08/26/2021
How to Develop or Transform a Business Model
A business model is a plan for how you intend to create, deliver and capture value through a business activity. That business activity is most commonly the sale of a product or service. It's often the case that an individual, or organization, creates a product, or develops a service, without first thinking about how exactly they plan to make a profit from it. If we're not careful, it can be quite easy to end up losing money in that kind of situation. Through the thoughtful development of a business model, we can minimize our risk of taking losses, and limit the number of surprises that arise as our business starts to grow.
There are about a dozen areas that should be considered when creating a business model:
Value proposition: What about your product, or service, makes it attractive to customers?
Target market: Who are the potential customers that would be interested in buying your product, or service?
Customer relationships: What kind of relationships do your customers want? What is the cost of these relationships?
Competitive Advantage: What about your product, or service, makes it difficult for competitors to copy?
Channels: How will you reach each customer segment? Which channels are the most/least efficient?
Cost structure: What expenses does your business require to function? What are your most important expenditures? Which expenditures cost the most? How do these affect your pricing?
Key Performance Indicators: How does your business measure success?
Resources: What physical, financial, and intellectual resources does your company have? What resources are required to maintain channels, customer relationships, and revenue streams?
Key activities: What key activities are required to maintain channels, customer relationships, and revenue streams?
Key partnerships: Who are your key partners and suppliers? Which key resources come from each partner or supplier? What key activities are performed by partners?
Revenue model: What is your company's framework for identifying viable revenue sources?
Revenue streams: What are the different ways your business can generate revenue?
Each of these is equally important. Leaving any of these areas out of your business model makes you vulnerable to unforeseen consequences of your business activities. When creating your first business model, it's best to overthink each area. Write down anything that seems relevant, and trim the fat later on. If you haven't started selling your product, or service, yet, it's best to hold off on getting started until you feel like you've answered each of the above questions thoroughly.
If you've been making sales without having put your business model down on paper yet, don't fret. If you're business banking account has been growing, you're probably doing alright. However, it would be a good idea to start developing a business model now, as you may realize ways in which you could drive both your top and bottom line growth in the future. Furthermore, you should have some real world data points to work with as you start to answer the questions.
The world around us is always changing, and our business model should be too. The more flexible our business model is, and the more willing to make changes to it as they become necessary we are, the more likely our business is to be successful. When we set out to transform our business model, we don't go through the full process that we do when we're writing one for the first time. Instead, we choose one area at a time to try to improve. We make changes to that area, collect data on the success or failure of those changes, and then make second round modifications. When we become satisfied with the integrity of a particular area, we move on to another and repeat the process. This process is ongoing. There will never be a time when you have a perfect business model. As soon as you feel like it is perfect, or close to it, the world around us will change, and you will be forced to adapt.
A bad business model is better than no business model. Running a business without one is like taking a road trip without a map. You need to have a solid understanding of where you are, where you're going, and how you plan to get there. Otherwise, you're setting yourself up for failure. The more time you spend planning your business activities, the fewer road bumps you're likely to encounter on your journey.
At AGS, we help our clients develop their first business models, and transform their existing business models to help them optimize their business strategies.
For more information on how we can help, visit our Business Model Transformation page, or send us an email at [email protected] to ask us a question!
