The importance of having a great business model
Creating a business model isn’t simply about completing your business plan or determining which products to pursue. It’s about mapping out how you will create ongoing value for your customers.
Where will your business idea start, how should it progress, and when will you know you’ve been successful? How will you create value for customers? Follow these simple steps to securing a strong and successful business model.
Identify your specific audience
Targeting a wide audience won’t allow your business to hone in on customers who truly need and want your product or service. Instead, when creating your business model, narrow your audience down to two or three detailed buyer personas. Outline each persona’s demographics, common challenges and the solutions your company will offer. As an example, Home Depot might appeal to everyone or carry a product the average person needs, but the company’s primary target market is homeowners and builders.
Record key business resources
What does your company need to carry out daily processes, find new customers and reach business goals? Document essential business resources to ensure your business model is adequately prepared to sustain the needs of your business. Common resource examples may include a website, capital, warehouses, intellectual property and customer lists.
Determine key business partners
No business can function properly (let alone reach established goals) without key partners that contribute to the business’s ability to serve customers. When creating a business model, select key partners, like suppliers, strategic alliances or advertising partners. Using the previous example of Home Depot, key business partners may be lumber suppliers, parts wholesalers and logistics companies.
Create a demand generation strategy
Unless you’re taking a radical approach to launching your company, you’ll need a strategy that builds interest in your business, generates leads and is designed to close sales. How will customers find you? More importantly, what should they do once they become aware of your brand? Developing a demand generation strategy creates a blueprint of the customer’s journey while documenting the key motivators for taking action.
Below are seven questions to help you evaluate your business model in detail. Scale the performance of your business model from 0 (bad) to 10 (excellent).
- What is the effort for your customers to switch to another company?
- How scalable is your business model?
- Does your business model produce recurring revenues?
- Do you make sales with your business model before investing?
- How much does your business model encourage customers and other players to create free added value for your company?
- How well does your business model protect you from the competition?
- is your cost model substantially better than that of your competitors?
When it comes to evaluating your own business model, try to objectively answer these nine questions. After you do that, ask yourself the ultimate follow up question: Do you have a great business model or not?