The success of your business venture starts at your business model, yet so many entrepreneurs lack the basic understanding of what a good business model actually is. If you’re among this group, don’t worry, you’re certainly not alone.
Which is all the more reason to gain valuable insight and an advantage over your direct competitors. To help you do so, we are going to review some basic business model components that every entrepreneur should be aware of, as well as to guide you around a few missteps that could undermine your growth.
So whether you already have a business model in place, or if you are currently in the process of putting one together, here’s what you should know to set yourself up for success.
A strong business model is the building block of any successful company or operation.
There are basic foundational components that you should be aware of regardless of the type of business model or company you’re operating.
Finally, learn about the common business model pitfalls that could save you both time and energy.
A business model is, in short, the single most important component of business success. It can singlehandedly decide the fate of your company before you’ve even launched it. This is why it’s so essential to get this step just right, and also why it’s baffling that so many entrepreneurs still struggle to understand what a business model even is.
In very basic terms, a business model is a plan of what your company is set out to achieve, and how it hopes to make profit while doing it. It seeks to answer all those important questions surrounding your customer identity, their needs and desires, and what your service or product hopes to accomplish to solve those needs. If that sounds fairly straightforward, let’s take a look at some details of what your business model should consist of.
What Value Do You Hope To Provide?
A truly successful business seeks to fill an existing need or demand, not create one out of thin air. So the first thing your business model should consider is your customers’ specific needs. What do they value most, and how do you hope to satisfy their needs while meeting those values? Without this basic understanding, it will be impossible to determine your target audience, or the best marketing strategy to get your company off the ground.
Who Are Your Most Likely Customers?
Once you’ve defined the type of value your company seeks to bring to your customers, it’s time to figure out exactly who those customers are, what their particular pain points might be. You’ll also figure out how these customers can be segmented to help you streamline your marketing plan. Your marketing approach will vary according to each customer persona, so it’s important to get as detailed as possible from the very start. This will greatly improve your marketing efforts down the line.
Where Do Your Customers Like To Hang Out?
Let’s say you’ve been able to identify your target audience, now you’ll need to pinpoint exactly where those customers spend their time online. Start by researching which platforms and channels are being used most by your demographic; these are the same channels and platforms that you will use to target potential leads through your marketing material. You should also analyze the cost of advertising on any of the given platforms to choose one that best fits your budget.
Know Your Demand And Cost
Just knowing who your target customers are isn’t enough; you also have to create real demand for your product or service. To do so, you’ll need to forge relationships with your customer base and establish their trust, all of which takes a certain amount of investment. Add these costs to the cost of resources and activities needed for your production, and you’ll have figured out your baseline cost. This number is important in determining how you price your services or products in order to make a profit.
Know Your Key Activities and Resources
Next, you’ll need to define your key activities and resources. This means figuring out exactly what activities and steps you’ll have to perform to make your business a success, including establishing distribution channels and forging the customer relationships we mentioned above. Once you’ve got a good idea, you’ll also need to learn what all of these activities will cost in order to determine the total amount of resources you’ll need to cover them.
What Strategic Partnership Will You Need?
Businesses don’t exist in a vacuum, so when you’re putting together your business model, you should also account for the strategic partnerships you’ll have to establish to make your company a success. These can be suppliers or social media influencers that drive your brand awareness. Just know which entities will serve as key partners and what necessary resources or services they’ll be providing to your business.
How Do You Hope To Earn Revenue?
When it comes down to it, your business model should clearly state how your company hopes to earn a profit. There may be more than one revenue stream for your business, so it’s important to define each one clearly. These numbers will be largely determined by your prospective customers and what kind of price they are willing to pay in exchange for your product or service.
Look Out For These Pitfalls
Business models are, to a certain point, based on predictions and educated guesses, which is why it’s not at all uncommon for a business plan to develop a problem or to come up short against an unforeseen issue.
This isn’t an actual problem, unless you’ve built a rigid business model that doesn’t evolve along with your growth. The business market is changing constantly, so if you don’t want to be left behind, try to retain flexibility and don’t be afraid to correct your errors along the way is you want to stay competitive.
Another common error that business owners make when creating a model is not thinking big enough. Your business model needs to be comprehensive enough to foresee the future availability of necessary resources and future competition along with changing consumer behavior. If you’re not actively thinking about and preparing for the future success of your company, you may run the risk of limiting it.
Perhaps the most important part of your business model is that is should, first and foremost, fit your company’s mission and goals. This is why it’s crucial for any entrepreneur to go through the detailed preparation process before embarking on their journey. Just remember to forge a thorough but flexible plan to account for any unforeseen changes during your course of operation. The process will lay groundwork for your business operations, while your ability to evolve along with the changing times will guarantee it’s future success.