The right business model can be the dividing line between success and failure. Business models are what define the way that a company operates in order to create a product or service at a profit. It’s therefore an essential part of the overall business strategy, and needs to be considered well in advance of setting up a new startup. With this article we’ll examine some of the questions you should ask yourself as you look to develop a model that can power your business to success.
A good business model will consider the following:
1. The reason that your company exists. What gap does it seek to fill in the market, and how can it do so in a unique and value added way? It’s all fine wanting to sell a widget, but if there are 5,000 other competitors in your local area with stronger brands and muscly marketing budgets, what X factor will your widget offer that can make it compete? A good USP is often the key variable between a flying business and a floundering one.
2. Which products and services will be provided to execute the above? How will these products and services be sourced profitably, sustainably and ethically?
3. What distribution channels will be used to get the core product or service to the customer? Is the correct infrastructure in place for you to be able to do this effectively? This question aims to get at the heart of your sales process. If you’re manufacturing cupcakes on a wholesale basis, which distribution channels have you got to take on your produce? Tesco? Sainsburies? An Aldi’s at least? Without a distribution outlet, you might as well not be in business or you’ll be eating cake by yourself for breakfast, lunch and dinner for a very long time.
4. How is service and after care provided? Business is not just about making the sale. Customer retention is often an integral part in a business model – and to keep customers happy, you must provide the right levels of support. How will this support be handled? In store? Online? Via appointment? When a business model fails to factor in client support and help issues, the effects can be cataclysmic to customer retention.
5. Online? Offline? Both? Different companies have widely different approaches to doing business online. Some companies, due to their nature, can get away with having a skeletal online presence – perhaps a simple website stating “this is who we are, this is what we do”. Other companies will need to do much more. There are many business models that are highly or exclusively internet based – where the entire order flow process is executed via the internet. Amazon is a good example of such a model – with the exception of large warehouses, Amazon uses a business model that exclusively leverages the low cost of doing business on the internet to prompt customers to browse and order goods completely online.
6. What type of revenue streams should be targeted. The product and service type will largely determine this. Some products lend themselves to single purchases, while other product types have a residual element built in. Examples of these can be gyms and online membership sites, all of which will have customers that typically pay fees on a monthly basis. Residual income can be highly beneficial to a business as it provides a nice, defensive level of recurring income.