A winning business model does not guarantee success, however it will certainly significantly increase your odds. There is more to an effective business model than simply ensuring you have a plan in place. A business model, to be complete, requires both a clear, concise plan and a defined strategy.
Evolving a business model can be challenging, however it’s worth it, if it enables your team and stakeholders to have buy-in and connect through the process.
Before your business can go live, it is imperative to have an understanding of the activities required to make your business model work. Firstly, determine key business activities by identifying the core aspect of your business market offering. Then, Coraggio has compiled a list of 6 essential steps to designing a winning business model, or improving your existing one, as follows:
1. Understand your audience
The key to honing in on customers who truly need and want your product or service is not targeting a wide, scatter-gun audience. Instead, the best approach, when creating your business model, narrow your audience to two or three detailed buyer personas.
Ask yourself, What does my perfect client look like? Characterise each persona’s demographics, common challenges and outline the solutions your company will offer or the problem your market offering solves. As an example, Ikea may appeal to everyone or provide at least one product the average person requires, however the company’s primary target market is homeowners.
Industries are constantly changing and keeping your finger on the pulse on the broader industry, when building a company is critical. Key drivers vary from a shift in new technologies, geopolitical issues, corporate events, as well as environmental changes.
2. Assess required resources
What does your company require to carry out daily processes, find new customers and reach business goals? Document essential business resources to ensure your business model is adequately prepared to sustain the needs of your business. Common resource examples incorporate a website, capital, warehouses (if relevant), intellectual property and customer lists.
Studies have illustrated the average product or service captures only 13% of the potential market. So, are the remaining 87% is distributed amongst your competitors? This large percentage of buyers is typically undesirable, unseen, underserved, or undetected. For example, the average American home has 2.73 television sets and 2.55 people. That’s nearly 400 million television sets in the United States. In the 1940s, major television manufacturers were happy to sell one television per block. Television manufacturers assumed they were saturating 100% of the available market, however today we have televisions in refrigerators.
3. Establish your point of differentiation
What makes your company stand out amongst the competition? How does your competition’s business model stack up versus yours? Are you providing an innovative service, revolutionary product or a new twist on an old favourite? Can you articulate your business’ unique market offering?
Identifying exactly why your market offering is better than your competitors is the beginning of developing a strong value proposition. Once you’ve got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.
There may be opportunities to emulate business models superior to yours. For example, the Android operating system emulated the ease-of-use of Apple’s operating system. In addition to comparing your business model with others, you should compare your model with unrelated industries.
All businesses have competitors, directly or indirectly. Your competition’s business model provides opportunities to emulate best practices. Even Google copies Apple. In the most objective fashion, assess what your competitors do better than you. Are there any opportunities in these competitor’s best practices? There’s an old saying, “The fastest way out of business is imitating your competition. “Imitating your competition is not innovation. However, taking a good idea started by your competitor and taking it to an entirely new level is innovation.”
Another consideration is engaging in activities your competitors won’t as this presents a valuable opportunity. Examples including extreme guarantees, customer self-service and freemiums (a product or service that is free, however users pay for advanced features).
4. Foster relationships with employees, customers, and suppliers
A business is unlikely to function properly let alone reach established goals without key industry partners that contribute to the business’s ability to serve customers. When creating a business model, identify mutually beneficial partners, including suppliers, strategic alliances or advertising partners. Using the previous example of Ikea, key business partners may be wholesalers and logistics companies.
Team turnover is challenging, however the right human resources shapes your company culture. It is imperative to have the right people doing the right things right. People that don’t need to be managed and provide insights and outputs. When you decide to sunset a product or feature, some employees may not align with the new vision, however employee turnover is costly. Clear communication with both staff and customers is critical to create a shared vision of success and positively impact your company culture.
5. Optimise for expansion
A common saying is that seed stage investors back teams, not products.
For a founder, this means that if you’re seeing high engagement in an early business model, it can often be difficult to convince your board that the best decision is to walk away from that model simply because you’ve come to hold a different conviction about the future.
Launching a company and developing a business model, is based on many assumptions, and for this reason, it’s important to leave room for future innovations. It may be a critical mistake thinking your initial plan is a static document – the key is to be agile and fluid.
Hockey great Wayne Gretzky claimed that the secret to his success was skating to where the puck was going to be, versus skating to where the puck was. Gretzky lacked the natural talent of many other hockey stars, however, his ability to predict the near future outweighed pure talent. The ability to look into the future and spot trends can be a valuable asset. Many business people avoid predicting the future because they are afraid they will be wrong. No one can predict the future with 100% accuracy. It’s a question of how wrong you will be, not if you will be wrong!
6. Seek coaching and mentorship
So how do you position yourself on a path of reflection, improvement and accelerated learning? It’s simple really – whether you require a sounding board to assist integrate your professional development or generate improved personal development initiatives and a better work-life balance, it’s important to acknowledge you can do anything, however you can’t do everything. Therefore, the most crucial aspect of any mentoring relationship is to be open to accepting objective advice, on-point, insightful guidance and innovative suggestions.
Imagine if you gained the peace of mind to seamlessly access these answers and navigate other business challenges as they arise, simply by connecting with industry peer leaders and entrepreneurs?
This is the strength of peer to peer and leadership mentoring.
We encourage you to leverage Coraggio’s support system and capitalise on our give-and-take dynamic amongst people who have walked the path before. They will guide you with permission, to enter into a mutual exchange of expertise.
Afterall, in the words of Henry Ford “If everyone is moving forward together, then success takes care of itself”.
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