What Is a Business Model, and How Do You Pick the Right One for You?
A business model is a description of how a firm will create, deliver, and acquire value from the context of economic, social, and cultural perspectives. With this model, it is easy to understand the various aspects of a business such as the target customers, trading practices, organization structure, and many other components of an organization. Therefore, prior to starting any business, it is important to consider the best business model for your enterprise keeping into consideration the many factors influencing the best choice of model. In this article, we are going to discuss the 6 of these factors which you need to consider if at all you have to pick the right business model
Understand your Customer
If you do not have a clear picture of the target customer, you will probably end up picking the wrong business model for a product. Instead of focusing on the most ideal and profitable business model, one should be answering key customer questions and this will probably lead to profitably by default. Therefore, prior to developing a business model, an entrepreneur should seek to understand the prevailing customer problem(s), buying patterns, demographics, and the right revenue model suiting them. The more entrepreneurs knowabout their customer the higher the chances of coming up with customer convenient models.
After clearly defining who are your customers and the problem(s) you need to solve for them, it is important to carry out a detailed feasibility study to assess the volume of your target market. This will give you two important information. One, you will get to understand whether the market is large enough to justify an investment and the second piece of information you will get to know is the distribution patterns of your market. With such information, it becomes possible to determine the most appropriate businesses model which will assist you in implementing the desired business idea.
Determine theProduct Value proposition
A business model should be built around the product value proposition. Knowing the type of value your product provides is a critical step in choosing the right model for your business. A perfect example of this would be the Airbnb Company which has two clear value propositions. On one side, it enables homeowners to rent their property and earn some income and on the other side, it allows guests to rent private homes. This case proves that one cannot determine the best way to sell a product without understanding the ideal customer needs and whether it is worth to satisfy that need.
Researching how competitors have approached the market can save an entrepreneur a lot of time and resources. Some companies spend millions of dollars testing the right business model for a particular type of products. Learning how much these competitors are serving their customers and the revenue they are making in return can give you a clear picture of the right way to model your business. Though research and industry reports, one can identify how the big market players have modeled their business whether as a franchise, subscription, e-commerce, retailer or distributor models. Such research will help one to make an informed decision on the right way to go.
Analyzing Scalability of the Business
The aspect of scalability describes whether a business has the potential to grow in the future. While starting a business, I believe the expectations of any entrepreneur is that the startup will grow and expand at some point in the future. Therefore, while coming up with a business model, it is important to ensure that the model is scalable by leaving a room for future improvements. This way, an entrepreneur will not struggle to fix changes in his model in case they do occur.
Analyzing The Costs Involved
Before developing a business model, it is imperative to have a thorough analysis of your product so as to understand the probable costs of implementing your business idea. This analysis should focus on understanding the expected operational cost, the current capability to support the idea, and the external forces likely to affect the viability of the business idea. This will help you make a decision as to whether you will go for a small business loan or form a strategic partnership for sustainability purposes.