Planning is the most important aspect when starting a business. It can seem like a tedious matter when you have a whole lot of things to plan and take important decisions on – starting from who your customers would be, what you will be selling, how your business will make money, etc. Before you make any vital decisions, it is important to identify and analyse the problem that you are going to solve for your customers in the current market. This may pose a challenge as there must be a need for the product or service that you are planning to sell, and you need to establish that your product is going to solve a real problem. Ensuring your niche in the market is one of the key challenges when starting a business. The other major challenge could be figuring out how you are going to make money. This is where the business model comes into play.
What is a Business Model?
A business model outlines how a company plans to make money by selling its product/services to its customer base in a specific target market. A business model offers an appropriate explanation to the questions: 1. Who is your target customer? 2. What does the customer value? 3. How does the business deliver value at an appropriate cost? The basic goal of a business model is to create good intentions to persuade customers to buy their products or services, build trust for the delivery of goods and services with the appropriate value, fulfil the needs of the customer and establish a profit-making system in the business workflow.
A business model is a critical element for any startup company as it unlocks the long-term value for the company. A business model establishes the unique value for several stakeholders in your business and explains how your business can get value from your solution in the market. As per Harvard business review, Companies take 3 vital choices when creating a business model:
· Policy choices – a company’s take on all operation related activities
· Asset choices – decisions regarding all tangible resources the company deploys for its use
· Governance choices – refers to how a company handles decision-making rights over the above two choices.
Importance of Business Model
The business model is the foundation block that an entrepreneur lays out to build the business – consisting of its key elements such as structure, content, and governance. In addition to targeting the specific customer base for the company’s product or services, a business model helps in shaping marketing strategies, and projection of the revenue and expenses depending on the type of business model and clientele. For an investor, the business model offers an open window to analyze the company’s competitive edge. This helps them have a better grasp of the company’s financial health.
Creating a business model forces you to put on paper the fundamentals of our business. It helps you identify and analyses important aspects of your business such as – what problem you are trying to solve in the market, how you will sell your products or services to your customer base, how you will create value for your customers, how your business will stay competitive and sustain, estimated revenue and costs, profit formula, etc. Evaluating different business models helps you make a realistic evaluation of the potential success of your business idea.
Moreover, existing business model frameworks help to evaluate and assess the current strategies of the company and recognize any need for changes in terms of its core deliverables and values. It helps to identify any innovation required based on the needs and preferences of the key stakeholders in the business.
How to create a business model
Define the problem that you are going to solve
The first step to creating the business model is to identify the problem in the market that you are going to solve with the product or service offering of your business. You will need to research and identify key gaps in the current market and translate these gaps to opportunities for disruption. The problem could be a function or emotional one depending upon the type of product or service that you are offering.
Define the customers for which the problem will be solved for
You will need to identify and square in on the customers who are affected by the problem defined. If the customer base is large, you will need to narrow down your key target segment to two or three detailed buyer personas. Narrowing down the problem and customer base can lead to better execution and experimentation of the business model.
Establish business processes and resources
Once you draw in on the core aspect of your business offering, it would be easy to then identify the key activities required for your business to establish the desired outcome. The key activities vary vastly depending on the offering and industry. Identifying key business resources would be the next step to ensure your business model is adequately equipped to sustain the needs of your business. Some of the resource examples include websites, capital, raw materials, machinery, digital technology, etc.
Develop a strong value proposition
Your newly ideated business model needs to unlock value for all the key stakeholders of the business. Establishing exactly what your business is offering and how it is uniquely differentiated from the offerings of the competitors is the key aspect of a value proposition. You need to have a value proposition linked to each service product offering. Once you have these established you will need to figure out how you will sustain this value over a longer period.
Create a demand generation strategy
A demand generation strategy helps create and build sustainable interest and awareness over the brand that cultivates leads. Creating a demand generation strategy helps roadmap the customer’s journey while identifying the key motivators along the line.
Leave room for innovation
When you start your business, your business model and business plan will be based on many assumptions and variables. Until you open your doors to welcome new customers, you never know if your business model will meet the needs of your customers. As such it is important that your business model has enough room for changes and innovative business strategies to evolve as the business grows.
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