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How to build your business model

26 Jul 2018 . category: business . Comments
#business #start up

Ever since I was in college I was always interested in the business and the startup world and after moving to the USA and being in multiple hackathons that presented the opportunity to pitch an idea to a potential investor.

I was always getting asked this famous question what is your business model?

That made me realize that this thing called business model is very important if I was to be serious about starting a company so I spent a good amount of time educating myself about this topic and watching shark tank.

so what is a business model?

A business model is essentially a framework or a blueprint that describes all the elements that your business stands on and how they all work together to provide both value for your customers and revenue for you and your partners, a good business model captures all aspects of the company from it’s mission to the targeted market and the strategies followed to translate the mission into concrete action that can provide value to the customer.

A business model should always be pitched in a narrative form telling the story of your company and it’s mission emphasizing on the value you provide and the how it can generate revenue, But since the human brain works better with visuals, a great tool called the business model canvas was proposed by Alexander Osterwalder based on his earlier book: Business Model Ontology.

business model canvas

Figure 1 : business model canvas

How to do it?

The art and science of asking questions is the source of all knowledge. _ Just wanted to through a quote in here

so in this section, we will see what questions we need to ask during the process of defining the model.

As you can see there are multiple sections in a business model that need to be defined and connected to each other, but most business models are built around one crucial section that value proposition.

Value proposition

this is the engine of a business, it is the main reason why your customers are paying money for your product so it better state clearly what benefit they are getting in return.

Note: if you have multiple clients you need to write a value proposition for every client

In order to define your value proposition you need to ask questions like :

Why would a client pay for my product ?
what needs are being fullfiled ?
How is my value proposition better than my compititors ?
is it faster ? is it cheaper? do i have a better design? is it customizable?

Clients

Some argue that this section is more critical and that the business model should be built around it and the argument is that no matter how good the product is if you don’t have clients then your not making a dime. However, each one is as important as the other and they both need to be clearly defined.

Answering the following questions helps you define your targeted market

What's the type of my clients ? am i selling to businesses or to final consumers ?
am i targeting a niche market or a mass market?
do i have free users?
Where do my clients live?
What is the age span i'm targting?
How do i categorize my clients ? by location? by the type of service they need?

Channels

Channels are the missing link between the value proposition and the client, it is how the value is sold and delivered to the client we recognize two roles for a channel it can act either as sales channel or a distribution channel, some products for example video courses or eBooks can be both sold and delivered by the same channel in this example the website or the app, other products such as T-shirts or grocery could be sold through a website but they are delivered either by mail or picked up at the store.

to define your channels you need to ask yourself

what are the touch points between my business and my clients ?
how do i sell to my clients ?
do i use an online store? do i put my product in retail stores ?
do i offer delivery ?

Customer relationship

Now that you have a viable product, a client base and your channels are generating sales. You can relax and watch your favorite show right?

Wrong, a better strategy is to make your clients loyal to your brand at the same time you are using your channels to expand your client base.

Continuous engagement with clients with special deals and updates helps maintain the attention of customers even after they made the purchase

the following questions help define the customer relationship

do i offer customer support ?
how do i keep engaging with my clients ? email marketing? keep offering discounts? social media?
How do i leverage current clients to expand? referral system?

Revenue Streams

It’s not a winning business if it’s not generating money, revenue streams represent the cash flow (not the profit which is equal to revenue stream - costs) in other words, it defines all the ways your business makes money.

All streams basically fall into one of the two categories

One time payement
Recurring payements (subscribtion mode)

Multiple ways of earning revenue can be envisioned

Product sales : products can be physical such as T-shirts or digital like online courses
Subscribtions : most common are monthly subscribtions with the option to buy a full year with a discount
Enabling Advertising : charging businesses to advertise on your platform to your clients
Licensing an intelectual property : pattented property can be licensed for a fee

Note: in case you have multiple clients the revenue stream for each one needs to be clearly defined

These are some of the questions asked when defining the revenue streams

how many streams do i have?
what is the main source of income? product sales? memberships? Ads?
Who pays me and how?
Do i have fixed or dynamic pricing?

Key Partners

This is the network of people and businesses that help make you more effective as a business, because it would be a big burden to own and manage every resource outsourcing it to a partner is the most logical solution,for instance if your business is based on a software you might not want to buy and manage all the hardware that your software runs on so you choose Amazon or Google to be your partner and host your software on their cloud.

What you want to be asking here is

Who can i delegate work to?
Who are the partners without whom my business cannot run? or will have big difficulty to run?
What resources can i alleviate?

Key Activities

As you might have heard the business is not going to run itself, so there are some crucial activities that need to be continuously performed.

These activities include but not limited to

Producing the value which can be a product or a service
Selling and marketing your product, specific tasks can be planing ad campaigns, customer education
regular improvment and maintenance of the product

Key Resources

These are the resources that are needed to sustain and support your business. These resources can be categorized into four main categories:

Physical resources: such as raw materials and machines to make your product, or servers to run your software or the buildings where all the work is done
Human resources: the employees that your business wouldn't function without
Intelectual resources: your brand, patents, and copyrights. It can even be a way to do things that is special to your business, or a recipe if you are in the food industry
Financial resources : this can be either cash or credit

Costs

All of the resources and the activities and working with Key Partnerships add up to a global cost that is needed to deliver the value.

Costs can be either fixed costs like rent and salaries, or they can be variable costs that are dependent on the volume of your client orders such as delivery and storage fees.

Other costs that not too obvious are things like registration fees for the business, electricity, water, transportation you take every day … etc.