Updated 03 December 2020
If you’re starting a business, you’ll need a business model. Your business model is your answer to the question, ‘So how are you actually going to make money?’ A business model therefore needs to be practical, consistent, sustainable and resilient. Putting one together will help you really understand the strengths and limitations of your vision and turn it into a robust, working reality. Here you can find out more about creating a business model and the benefits of doing so.
Don’t confuse your business model with your business plan. A business model comes before your business plan, and is the basis on which your business plan will be built.
A business model needs to address the challenges that you face: ‘Who is our customer?’, ‘What do our customers want?’ and of course, ‘Will this work financially?’ In addition to these key questions, the business model will also cover elements such as competition, sustainability and the role of technology. As a whole, it will set out all the assumptions you are making when you go into business in this way. Your task is to make sure that these assumptions are solid, rather than just wishful thinking.
Your business plan will develop on these assumptions by explaining the practical actions you need to perform to achieve your aims. Find out more about writing a business plan.
First, your business model needs a clear place to stand – in other words, you need to find a gap in the market. You can create such a space yourself by approaching customer needs and values in a fresh and different way, or by offering better value than the competition. Alternatively, it might involve bringing something totally new to the market, or simply being quicker than everyone else at providing the same service. What can you do that few others are doing yet?
What does it mean to ‘disrupt’ a market? It means to offer something radically new that changes the game. A good example would be Netflix, which realised there was an easier way to get video content to its customers – and quickly became the dominant player.
There are many ways you might be a market disrupter. You might have solved a problem that everyone else has had to work around. You might have discovered a need that no-one realised they had. Or you might simply have created new processes that allow you to be faster, more efficient or better quality, and so provide better value for money. In order to do any of this, of course, you need to know your market like the back of your hand, so market research is essential. Look at your competitors and their current products, to see what they have missed. Also look at other disrupters in other markets, to see if they give you any ideas.
Now ask yourself these questions:
You’re now better placed to start ruffling feathers and overturning the status quo.
By definition, disruption isn’t easy (or everyone would do it). Bear the following warnings in mind.
Agitating is somewhat different from disruption. This is more about creating a wakeup call for a sector: re-imagining the way things are done, inspiring customers or providing a quirky new take. Innocent Drinks is a good example of an agitator: fruit smoothies were nothing new, but the brand made it feel as if they’d just been invented. Agitators are less likely to wipe out the competition, but they will inspire lots of copycats.
Every agitator needs a very strong brand, and the confidence to persuade people to embrace the change they offer. It’s about elbowing your way into the existing market, rather than completely transforming it.
Here are the basic steps you’ll need to take when constructing your business model.
When developing your business model, it can help to work to a pre-existing template. This way you can ensure you cover all the key elements of your model and don’t miss anything important.
One of the most popular forms of business model template is known as the business model canvas.
The business model canvas is a template for developing new business models or analysing existing ones. Conceived by Alexander Osterwalder in 2008, it has become one of the most widely-used tools for building business models from the ground up.
The business model canvas is based around nine ‘building blocks’ that make up the whole model. These are:
Usually these building blocks are shown as interlocking boxes on a large single sheet of paper, which can be printed out for a whole team to work on at the same time – hence the term ‘canvas’. For instance, you and your management team might hold a series of brainstorming sessions in which you write notes in each box, building up a picture of what your business actually involves in practice. As the canvas grows, you will start to see how the parts relate to and depend upon each other, and you should modify the boxes as necessary.
You can download the business model canvas under free licence here.
When creating your business model there are some risks to bear in mind. Anticipating these pitfalls will increase your chances of success.
An experienced accountant can help you ensure that your business model makes financial as well as practical sense, as they will be familiar with a whole range of different businesses and how they work.
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