Important Facts About A Business Model

If you’re planning to have your own business, then the best way to start is by making your own business model. This plays document plays very important role in the success of your business as it will illustrate how your company will make money. If your business model isn’t working, then your business most likely won’t be successful either. Even if you are a great leader or salesman or motivator, if you don’t have a good idea of how your actions will actually result in a profitable business you won’t produce glittering results.

The best way to understand how a model works is by using a diagram which shows the way various parts of a company flow. Included in this diagram are the way a product is distributed to consumers and the way money flows back into a company. This also describes the cost structure of a company, how every function works together, and in what way a company can network with other companies in implementing their business.

There are various types of models for a business, from the most basic pay-for-product model to the more complex e-business and advertising models. For instance, if you’re planning to start a one man or woman food cart, the model of your business will just be to earn money by cooking and serving meals to hungry clients. On the other hand, the model for an online business might be a bit more complicated because it involves different kinds of ways of making money. For instance, some online businesses earn money by offering services for free and then selling advertising to other firms, while there are those who sell a service or product directly to internet clients. As you can see, it is possible to put together different types of business models in a business plan. For instance, besides your brick and mortar retail store, you can also earn extra money by selling advertising on your store’s website.

An effective model for a business contains various components such as the following:

1. Value proposition—this describes the customer’s problem, the product that deals with the problem, and how customers value the product.
2. Target Market—this refers to the particular group of customers to focus, acknowledging the fact that various market group have various needs.
3. Business process—this explains in detail the business systems, often by means of charts and diagrams, showing all processes in the business and the way these inputs are transformed into a finished product or service ready to be sold to consumers.
4. Revenue generation—this describes all the means by which revenues are generated, such as sales or fees related to the services.
5. Cost structure—this shows the expenses of a company both in buying assets and in daily operations, such as wages, utilities, supply costs, fees, and shipping costs.
6. Competitive advantage—this describes the company’s relation to its competitors showing the way a business establishes itself in a competitive market and gain consumers amidst many alternatives.
7. Business strategy—this describes the way a company attempts to establish a sustainable advantage over their competitors, let’s say by means of differentiation, cost, or niche strategy.

While a model should not lack any of the elements discussed above, entrepreneurs should always be on the lookout for new features that they can implement into their company’s model recognizing that business models are dynamic and always changing. The best way to do this is by studying business books and conferring with other professionals about ideas related to the industry.

For newbies in the field of business, here’s a simple way of making a model for your own business.

1. Make a vision statement. This is very important to keep you on the right track and to get your plan of action across your investors. Through a vision statement, you can clearly and concisely show what you plan to carry out with your business. Up front you should be able to explain whether you want to develop a product or provide a service for a niche market.
2. Specify the type of products or services that you are offering. You should explain the reason that you are starting the business. Make clear how your products or services will help your target market. Determine what your target audience is and the basic price points of the products or services you are going to offer. Also, list possible areas of expansion once you have been successful with your core business. All these are very important pieces of information as most investors or lenders will be looking for them when you present the model to them.
3. State what kind of marketing strategy you’ll be using and how you plan to carry it out. Explain how you plan to attract consumers to your business. You should also include a plan B and a plan C in your model because even the best plan can be ruined. Showing potential investors that you are well prepared to meet and overcome obstacles early on will give you the edge when you present the model of your business to them.
4. State in your model your financial plan as well as your year-long and five year goals. You will have to detail the operating cost for paying employees, leasing the business site, and marketing your product. The best method is to include your expected monthly operating cost for each month in the first year of your business.

One of the most important functions of a business model generation exercise is it allows the potential business owner to really develop a detailed plan for how their efforts are going to be converted into profits. The longer you spend on developing your business plan model, the more you will get a feel for what will be necessary in order to reach success. In our simple idea above about the food cart you may start off thinking that the costs are going to be very low so it is guaranteed to be a money maker. But, when you consider the cost of the cart, the potential target audience, finding a site for your cart, the expense of supplies, and various business and governmental regulations you may find that it will be very hard to make a living no matter how many days you stand out in the cold rain and snow cooking hot dogs.

This article should help explain what is a business model but in basic terms and now you should try to find some business model examples of enterprises in your area of interest. You can often times develop these yourself by observing a successful business, listing all the activities that go into the day to day operations, and talking to people who are already doing what you want to do. Keep in mind that a business owner in your neighborhood may very well be a future competitor so they will probably not want to share a lot of information. In this case, you will be better off contacting people in other areas of the city or even in other localities.

If you are thinking about stating an online business there are hundreds of ways to can go to develop a system that basically involves building a web site and then monetizing it some how. There are Ebay business models (hosting auction information on your site), Google business models (the main form of revenue comes from visitors clicking on ads), Amazon business models ( product reviews and information entice visitors to buy a product from your Amazon account), affiliate business models (you set up a site that is devoted to selling other people’s products), or even Twitter business models which involves sending out short messages to your followers to build excitement about the product or service you offer.

A really good thing about a model for a business is that there is really no perfect formula for it. It is very flexible and so anybody can write their own model for the potential business as long as he or she includes all the necessary components.

As the old adage goes, “If you fail to plan, you plan to fail.” Before you sink your hard earned cash and effort into a new venture, be sure there is at least a good chance that you will find success and that your plans make sense from an economical standpoint.

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