Business Modelling 101 - What is it and How do you do it?

May 20, 2022

Like bones for the body, Business Models map out the core structure to your business and its operations. You might think it is simple enough, but there is a sea of businesses that operate without a big-picture perspective of where they sit in the industry, or a clear understanding of the competitive value they are (or are not) providing to clients and patrons. 

Business models are going to get analytical, and in doing that they highlight directions for success. It defines your business’ purpose, and refine concepts that help you stand out in a sea of competitors. Successful businesses go one step further and have business models that allow them to fulfil client needs at a competitive price and at a sustainable cost. It’s about meeting an underlying need. 

So let’s look at some key questions: 

Who is your customer?

Who are you targeting? What are their demographics?

What do you offer them?

What products do you offer your customers? Is it physical or online goods?

How do you do this? 

How do you go about selling your business model? How do you price your goods? What marketing do you use?

The business model canvas has 9 Key Components. 

  1. Key Partners - what partners are involved in the business? E.g. joint venture partners, suppliers. 
  2. Key Activities - what are the key activities in the business? E.g. marketing your product or service, sales, etc. 
  3. Value Proposition - what is your unique selling proposition? What sets you apart from your competitors? E.g. unique ingredient used in all recipes
  4. Customer Relationships - what customer relationships do you have? E.g. first time buyer, repeat buyer, subscriber, etc. 
  5. Customers - who are your customers? What are their demographics? E.g. older people in their 50s or 60s.
  6. Channels - what marketing channels do you use? E.g. social media
  7. Revenue - what is your revenue? How much do you make? E.g. $500,000, $200,000…
  8. Key Resources - what key resources do you use? E.g. staff.
  9. Costs - what are your costs? E.g. cost of goods sold, staffing costs.

Business Model Examples

Software companies use various business models and some of them include: 

Freemium: The basic product is provided for free, but you charge for additional services or features.

Free trial: The customer can experience the full product for free for a limited amount of time.

Licensing: The technology or innovations are monetized by licensing them to other companies.

Open-source: The product is free, but you generate revenue through other means, such as crowdsourcing.

Subscription: The customer pays a recurring fee to access your product or service.

The above models define of how businesses deliver their product or service. This is the case for online businesses, but there are also brick and mortar businesses which have a different approach. For instance, brick and mortar businesses may use clearance sales to sell dead stock or stock that is not moving. Doing some research on the business models for your type of business is going to help you build on existing formulas for success. 

Why use a business model?

Using one will give business owners a clear vision of where your priorities lie. By defining all the working components and pieces of the model, the business has all the elements of the overall business in sight – The Big Picture! 

These days, business models aren’t necessarily drawings but are made into shared documents online or even programs so that business owners can clearly see where they are at. 

The business owner then can adjust each component as they see fit. They may want to change an element over here or add an element over there, and they can do that using special software such as Aha! Business model canvas. 

Here is a sample of what the business model software looks like: 

As you can see, the key components are defined in this section, making it clear for business owners to oversee their business. They can easily make changes and adjust things to suit their business goals. Making it a comprehensive but easy to use tool to help in the business planning process. 

Summary

Business models are used to help business owners achieve their goals and give the business structure and meaning. They enable the business owner to have a bird's eye view of their business so that they can pick and choose what they want whilst also clearing what they do not want. Business models are necessary tools which serve a purpose, which is to help the business owner to plan for all eventualities. 

There may be times when the business is doing well, and there are times when the business may not be doing so well. The idea is they help business owners navigate all scenarios whilst also remaining true to their core vision and goals. 

Business models are timeless and provide necessary structure and certainty when the future may not be so certain. They should be a part of every business owners' arsenal because they help all businesses go from ordinary to truly amazing, which is what all business owner ultimately want.

Need some assistance with your business but not sure what your next step is?

Then check out mission grow advisors. 

They offer a comprehensive service which helps business owners define their idea or plan an existing business into a successful business. Some of the services they offer as a company include: 

  • Activity-based costing
  • Budgeting and forecasting
  • Business cases
  • Business reporting
  • Capital planning
  • Contract analysis
  • KPI reporting
  • Product pricing
  • Scenario planning
  • Strategy simulation
  • Feasibility studies
  • Strategic options

You can contact us to speak to one of our experts.