If you want to set up a company or introduce a new product/ service into the market, and you are not ready yet (or you do not want) to write a business plan, you may use a tool called a business model. It allows to describe an idea in a simple and quick manner. This idea may be later e.g. presented to potential investors.
Business model
The article makes use of The Business Model Canvas, made available on the license of Creative Commons Attribution-Share Alike 3.0 Unported License. Both on the Internet and in the literature there are several variants of this model that can be encountered.
Definition
A business model is a draft of a strategy, which is to be implemented in an organization, and thanks to which this organization provides itself with financial existence. It is composed of 9 elements describing the process of a company making money: (1) a segment of customers, (2) a value offer, (3) channels, (4) relationships with customers, (5) streams of income, (6) key resources, (7) key actions, (8) key partners, (9) a structure of costs.
A business model refers to companies by definition. Although, it may be applied in case of designing and developing one’s own professional career. In these both cases, it undergoes constant changes in time, and it needs to be updated, so it keeps to be effective.
A ready model should fit on one A4 piece of paper, posing an understandable and clear manner of description of an undertaking. What is more, little space require to stay focused only on the most significant elements.
Outline
A business model has a form of a single A4 page. It may be printed out, and particular fields may be marked down, drawn on a board or one of the free Internet applications may be used.
Description of elements
It is the best solution to complete the model in accordance to an agreed order (however, if you cannot fill any given field, you may move on and return to it later):
1. Customers
Each organization serves a certain group of customers. These may be individual customers and enterprises, those that the company benefits from and those, for which the services are provided for free, representatives of niche or mass markets, etc. Before taking any action, an organization should identify the type of customers that it wants to present its offer to. This will influence the values, distribution channels and relationships determined later.
Here, you need to answer a question about who the most important customers are, and who the created value should reach.
2. Value
The value offer (or the offered value) is a reason, why a customer chooses an offer of a given company and not of its competition. In other words, it is a benefit that a customer obtains while choosing this offer. A value offer can be of innovative character, but it does not need to be so.
An offer may e.g. fulfill a new type of customers’ needs, be adjusted to their specific expectations, distinguish with a low price, quality, be more available, provide a person, who chooses it with prestige, etc.
In this field, you specify the customers’ needs that will be fulfilled thanks to your product, what problem you are helping them to solve, and why it is important for them.
3. Channels
These are the manners of communication between the company and the customers. Here, you need to specify how and when the contact with a customer will be established. The channels not only enable to purchase the product, but also to find information about it, to produce one’s own opinion, or to obtain support after the purchase. These may be of indirect (e.g. partnership) or direct character (e.g. a salesman in a company’s headquarters).
It is worth to think about the channels that will be the most effective and beneficial, how the performed actions can be interconnected to make them compliant.
4. Relationships with customers
You need to specify the type of relationships between the company and its customers (e.g. is there is personal or automated support), and what is the purpose of its establishment, whether it is about winning new customers or maintaining the existing ones and encouraging them to spend more money. The type of relationship may also change in relation to the group of customers. You need to take into account the cost of maintaining a specific relationship.
5. Income
The company should point how much the customers will pay for a specific value, and how this payment needs to be performed. The income may be divided most generally into: this obtained one time from a customer (e.g. sales of a car) and this obtained periodically (e.g. car service). The income is obtained from e.g. sales, rent, agency, license charge. You need to think about how the customers would want to pay, for what and how much they can pay.
6. Key resources
Here, you will specify key resources, which will be applied so the undertaking can be successful, e.g. qualified specialists, finances, buildings, etc. They need to be considered in relation to offer of value, distribution channels, relationships with customers, sources of income.
7. Key actions
These are the most significant actions that a company needs to take so the business model is effective and the company may operate. They may be divided into categories, e.g. production, sales, service, problems solving.
8. Key partners
It is a network of suppliers, coworkers, thanks to cooperation with whom the company obtains additional benefits. You need to identify main partners of the company, and to thinks about which key resources may be obtained from them and which key actions they could perform.
9. Costs
Costs may be estimated on the basis of the defined key resources, actions and partners. They encompass all expenses, which will be incurred in accordance with realization of the business model.