One of the causes of business failure is improvisation when making decisions or executing actions. To avoid this, we must develop a business model, which is a tool before the business plan that helps us define the DNA of our company. But what is a business model for and how is it developed?
What is a business model for?
A business model is a tool that allows you to have a global vision of a business project externally and internally. It serves to define what we are going to offer to the market, how we are going to do it, who is going to be our target audience, how we are going to sell our product or service, and what is going to be our method of generating income.
Ultimately, it is about putting into a document what are the pillars of our business that will allow us to create, develop and capture value. Therefore, it is very useful to determine if such a project is going to be successful.
The business model serves as the basis for conducting strategic analysis, the
What is a business model for and how is it developed?
- Improve current business. Companies can better position themselves against the competition since they know how to identify their strengths and weaknesses. In this way, they will know how to act in case new competitors appear on the market.
- Collect and evaluate new business ideas. To evaluate the chances of success of a new idea, we must take into account aspects such as the company’s competitive advantage, its value proposition, and the benefit that this idea brings to the client.
- Determine the scalability of the business. Developing a business model allows determining the possibility of the company to grow. Thus, we can decide if we want to transfer it to new markets, develop new products, etc.
How to develop a business model
One of the most effective business models is the Canvas model, a strategic management tool that allows us to know the key aspects of the business, as well as the relationship between them. This business model is made up of 9 categories, which represent the basic components of an organization.
1. Customer segments
First, we must identify who our customers are. Organizations typically target more than one group of customers. Therefore, we can divide them into segments and identify each one of the specific needs and requirements so that the products and services are better oriented towards them. In this way, we will be able to satisfy our customers.
2. Value proposition
Next, we must define our value proposition, which is the reason for being a company. It must be relevant and allow us to meet the needs of our customers. We can base our value proposition on different strategies: quantity, price, service, delivery, quality, design, etc. The most important thing is that we manage to differentiate ourselves from the competition.
We must take into account the communication, distribution, and sales channels. In addition to focusing on the different points of contact between the company and the customer, we must determine how our organization communicates with the customer. Some of the decisive elements about channels are the location of the point of sale and the delivery service.
4. Customer relations
Interacting and maintaining close contact with customers is essential. The broader your customer base, the more important it is to divide it into different groups. Depending on the specific needs of each group, you will have to decide how you are going to address them and through what medium.
5. Source of income
To have a vision of how your organization earns revenue, you need to structure costs and revenue streams. You must determine how much income you get from the sale of your products and services, as well as define the volume of income you need to generate profits.
6. Key activities
If you can identify the core activities of your company, you will fully understand what your value proposition is. In addition to producing and selling, you must take into account aspects such as problem-solving. The most important thing is to be clear about the value that the organization offers to the client, because, in this way, you will stand out from the competition.
7. Key resources
The key resources are the means that the company needs to develop its activity. They are classified into the following classes: physical (assets such as business equipment), intellectual (knowledge, brands, patents, certifications, etc.), financial (related to the flow of funds and sources of income), and human.
8. Key partnerships
It is essential to create alliances with partners, both for start-up organizations and existing organizations. These partners will be the ones who provide key resources that will make your business model more efficient.
9. Cost structure
If you know the cost structure of your organization, you will know what is the volume of sales or turnover that you must achieve to obtain a profit. Costs can be classified as fixed or variable and direct and indirect. Depending on the business activity, the most appropriate types of costs should be selected. Both types must include all the costs associated with the activity and operation of the business.
Developing a business model will help us to have a global vision of the essential components of our organization. In this way, we will be able to identify opportunities for improvement in the short and long term. These improvements will translate into increased business productivity and greater business growth.