How to write a business model
Today, many experts and specialists talk about business process models and talk about their effectiveness, but many novice businessmen and startups do not even understand what they are. In this article, we decided to figure out what this term is and in what cases it is used.
The business model is a unique strategy of the company developed with the peculiarity of various nuances, the main goal of which is to maximize profit. The model necessarily includes various values and directions that the company can offer to customers, that is, in fact, it describes the possible potential of the organization, the possibilities for creating a certain product and communicating it to the consumer in order to generate constant income.
For example, a restaurant model offers a cozy place for a visitor to relax, where he can dine and have a good time on his own or with his relatives / friends. The online store model implies the reselling of certain goods through the network and making a certain profit, while the commercial site model implies the sale of advertisements or links.
So what is a business model? This is a kind of connecting link between the organization's offer, target audience and sales of the company's products. By bringing this together, we get the necessary development and work strategy aimed at obtaining maximum profit. When developing a strategy, it is necessary to understand the nuances of the company's work in order to build a detailed plan for its development. She will answer the following questions:
- Who specifically influences the conduct of business processes and what exactly does he do.
- What kind of commercial idea works / will be implemented in the company.
- Who exactly implements the normal flow of business processes.
- What activities need to be carried out to improve communication and understanding of processes between branches or divisions of the organization.
- How to establish an effective system to manage human resources and train new employees.
What is the difference between a strategy and a model
Many entrepreneurs and managers often cannot answer how the strategy differs from the model, confusing these terms or considering them identical. In fact, this is not the case. The model is needed to draw up a variant of the rapid transformation of the company's supply into profit, while the strategy covers larger time intervals and considers ways not so much to increase profits as to the survival of the organization.
Attention: the model, in contrast to the strategy, does not consider where resources and financing will be attracted, it aims only to increase profits.
It is also more superficial, that is, when compiling it, you do not need to conduct a detailed analysis of the market, find out how much the product is in demand, whether the qualifications of the personnel are enough for its reproduction, etc.
Today there are many different models - it's almost impossible to describe them all. Therefore, we will consider the most popular types:
Create a business model
Who are your customers
Your clients can be divided into groups according to certain criteria. It is not necessary to use the template “gender / age / marital status”. You can take more understandable, simple and succinct descriptions, for example:
If your clients are other companies, then you work in the business-to-business (B2B) segment, if they are individuals, then in the business-to-consumer (B2C) segment. In some cases, both forms of work are encountered. Answer the following questions for yourself:
- What segment do you work in?
- Why exactly in this segment?
- How can you divide clients into groups? li >
What value does your company provide
Answer the following questions for yourself:
There are many values, primary or secondary. For example:
- speed of provision of goods or services;
- quality of service;
- convenience; li >
Customer value is the foundation of innovative business models. If it's difficult to articulate right away, consider the question. If there is value in your proposed product, consider how you can increase it.
A new section of the business plan is next in turn: “Description of the business model”. Today we will tell you why and how you need to draw up the next part of the business plan. And even if it does not seem so obvious, to some extent repetitive, in a professional (and not only) business plan, this is a necessary part. If only because it will give a new perspective on your small business idea and prospects for its improvement.
Why is there a business model section in a business plan?
An analysis of the business plan process shows the relationship between the business plan as a product of this process and the business model as the starting point of any planning process. The business model is at the heart of the business plan and can even simplify the planning process for the main lines of business. At least the basic calculations of costs, revenues and profitability can be seen through the business model.
The business model focuses on four pillars of the business: customers, supply, infrastructure, and financial sustainability. These elements are detailed in the business plan.
It's easier to start planning if we have a foundation. With the help of a business model, our planning process will focus our attention on the right things.
And, of course, it will be easier to convince the investor of the profitability of the investment if a working business model is presented that will make the business profitable.
What is a business model?
As a formal one, we will use the definition from the book "Business Model Generation - Alexander Osterwalder & Yves Pigneur":
A business model describes how a business creates, acquires and delivers value.
Description of the business model: what questions should it answer?
To make it easy to complete this part of business planning, let's try to classify the main questions that you, as an entrepreneur, should answer:
- Which market segments will the business serve, or who will you sell your product or service to?
- What value or benefit will the business offer?
- How and how will this value be presented to the market? This is a simple answer to the question of how your product and / or service will come to the attention of each segment that you identified above. Note that different segments may prefer different delivery channels.
