5 Things All Good Business Models Must Have
Business models are vital to make any new venture successful. It is of the utmost importance that entrepreneurs create these models themselves, which serve as a framework for their companies. It is a benchmark to determine whether your company is on track. A good business model will define your goals and how you would want to reach them.
Designing an effective business model helps the organisation to meet its business goals. It also improves a business’s ability to cope up with imitation (can competitors replicate your business model) and avoid substitution (how easily can your product or service be replaced in the market).
A business model will include your business plan – where will your idea begin, how should it move forward, and how will you measure success. It will also include a plan to create value for your customers.
Follow these steps to create a robust business model:
It is important to establish what you wish to achieve as a company. Business goals are a road map to where you want to reach and how to reach there. The business goals will be an outline of the vision and mission of the company. It will include core values that will define the organisation. For example, being ethical, being environment-friendly, attaining zero-emission, etc.
It will also include business strategies for achieving tangible and intangible goals. Examples of tangible goals could be to build a very profitable company, reach a certain turnover in a certain period, or increase the overall revenue. Intangible goals could include creating brand value, goodwill in the market, workplace and environmental CSR activities, charitable initiatives, etc. Business goals will also include action plans for achieving the set goals.
Market and Competitor Analysis
Perform an analysis of the market or industry the business is going to enter. It will help you narrow down on the geographies (where to market), target audience (whom to market to), demographics (age, gender, ethnicity, income), consumer trends, and your possible share of the market capture.
Along with market research, a strong analysis of competition will help the company develop a strong value proposition. What opportunities are out there? Who are we competing with? What are they offering? Is their price point better? What is their market share? Who is their target audience? What are the pros and cons of their product or service? A detailed study will help you position your product or service better. It will lay the foundation for your marketing strategy to launch your product or service in the market and later sustain it.
Establish a Business Process
Your business model should have a clear-cut business process laid down. Whether it is the manufacturing, sales, or procurement process, everything should be clearly defined. These processes become the means of achieving your business goals. It is important to lay down the organisational structure to ensure clarity in roles and responsibilities. It is also necessary to identify the right talent for your organisation, who will add value to the team and help realise the set goals.
Identify the key resources in the company and the strategic alliances with reputed vendors, suppliers, logistics companies, and advertising and marketing agencies, to reinforce achieving business goals with efficiency.
Marketing and Sales
Your business model needs to talk about strategies to generate leads and closing sales. It is of great importance. You need to define sales targets here and show the projected sales for investors to understand your expected turnover and revenue. List all the assumptions you have considered while forecasting the sales number.
Your marketing strategy will have to complement your sales targets. The business model will include your marketing strategy which should:
- identify actions to make your brand known in the market
- include plans to reach your target audience
- mention the different marketing techniques you wish to use to capture the market and the time frame to achieve it
- include a strategy to establish credibility in the market and maintain brand communication (personality and tonality)
One of the most important parts of your business model is the financial projections. A detailed projection of sales, overheads, profits, break-even point, and expected return on investment are some of the key touchpoints of financial planning. You should also mention the possible financial risk and mitigation policies. When seeking investment, a detailed financial plan can help investors build credibility about your business model.
The business model is indispensable for any business, from private limited companies to public limited companies. Take sufficient time to construct a good and detailed business model. You can also consult advisors or professionals, wherever necessary, to build a self-reinforcing business model. Ensure that it is aligned with your business goals. Your business model showcases your discipline and serves as a standard for tracking business goals. It forms the solid foundation on which you can build your successful business empire.