A business model is different from a business plan but is often its foundation.
When you can successfully design your business model, you become more encouraged to draft a business plan.
There is a difference between a business plan and a business model. The former tends to look at the whole business setup, including its market strategy, financial implications, future predictions, and so on. The latter only considers the sources of revenue for the business.
Why are we considering the difference?
Well, some business gurus have tried to relay business plans to the background saying entrepreneurs only need a business model to run a successful business.
While there is still a debate on that, we cannot deny the essence of designing a business model or as some people would call it, a revenue model of a business.
It is merely a term used to measure how a business makes money. It is the monetization of a company’s products and services as well as their customer interaction. It discusses methods firms adapt to ensure that they keep the profits coming while cutting down the cost.
When designing a business model, you must aim to answer questions based on the value of the business.
What is its value proposition, how does the business intend to create this value, how will it deliver this value to the target market, and so on.
To answer these questions in an organized way while designing your model, you’ll need to use the Business Model Canvas, which is available to anyone under the Creative Commons license.
Most venture capitalists are more likely to ask entrepreneurs seeking investors to describe their business models using the business model canvas.
This canvas became popular after the author of Business Model Generation, Alex Osterwalder talked about it in the book and seminars.
The business model canvas contains boxes which an entrepreneur should use when discussing the strategic options of the business about the value-creating processes and the revenue generated when setting up the business model.
A business model aims to discuss four fundamental values which are:
- Value creation
- Value propositions
- Value delivery
- Value capture
Under the value creation, you have three boxes that have a relationship with it, which are the vital partnership, activities, and resources.
The key partnership
This box considers the critical partners of the business. It looks at the network of suppliers and partners who are of utmost importance to the smooth running of the company.
These group of people contributes immensely to the success of the business, and if they are not available, there will be no production or services to carry out, which will result in dire consequences.
Working with the right partners helps mitigate the challenging aspects of the business. You can achieve more productivity when you outsource most parts of your business to a reliable partner you are sure will give you a return on investment.
The key activities
This box describes the key activities business has to engage in to ensure the products and services come out fine.
Every vital activity needs to be described in details from the beginning of the process to the end without missing out any parts. The events represent how the business intends to provide value to its customers.
For example, the activities of a restaurant would involve ordering the raw materials, preparing the food, then serving it to customers, etc. It is essential to describe every action that brings value.
The key resources
This aspect includes the crucial resources that a company needs to make available to be able to create value. It tilts more to their financial resources and what it can acquire for them.
The vital resources here may include loans, financial assets, seed capital, office facilities, vehicles, factory plant, heavy-duty equipment, trademarks, trade secrets, proprietary data, employees, and so on.
You’ll find the box for this aspect at the center of the business model canvas.
It involves the key benefits that come with the product and services of a company when compared with what the competitors are offering.
In this box, you should be able to describe the value your products or services are offering to the consumers. How does it alleviate their pains and what are they gaining from using it that your competitors are not providing.
The gain here might be a reduction in price, an increase in quantity or quality for a lesser amount of money. There should be something to prompt the customers to choose your products or services offer the competitors.
How do you reach your consumers and customers? For a business to successfully satisfy its target market, it needs to have a clear and valid channel of distribution.
Under the value delivery, you’ll find the value delivery, customer segments, channels, and customer relationship.
Segmentation helps to break big tasks into smaller parts for easy resolution. When you can segment your customers according to their demographics or needs, it becomes easy to meet their expectations without discrimination.
This aspect describes the medium through which you communicate with your target market. It could be face-to-face, especially if you own a physical store or it could be through distributions or direct sales if you operate from a factory or office space.
Your business should know the type of connection to keep with its customers. And it all depends if it’s going to be a long or short term transaction.
The value capture located at the bottom of the canvas defines the whole essence of the business model design. It is how the firm makes money at the end of the day as well as its operational cost.
Under this box, you’ll find the cost structures and the revenue streams. The former describes how the business spends money to bring in revenue while the latter refers to how the firm ensures it monetizes every activity involving the customer’s interaction.
To be able to design your business model, you need to have an in-depth understanding of your business and the values it intends to bring to its consumers.
Why you should use our services
Designing a business model entails more than filling the blank spaces if the nine boxes in the business model canvas.
You will need to be able to articulate the relationship between each of the boxes and how they can generate revenue for the business with low operational cost.
Your business model must be convincing to investors if they are going to part with any sum of money to help make your ideas a reality.
We can help you design a compelling business model that will not only attract investors but will ensure they get a high return on investment from your business.
We are here to help you with a winning strategy on how to design a useful business model that will place your business above its competitors and maximize profits