Determining Your Business Model
Determine your business model. Ugh! What’s that? It’s the way you intend to generate revenue and profits as well as how you plan to serve your customers.
The business model expresses the logic of your business.
Remember, you are going to need to offer your customers more in use value than in cash value. Think about it. Of course, there will be payment, but the transaction needs to be a pleasure, not a pain.
Defining your business model is how you
- identify your market;
- define and differentiate your products;
- get and keep customers, creating utility for them;
- how you get to market: promotion & distribution;
- how you define what’s to be done;
- the way you will set up your resources;
- how you’re going to do all this at a profit.
The entrepreneur has a clean sheet on which to design the business model. The choice is almost infinite between adopting a known or proven model used by established firms or what is called in the jargon, a disruptive model, that follows no existing models, or combines elements of existing ones in novel ways.
To guide your thinking, here are several business model dimensions against which you can set your own business. None of these are mutually exclusive or complete. You will decide where you are on the dimensions relevant in your marketplace.
Online–Bricks-and-Mortar–Both
Retail–Wholesale–Contractor
Manufacturing–Service–Combined
Own Production–Outsourced–Multiple Sourcing
Price Elasticity–Price as Marketing–Commodity Pricing
Reseller–License–Franchise
Single Sale–Repeat Sales_Subscription–Membership
Bait-and-Hook (e.g., printer/ink)–Reusable–Disposable
International–National–Regional–Local
If you follow the excellent advice in a book called Blue Ocean Strategy by Kim & Mauborgne, you will go for the uncrowded waters, unless you have a product, price or delivery model that cuts through the crowd. The authors and their team at INSEAD business school developed the Buyer Utility Map (shown in the graphic by Zanthus). You can use the map to aid your own strategic thinking.
Given that your business model design may come to you in a blinding flash, chances are high that working it into usable form may turn out to be quite complex. Maps like the one above or other tools can be very helpful in breaking through. Mind mapping may be a way to go. Though not specifically designed for business modeling, you may find that the free mind mapping tool, XMind that offers a brainstorming tool as well and both can be exported to a PDF, Word or Power Point (XMind Pro at a small fee offers even more). Another free option is FreeMind, that will also help you visualize you business. It is particularly useful to those who like working intuitively. You right-brainers will love it.
Business Model Planner: if you are impatient to get on with refining your own business model, help is at hand. You can make direct use of the Startup Owl’s Business Model Planner.
The Startup Owl’s Business Plan Outline Tool sets out the chapters that would be expected in a formal business plan. This may also help you see the logic of spending time figuring out a clear business model.