- What will be the relationship with consumers? Both before and after the sale of a product or service, a business must maintain specific relationships with consumers. The answer to this question should be given here.
- What will be the income? Income is the result of the process of delivering value to customers and receiving money for that value. To do this, you need to design the size of each segment and its market share. Note: here use only assumptions and your previous knowledge, and you will do a full market analysis later.
- What do you need in order to deliver the value you offer to the market? This includes all the resources your business needs to successfully produce and distribute value to consumers. It can be people, equipment, knowledge, technology, or something else. Everything should be listed in this subsection.
- What should you do to realize this value in the market? You must undertake various activities to accomplish the primary goal of producing and delivering value. For example, manufacturing, marketing, sales ...
- Who are the key partners in the business process? You are not alone in this process. Do you have suppliers, investors, consultants, partners ...
- What is the economic structure of a business? All items that make up a particular business model create or have some value. It is best to also develop an economic structure in this section to determine the possible costs, although, of course, there will be details in the financial part of the business plan.
Rethinking the business model
What it is: O A business model is a collection of analyzes and reflections on the very concept of a company. It is he who indicates whether this idea will be valid and whether all parts will correctly complement each other, forming an effective system. Already a business plan is a document that shows what is necessary for the success of a company.
Why Do It: A well thought out business model helps you see how a company can operate and sustain itself, as well as its market strategy and differentiation. There is a Business Model, of course, provides an understanding of how the heart of the company works, and strategically assesses how to improve it.
Before starting any venture, it is important to develop a model and business plan. But do you know the difference between them? For many people, both mean the same thing, but in reality they are completely different. To ensure the success of your business, it's important to better understand what each is and how they can affect your business.
Difference between model and business plan
A business plan is a collection of information, calculations and analyzes that demonstrate the viability of a business. That is, this document should contain a description of how the business will be built, what steps, what investments are needed, detailed costs, steps, incomes, etc.
This document is the one that will be provided to a potential investor to confirm the viability and potential of your business. It is with you that you will reduce risk, better plan every step and investment, and fix problems before you get your idea out of paper.
Since they are related, these two tools need to be configured. Thus, if the business model is changed, the Business Plan will also need to be redesigned to fit the new ideals of the company.
What should be included in the business model
The business model must include information, calculations and analysis that define the product or service provided to customers, how the company deals with suppliers, employees, customers, etc., and how it will benefit.
Thus, developing a business model is the first step in preparing a company and precedes the creation of a Business Plan. Among the many tools and points that need to be analyzed when creating a business model, we highlight some of them that deserve attention:
Today there are 7 generally accepted and most popular business models on the Internet. They are not necessarily used in their pure form - someone successfully combines them. Moreover, it is much more profitable and more correct to combine and complement each other with them.
Business model: what it is and why
A business model is a description of the company's monetization: what makes up its profit and what its costs. A business model is a must-have section of a business plan for any self-respecting firm.
A business model is needed so that a site or company understands how it plans to make money and what its expenses are. It makes it easy to figure out the target audience, how the product will look and how to sell it.
The company's business model is needed by potential investors. If an investor wants to invest in a company, then he studies its business model - it is necessary as one of the markers of return on investment. With a business model, a project is much easier to start, because its leaders have an idea of what to work on.
Typically, a business model has three interdependent parts. Everything depends on the product being created, because it is through it that the company makes a profit:
- Product creation - production, design work;
- Product promotion and sale - this includes marketing, advertising and PR, as well as the sales channels themselves; <
- Product monetization - its cost, how customers buy it and what the price depends on.
How to Build a Business Model - Osterwald Pattern
How to build a business model - what should you pay attention to first? The modern Swiss business theorist and consultant Alexander Osterwalder believes that a business model should consist of 9 key components. Each of these components is very important and participates in generating profit. To build a successful business model according to Osterwalder, each of these components must be filled in with answers to critical questions. List of Osterwalder business model blocks and key questions:
- Key partner - who is this and what do we get from them?
- Key activities - what will we do and in what format?
- Key Resources - What resources do we have and what do we need for sales? What should be the sales and distribution channels for a product or service?
- Value propositions - what do we offer to customers and why should they choose us? What needs do we meet and what problems do we solve?
- Customer relationship - how will you find customers and maintain their loyalty?
- Consumer segments - who is our target audience, which will bring the most profit?
- Cost structure - without what costs the company cannot exist? Revenue Streams - What Will Customers Pay For? Will it be a one-time purchase or a subscription for example?