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How to create a great business model

Whether you’re launching a new start-up or thinking of taking your existing organisation in a new direction, a business model gives you a strategy to follow. The best business strategy model looks not only at your target audience and product lines, but also how you’ll boost your company’s value over time. First off, take a look at our business model definition.

Business model definition

Used as a general term to describe a company’s plan for bringing in profit, “business model” is a recent addition to the lexicon. It was first used by Peter Drucker in 1994. However, the concept behind a business strategy model is anything but new. It gives businesses a roadmap for identifying a target market, related expenses, and the products or services that will be sold.

Types of business models

There are many different types of business models to follow. Here are a few classic examples:

  • Online retail

  • Brick and mortar retail

  • Direct sales

  • Franchise

  • Advertising based

  • Subscription model

You can also have hybrid versions that combine all of the above, as well as business models that rely entirely on services without any sales platform.

What does a business model canvas look like?

To better understand your business model, you might want to use a canvas template. The business model canvas is laid out in a grid pattern that provides an easy visual reference for these plans. It offers a template when developing a new framework for your business, with separate sections for your business’s value, customers, and resources.

There are several core building blocks that make up the business model canvas:

Customer segments

Instead of casting a broad net to attract your audience, targeted customer segments allow you to be far more efficient. As part of your business model, whittle the audience down to targeted buyer personas. These could be defined by demographic, need, or lifestyle.

Value propositions

What makes your business stand out from the crowd? What makes your products unique? Sum up your value into clear, concise statements that are easy to communicate. Define value propositions and link them to long-term goals.

Channels

This section of the canvas shows how your business will be communicating with the customer segments. Channels are frequently used touch points like websites or social media.

Customer relationships

What type of relationship will you have with each customer segment? This should be defined from the beginning in order to help you work out a sales strategy. Some businesses will prefer a more personal touch, while others might go the automated route.

Revenue streams

Define the revenue streams you anticipate generating from each customer segment. This section of the business model is particularly important to investors, who need to know where and how the business will generate its cash flow and profit.

Key resources

Which resources are needed for the day-to-day function of your business? This should be outlined in the business model canvas. Think not only in terms of capital, but also in physical property, online spaces, and intangible assets like intellectual property.

Key activities

What actions will you need to take to make your business work? This could range from product development to employee training.

Key partnerships

Which suppliers will you need to work with? Do you have strategic partnerships lined up with investors or advertisers? These should all be defined as key partnerships in your business model.

Cost structure

Finally, cost structure looks at all of the costs needed to keep your business model up and running. Advertising, maintaining relationships, and creating valuable products all incurs cost.

You can refer to each area of the business model canvas when designing your own framework. By fitting your model into this user-friendly template, you can quickly communicate your business model to others. It’s a useful visual aid for board meetings, investment presentations, and company workshops alike.

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