[2/2] How to create a Business Model

Continuing the previous part of the full article here

There is no “one size fits all” when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

Identify your audience

Most business model planns will start with either defining their problem or identifying your audience and target market. A strong business model will understand who you are trying to target so you can craft your product, messaging and approach to connecting with that audience.

Define the problem

In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs, for instance. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn’t a demand for your services or products.

Understand your offerings

With your audience and problem in mind, consider what you are able to offer. What products are you intersted in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you’re able to provide.

Document your needs

With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether your are ready to launch in the future.

Find key partners

Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with revenues, caterers, florists, and tailors to enhace their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.

Set monetization solutions

Until now, we haven’t talked about how your company will make money. A business model isn’t complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.

Test your model

When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model but you should always consider leveraging direct feedback from the market when doing so.

Tip: Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the marketing. YOu may be able to easily spot gaps in the business model of others.

Criticism of Business models

Joan Margretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don’t work, she states, it is because the story doesn’t make sense and/or the numbers just don’t add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy.

For years, major carriers such as American Airlines, Delta, and COntinental built their businesses aroudn a hub-and-sploke structure, in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and Jetblue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As the new compentitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001. To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Source: Investopedia