What’s a business model?
A business model is how a company creates values for itself while delivering products and services for customers. Before now, companies organize their businesses around functional department like the personal department, accounting department etc. in fact, we normally will use an organization chart to simplify hierarchy and roles. But today we are going to use a different diagram to describe all the pieces of your business.
The diagram contains nine building blocks that show all the essential glue that constitute a two-person startup to a billion-dollar company.
Let’s dive in:
You are advised to print the above diagram and fill the blank spaces with yellow sticky. Looking at the diagram above, you will see different fields that as you read on relates to your business. Let’s examine them one after another:
The word “value proposition” is a fancy word for “what problem or need are you solving”. It answers the question of what are you selling or what services are you rendering and for who is the service for? You must understand it’s not about your idea or product but more about solving a problem or need for your customers.
This is where normally you would list all the feature and unique value/benefit your business offers. Your value proposition is not all about your technology, as your customers don’t care about the tools you use to solve their problem, they all care about one thing and that’s getting their needs met daily.
You must know a foundational truth of who your customers are and why they should buy from you. Your customers do not exist to buy from you instead you exist for them. Among other things you should think about in this segment are the geographical, social characteristics, economic position and even the sex of your potential customers.
“We don’t want to push our ideas on to customers, we simply want to make what they want.”Laura Ashley
There is almost no possible way of knowing in total everything about your customers until you start. Most of your thinking here will be a mere hypothesis. All you can build now is a functional character or a representation of your ideal customer. Such a character is called a persona.
Some facts you should know about your customers include but not restricted to the following:
- Age range
- Level of education
- The social network they use frequently
- Job responsibilities
- Preferred method of communication
- Earning power or salary range
- Organizational size if you intend selling for business to business
- Biggest challenges
- Goals and objective
- How they gain information
How does your value proposition get to your target customer segment? This is what you want to figure out here. Before the information age, entrepreneurs used physical channels to get to their customers. If you have a product and you want to sell, your customers must come to you or you must go to meet them physically. Since the rise of the internet, everything has changed.
We now have multiple channels with which we can reach our customer segment. Some of these channels include web, mobile, cloud, virtual reality etc. As an Entrepreneur, you can also combine both offline and online channels for more efficient delivery.
Customer relationship has a direct relationship with the other channels listed above. It outlines how you intend to get customers, keep customer and grow them.
Customer relationship for web/mobile businesses is very different from a physical business. Among others you should answer the following questions about customer relationship:
- How do I get customers?
- What do to keep them and not lose them to competitors?
- How do I retain them and make them spend more money?
How do you make money from your value proposition sold to your customer segment? If you have more than one customer segment, then how do you intend to make money from each customer segment? What value are your customers paying for?
Consider the following methods below when picking revenue model for your business:
- Direct cash payment
- Freemium model where you hope some of your users turn into paying customers
- Subscription model
The best way to figure the right model is to talk to your customers over and over again because they are the ones you are delivering the service to.
What are the most important assets required to make the business model work? Do you need capital from family, a loan from banks, do you need a physical location, specialized machines, intellectual property like patent, license, customer list and even human resources.
List each one of those things you would need to make the entire business work.
Who are the key partners and suppliers needed to make the business model work? Also, you should ask yourself what key resources you intend acquiring from your partner, also what key activities they perform.
Think of partnership you will need from day one and not the one you will need in year three of your business because that is simply not where you are now. Here’s is a list of partners you should consider:
- Strategic alliances between non-competitors
- Suppliers and buyers
- Joint ventures
- List as many as possible, go out and start testing your list.
What are the most important things the company must do to make the business model a success? What key activities do you need to become an expert at so your value proposition will be very excellent for your customer segment.
It is going to be production, management, consulting etc. your company must be doing something to achieve here business model goals if all other segments must work perfectly well.
What does it cost to operate the business model? You don’t just want to look at a few but everything in entirety.
Here a few questions to ask yourself or team about cost:
- What is the most important cost?
- How costly are the most expensive resources?
- What key activities are the most expensive?
- What’s your fixed and variable cost?
Answer all these questions and you will be creating a very solid structure for your business.
Have you worked on the business model canvas differently? Share your thoughts on the comments section below.