A business model depicts how a company will create, deliver, and capture value, and is traditionally focused around a main goal of selling a service or product. Ultimately, businesses have a tendency to be more sustainable after considering multiple business models before choosing one. There are multiple categories to be considered when creating an effective business plan, and some of those categories are highlighted below.
Relationships with customers
First and foremost, to be able to create sustainability and financial success, customer relationships need to be effectively established and maintained by the business. There are several types of relationships to consider before choosing one that can be of greatest benefit to the company. Those categories are: personal assistance, dedicated personal assistance, automated services, self-service, co-creation, and communities.
Take the time to evaluate and understand how the customer will interact with the business and throughout a product lifecycle. For a startup company, it is important to list and review all critical assumptions here.
Identifying the proper relationship must be a priority, as well as, determining the value of those customers in terms of their regularity of spending on the services or products. A business should aim for those loyal relationships that guarantee an income stream throughout the years.
Without the appropriate financial, human intellectual, or physical resources, a business cannot provide proper value to their customers. It is beneficial to list all of the company’s resources, including items such as case management software and shipping system. If there are funds available, consider using efficient checkweighers or other small tools that can help boost productivity. It is important to identify those resources and systems that need to be created, and which ones are dispensable and result in cost savings. From that final list, a decision can then be made on the amount of investment needed to operate the business as a sustainable business.
The resources that are put in place need to be more targeted or greater than those resources being utilized by your competitors.
Where are the streams of revenue?
Without the appropriate methodology to drive customer segments to purchase a service or product, a business will not run. Revenue streams can be created in various ways, such as licensing intellectual property, advertising, charging brokerage, subscription, or usage fees, selling assets, and lending, leasing or renting. In addition to choosing the correct revenue stream, effective pricing should also be listed and evaluated, and chosen based on process of elimination.
If the business is a startup or being re-engineered, it is important to determine where revenue is being driven.
What is the cost structure?
The cost of running the business needs to be known before the business can get off the ground, and can be either value driven or cost driven. Value driven businesses focus on providing maximum value to their customers, while cost driven businesses focus on minimizing the investment into the business. Some commonly known traits of cost structures to consider are: variable costs, economies of scale, fixed costs, and economies of scope.
A solid business model will be built on a practical realization of the costs of running the business. All costs should be carefully considered and have plans created for each cost, keeping in mind that there will be costs that will decrease and others will increase.
Every business is essentially a work in progress, but a solid business model is crucial for sustainable success and growth. Goals need to be set, objectives need to be mapped out, strategies for growth need to be created, and a valid rationale given for the choices. An effective business model will explain why the business makes sense, what resources will be needed to effectively carry out the plan, what team of people will be responsible for executing the plan, and what path will be followed to reach the desired outcome. The better the original analysis, the better the odds that goals will be reached.