Categorized | Business Advice

Creating a Killer Business Model

Why You Need to create A Business Model

business modelNo one goes into business to be the same as everyone else (if you are you may want to rethink opening a business). Creating a business model before you begin operations can help you set early goals for your business. This will also help you establish your value proposition and keep your business heading in the right direction. Early on new business owners are often overwhelmed with work. There just doesn’t seem to be enough time in the day. With all the commotion it is possible you can get off track and focus on things that aren’t absolutely vital to your success. By generating a business model you can keep yourself on track, define goals, craft strategies, and differentiate your business from your competitors.

How To Create A Business Model

To develop your business model you will need to think about a few important elements for your success. These include:

•Key Partners
•Key Activities
•Value Proposition
•Customer Relationships
•Customer Segment
•Key Resource
•Cost Structure
•Revenue Stream

Key Partners

Who are your key partners and suppliers going to be? As you develop your business model you will need to decide if you are going to produce high quality, cost effective, or a balance between the two. Understanding what you are trying to accomplish will help you establish relationships with key partner businesses. Before you even purchase any product from them you can start developing these relationships to get better pricing, faster delivery, or great customer service. Building partner relationships will help create a much smoother supply chain when your under tight deadlines and constant pressure from customers and clients. By prepping the partnership you can help the other partners understand what you are trying to accomplish and clearly define what you nee from their business.

Key Activities

Your business main operations. This will clearly define what you are going to do as a business. It’s simple to say we are going to sell widgets. When developing a business model you really want to narrow down what your core service will be. Define what your key activities need to be to meet your value proposition (see next section). You will also use your key activities to guide your businesses key relationships. This step will help you define your revenue stream will be, your value proposition, and develop initial customer relationships.

Value Proposition

value propositionYour businesses value proposition is what makes you different from your competition. Your value proposition will state what you will be doing differently then the competitors and how this business can serve your target customers better then the current competitors do. For your value proposition you need to first figure out if you will be competing based on quality or price. After you decide the core principals of your business you can then begin to define what else makes your business different. In this step you want to develop your key differentiation such as having excellent customer service, a faster turnaround time, or a new solution to an industry wide problem.

For instance, if we take a look at the automobile market BMW makes performance cars while Toyota makes economy cars. Both businesses are extremely successful at reaching their target market. However, each brand stands for something different. BMW stands for a luxurious car that is a little sporty and can be a great ride. Toyota stands for a car that will get you from A to B, with little maintenance, great fuel economy, and cost effective. Each business has a core set of principals that if follows to create value for their target customer. While price can be an important part of a customers decision to purchase one brand or the other, it is not the only decision that the customer needs to make. They also need to decide if they want a sporty ride or a comfortable ride. If they have a far commute they may choose Toyota because the car will last longer, with less maintenance, and require less fuel. Each brand has created a value that will appeal to their target customers. By creating value for your business you will better reach your target market by having your product or service fit their particular need.

Customer Relationships

What relationship will the target customer expect from your business? When your generating your business model you will decide if you are going to serve a local, regional, national, or global market. When you pick your target market you can begin to develop and establish protocol for developing your customer relationships. Some businesses have few customers where others have millions. If you are serving only a few customers you will need to spend more time building and maintaining relationships with these key partnerships for your business. If you are serving a national market the communication you have with each customer will decrease significantly.

Customer Segment

customer segmentThis step will help you decide what customers you are trying to serve. Every business needs to pick a particular target customer they want to satisfy. It is impossible to satisfy everyone, because everyone does not have the same needs and desires. In your business model clearly define who your optimal customer is going to be. This will help guide everything else about your business. The target customer will help you decide how you can best serve this customer and what you are going to need to get them interested. Your customer segment defines who your most important customer is and who you are creating value for.

Cost Structure

Your cost structure will help you determine what the key costs for your business will be. This will also decide what the most expensive resources and activities are. By understanding your cost structure you can generate a break even point and develop projections to see how much revenue you will need to generate to be profitable. Your costrevenue streams structure will help you develop your core services around the most profitable operations for your business. Based on the relationships you developed you may be getting a better price on a certain part or piece used in your operations that leads to a more profitable product. After deciding your most profitable products or services you can better understand who your target customers will be and how you can reach them.

Revenue Stream

The revenue steam is the lifeblood of any business. During this stage of your business model you will determine what a customer is willing to pay for the value you have created. You can analyze what they currently pay and how they would prefer to pay. You will also see how each revenue stream will contribute to overall revenue.

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