In the previous delivery I looked at the difference between an entrepreneur and an inventor and gave some guidelines for aspiring inventors. This week I want to look at business models. Every business, whether it can articulate it or not, is executing some form of a business model. The term “business model” is one of the terms that has different meanings to different people and this has led to some confusion (and probably frustration) regarding to what the term actually means. My interpretation is that a business model is a business’ plan for creating value, making a profit and differentiating itself from the competition. It guides an organisation to create and deliver products/services and monetize them. It describes the product/service, who is it for, what channel sells/delivers it, how demand is created and how does the business make profit
The Business Model
The reason why I want to discuss this topic is because many entrepreneurs get lost in the excitement of the idea and starting the business, and forget to properly think through how they will generate income. It does not matter how passionate you are about your idea or your business, if it is not going to generate enough income to sustain your business. Passion does unfortunately not pay the bills.
Furthermore, creating a business model isn’t simply about completing your business plan or determining which products to pursue. It’s about mapping out how you will create ongoing value for your customers. Where will your business idea start, how should it progress, and when will you know you’ve been successful? How will you create value for customers? For those who really want to dig deeper, Alexander Osterwalder is the definite authority on this topic and his books “Business Model Generation” and “Value Proposition Design”, which sold over a million copies in 37 languages, is well worth a read.
For those who want the shorter version, here are some good pointers (Alton, 2015). 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. 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. 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. 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? Establishing exactly what your business offers and why it’s better than competitors is the beginning of a strong value proposition. 5. Determine key business partners. No business can function properly without key partners that contribute to the business’s ability to serve customers. When creating a business model, select key partners, like suppliers and strategic alliances. 6. Create a demand generation strategy. How will customers find you? More importantly, what should they do once they become aware of your brand? Create a blueprint of the customer’s journey while documenting the key motivators for them to take 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.