Are you launching your startup and trying to develop a sustainable business model? Or possibly you launched your small business with a model that made sense several years ago, but it needs an injection of fresh perspective? Or … maybe you’re wondering, “What in the world is a business model?”
The subject of “business models” is often misunderstood, incorrectly associated with revenue models or not even broached at all. But it’s comprised of essential core assumptions that will help you iron out the dirty details and work more intelligently.
Often we spend a lot of time and energy on what’s next (version 9.0) that we forget what made our companies successful in the first place – mastery of the basics. Simplicity is essential in business. Yet sometimes it feels like the hardest thing to achieve. So if you’re in need of business clarity, you’ll soon find it by doing one simple thing — re-evaluating your business model.
Building a Simple Business Model
By definition a business model describes how you plan to create, deliver, and capture value. Is that vague enough for you?
It seems intangible because it operates as an umbrella for many different aspects of how you do business. Specifically it defines how “you deliver value to customers, entice customers to pay for value, and convert those payments to profit.” And it’s not to be confused with a ‘revenue model.’
A revenue model is a way to generate revenues, like charging your customers or advertising. A sound business model includes other important aspects and indicates how your company:
Creates and delivers value to customers,
Earns a profit (revenue model),
Utilizes various functions (staffing, machinery, technology, branding, etc.) and;
Incorporates processes (operations, manufacturing, etc).
Revitalizing Your Business Model
Now that you have business model clarity, it’s time to evaluate your business. Here are eight simple questions that can transform and breathe new life into your business.
1. Who is your customer?
Have you correctly identified your primary buyer? Often times the audience we identified at the outset of our business changes. Look closely and avoid wasting marketing dollars talking to the wrong people. Not sure? Employ lead gen efforts to find out.
2. What is your value proposition?
Can you clearly identify the benefits that a buyer will derive from your products or services? This one simple statement should indicate why someone should buy from you. Think, “What’s in it for me?” and you’ll have your answer.
3. What are your key activities?
What things do you do during the course of business to yield a profit and execute your value proposition? An example would be creating an efficient production process to drive down costs.
4. What are your revenue streams?
How are you yielding a profit? Is one way of earning profits outperforming another – or are you missing out on ways to increase revenue altogether? There is more than one way to make money (i.e. freemiums, affiliate marketing, lead generation, e-commerce and so on).
5. What is your cost structure?
Detail every single expense that it takes to manufacture your product or provide a service.
6. Who (and what) are your key partners and resources?
It’s time to ask yourself, “Who can I partner with to optimize, scale and reduce risk?” and “What suppliers should I work with?” Start by seeking out complementary businesses in your industry and researching suppliers. For example, if you own a products-based company, use ThomasNet to source product and discover new suppliers.
7. What are your distribution channels?
Are you effectively reaching your customers? Many small businesses sell through a single channel or via multiple channels that may include: Wholesalers, Distributors, Internet, Catalog, Sales Team, Value-Added Resellers (VARs), Consultants, Dealers, Retail, or Sales Agents. If you haven’t found success with one, it may be time to test other channels.
8. What is your roll-out strategy?
How will you introduce new products and services customers? Developing an effective marketing campaign to generate awareness along with targeted sales tests may be a good start. Develop a strategy that works and repeat.