need to make changes to the already familiar ways of the company's existence in order to maximize profits. In addition, modeling helps identify weaknesses in the firm and eliminate vulnerabilities. The business model is a good tool for assessing the effectiveness of production processes and management organization. It gives a holistic view of the firm's activities and the state of the internal environment, improves the flow of all processes.
Business model and company strategy
It is not uncommon to find the terms "business model" and "corporate strategy" used interchangeably. Or even the strategy is presented as a constituent element of the model. However, there are serious differences between these phenomena. The strategy is based on a comprehensive analysis of the external and internal environment of the company and the formulation of long-term goals. And the business model is associated with relatively similar goals, it is rather a tactic, since it provides specific answers to questions about how to achieve goals. The business model of the project includes a set of necessary actions as close as possible to the current reality. It is more closely related to the financial sphere of the company. Strategy, to a greater extent, sets the direction of the firm's development, it has much less specifics. The optimal planning sequence is the development of a strategy, and based on it, the creation of a business model. In this case, strategy is an ideological platform for modeling.
Because the business landscape is extremely diverse, there are many options for business models. Theorists and practitioners find different approaches to defining this phenomenon and identify diverse sets of components in it. So, there are many supporters of the point of view that the business model of an organization includes such components as organizational and staff structure, resources, business process, functions of the organization, corporate strategy and produced goods and services. The generalized business plan model includes the following components: market and competitor analysis, organizational structure, marketing, production, finance plans, risk assessment, legal basis. However, these concepts are not entirely business models. Osterwalder's most popular business model has 9 main components: customer segments, customer relationships, distribution channels, supply chain, resources, core business, key partners, cost structure, and revenue streams. Below we will consider this model in more detail. Traditionally, the business model today includes such blocks as the consumer, product, marketing, suppliers and manufacturers, finance, competitors, the market, non-economic factors of influence.
Stages of building a business model
Any modeling begins with an assessment of the current situation and the formulation of goals. Further, the construction of business models is associated with the choice of a suitable template and its competent filling. Osterwalder, the world's premier business modeling ideologist, says the “design” process has five main steps:
- Mobilization. At this stage, it is necessary to conduct preparatory research, assess resources, outline goals and, most importantly, assemble the necessary team.