Posted by: Doug Barra
Is your current business model working for you? If you are like many business owners, the business model you started with is not the one you have currently. The one you have may have just happened. More than likely, you do not have a formal business plan in any form.
Yet, an essential part of business planning is a well-defined business model. It helps to define the way your company is going to make money. It defines how your company works from purchasing to customer service.
Here are the elements of a successful business model:
- Your value proposition defines your products and/or services. It outlines the features and benefits of what you are offering. It focuses on what makes your offerings unique versus what your competition is offering. It examines the size of the market opportunity. You can also include your minimum viable product. That is the product or service that offers the highest return on investment with the smallest amount of risk.
- Your customer segments define who your customers are and how your product or service helps them. Quite often this part of the business model includes a complete marketing persona. The persona outlines the customer’s common demographics, goals, challenges, values, and fears. Your business may have more than one persona.
- Your channels of distribution helps define how you sell and distribute your products or services. A channel defines how your company moves product from a vendor to a consumer. It also defines how the consumer’s payment goes back to the vendor. A channel can be either direct or go through intermediaries, including wholesalers, agents, retailers, and distributors.
- Your customer relationships define how you will create demand with your target audience and support that demand both short and long-term. Building and maintaining these relationships includes activities like marketing, sales, technical support, and customer service.
- Your cost structure defines how the costs for your products or services are distributed. It needs to include both your fixed and variable costs. Fixed costs can include line items for staff wages, manufacturing overhead, administrative overhead, etc. Variable costs can include direct materials, direct labor, commissions, product returns, and early payment discounts, among others. Defining and managing these costs are essential to your business planning.
- Your key activities are the tasks that your business needs to do to deliver your value proposition. Manufacturing firms need to design, manufacture, and deliver products. Healthcare professionals focus on diagnosing and treating patients’ illnesses and injuries. A mortgage company helps property buyers get loans.
- Your key resources are the assets that your business needs to succeed. This can include physical elements like a store front, manufacturing facility, or delivery van. It can include intellectual elements like brands, patents, copyrights, and customer databases. It can include human elements like skilled machinists or aggressive sales people. It can include financial elements like a line of credit or business loan.
- Your key partnerships are the essential relationships that make your business work. Suppliers are obvious relationships for most business. Other partnerships can include strategic alliances with competitors, licensing agreements, and distributor networks.
- Your revenue streams are how you bring money into the business. Common revenue streams include customer payments, ongoing payments, after-sales services, asset sales, usage fees, subscriptions fees, renting property, licensing fees, and advertising space.
Defining each of these elements will help you create a successful business model. If you are serious about your business planning, this exercise will transform the way you view and manage your company. And remember this. Your business model will change over time. Keep it up to date to keep your business on track.