Is becoming an entrepreneur your dream? Are you flooded with business ideas? Are you passionate about starting your own business? Then hold on, and think once again. In this competitive world, where about 100 million start-ups launch every year, make sure your business idea fits in the market. The ultimate aim of any business is to generate revenue. The foremost step to be kept in mind before initiating a start-up should be a well-planned business model that provides an overview of your efforts and expectations.
Wondering! What exactly a Business Model is?
A business model is a conceptual structure of ideas and process that answers what, why, where, and how about any business idea. It explains what your product intends to do and how it will create value for the customer as well as the company. The complete process and policies of a company are a part of the business model.
Need of a Business Model
- Testing the theoretical idea.
- Focus on the target market.
- Track finances required for the start-up.
- Estimate the desired profit.
- Forecasting market opportunities and all possible issues.
Components of a Business Model
- Who is the Target Customer?
- Value delivered to the customer
- How to operate the business?
- Profitability from the business
Types of Business Models
Different businesses have different business models. A few of them are mentioned below:
- Manufacturer – They make finished products from raw material and sell them directly to the customer or middleman. Say; Ford and GE.
- Distributor – They buy products from manufacturers and resell them. For example Auto dealers.
- Retailer – They sell directly to customers. Let’s say; Walmart, Amazon.
- Ecommerce – Focuses on selling products by creating a web store on the internet. An example can be Alibaba and eBay.
- Subscription – It provides customers with long-term contracts and recurring revenue through repeated purchases. Netflix is an example.
- Aggregator – Selling others’ services under their brand name. Such as Oyo and Uber.
- Online Marketplace – It provides a common platform to different sellers who compete with each other and they earn commission on every sale. For instance; Amazon and Overstock.
- Agency Based – It acts as a partner company that handles non-core tasks such as advertising, digital marketing, etc. Usually, several other companies hire them.
- Network Marketing – It is a pyramid structured network of people who sell a company’s products. More and more people are made a part of this pyramid structure and they earn by selling and commission basis.
Important Factors to Keep in Mind While Creating a Business Model
- Customer – The foremost element on whom the business survives and flourishes is the customer. Choosing a business model that adds value to the customer is preferred over the profitable one.
Your business model must depict a clear picture of your target customers, their buying patterns, and needs. It must also explain why a customer should buy your product and all probable problems they face that you can solve.
Many business models target different customer segments while some on a single segment. For Example, the SEO company serves two segments, one performing searches and other advertisers.
- Market – Analyze the market based on product requirements in the market, availability of customers interested in buying, current market situation. Your model must include a detailed study of competitors. The strategy they are using and what uniqueness you can provide to attract the customer.
The newcomers with similar start-ups must also be considered as soon they are going to become competitors. Incorporate business strategies to beat already established giants. A backup plan to create a market is also necessary.
Although it is difficult but not impossible. For Example, JAVA was initially created for television in 1991. It didn’t work at that time. But a slight change in the business model made it open for all web browsers.
- Distribution – The business model must have complete planning of distributing products to target customers. The various options to choose from include physical stores, direct sales force, e-retail markets, etc.
The one you choose must be based on your affordability, target customers, and product type. For Example, Amazon serves its customers online and at the same time, it provides a platform to different sellers also.
- Capital – The capital required for a start-up may initially seem sufficient but while you start working on a business model a clear estimation can be made. The amount that you charge from customers will not be able to cover up the capital very soon.
Your business model needs to have a backup plan to fill this gap. It may be in form of collaboration, funding, advertising, etc. For example, advertising on Google, to be displayed in front of advertisers pay Google that generates additional revenue for it.
- Value Proposition – This defines what value you provide to the customer by buying your product or availing your services. What customer problems can be sought out? What all needs you can satisfy?
Some common value prepositions include Innovation, performance quality, customization as per the need, brand, status, pricing, risk reduction, cost reduction, and convenience. For Example, Skype provides two value prepositions i.e., free internet and calls at a cheap rate.
Other telecom providers build and manage a huge complicated infrastructure while Skype relies on backend software that serves hosting user accounts.
- Project Scale – This is an important factor in the successful growth of a business. A start-up business model must be very well-prepared keeping in mind increasing demands in the future. There must be enough space for improvisation and serving the customers in a better way.
- Relationship – The success of any business depends on its customers. So it is very important to keep in mind How to get a customer? How to keep the customer and How to grow with the customer? The customers encounter your business or product and buy it.
Now it is your turn to hold on to them. Offering discounts, after-sale services, and memberships are few ways to do that. Growing with customers means timely updating them about your products, sending messages, newsletters and staying in touch with them will help in maintaining long-term relations.
- For Example, Facebook keeps its users updated with all changes and keeps on sharing their memories through posts.
- Costs – It may be monetary or non-monetary. This is something that plays a very important role in beginning a business model. Ultimately all sorts of start-ups whether they are big or small require money to spend.
Your business model must consider all aspects before launching a start-up. Although it is very challenging, once a proper business model is prepared your work becomes quite easy. You have a clear image of your start-up and all backup plans towards the path of success.
If you are budding entrepreneur and ready to launch your company, this guide to choose right business model will help you in materializing your idea of business.