Every successful organization has a foundational blueprint called a business model that serves as a strategic guideline for its daily and long-term operations.
Definition of Business Model
A business model is a high-level plan by a business to profitably create, deliver, and capture value within a specific market. It is the core of an organization’s business strategy.
Whether for a startup/SME or an already existing enterprise, a good model should distill the potential of a business down to its essence and answer fundamental questions about the problem being addressed, steps to solving it, and the growth opportunity within the target market.
These questions can be simplified into three (3) key questions.
- What does it take to solve this problem? This question addresses the value proposition, raw materials, manufacturing, labour, and so on.
- How do we sell this solution/value proposition? This question addresses the areas of marketing, distribution, delivering of the service, and processing the sale.
- How do we get people to pay for the solution/value proposition? This question addresses the pricing strategy, payment methods, payment timing, etcetera of the business.
Types of Business Models
Business models are dime a dozen, but to design one that works effectively for your startup and SME, it has to be designed based on the unique need of the business, the market it operates in, etc. Popular models utilized in the traditional and emerging technology business space include;
- Direct sales, franchising, advertising-based, brick-and-mortar, hook and bait, etc mainly used for traditional businesses.
- While Subscription, Freemium, Affiliate, Retail sales, etc are more common models used by technology companies.
As the business landscape advances businesses are creating hybrid models – fusing two or more models to creating a single effective working model for their businesses.
Importance of Business Modelling
There are several benefits of a good business model design, but for a startup or SME the key benefit includes;
- It helps develop a framework in the organization that guides the implementation of the company’s vision from the management down to the other key players in the business.
- The process of a model design establishes a clear-cut plan to realizing the goals of the company.
- Business models deliver the way of executing the planning of further operation based on both long and short-term goals of the startup/SME.
- It helps in the efficient and effective working of a business enterprise that evaluates and assesses the business strategies, ideas, opinions concerning the outlined guidelines as established by the company.
Business Modelling Tools
Different businesses and companies depending on their type of business, adopt different tools in modelling their business. The common business modelling tools include;
- The Business Model Canvas (BMC)
- The Lean Canvas
- The Value Proposition Canvas
- Blitzscaling business model innovation canvas
- The Business Model Navigator Methodology etc.
A detailed explanation of these and other business modelling tools will be made in our next article.
In conclusion, a business model is the foundational blueprint of every business, it is an essential tool for the development of every business type, whether a new or an already existing venture. To get the utmost best from your business model, it should be treated as a living framework that is reviewed and adapted every year based on changes with customers, employees, and the market.