Business model: how to choose the most effective

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Business model: how to choose the most effective
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Whether you’re starting a new startup or thinking about taking an existing organization in a new direction, the business model gives you a strategy to follow.

The best business strategy model takes into account not only your target audience and product lines, but also how you will add value to your company over time.

What is a business model?

Business Model is a description of the company’s plan to make a profit. “Business Model” is a recent addition to the lexicon. It was first used by Peter Drucker in 1994.

However, the concept behind the business strategy model is not new at all. This gives businesses a roadmap to identify their target market, the associated costs, and the products or services that will be sold.

Types of business models

There are many different business models to follow. Here are some classic examples:

  • Online store
  • Retail
  • Direct sales
  • Franchise
  • Ad-based
  • Subscription model
Business: what types are there and the main nuances of a successful launch
Business: what types are there and the main nuances of a successful launch

You can also have hybrid versions that combine all of the above, as well as business models that rely entirely on services without any sales platform.

What underlies the business model

A business model is based on several basic building blocks.

Business model
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Custom segments

Rather than building a wide network to reach your audience, targeted customer segments allow you to work much more efficiently. Within your business model, narrow down your audience to portraits of target buyers. They can be identified by demographics, needs, or lifestyle.

Value propositions

What makes your business stand out from the crowd? What makes your products unique? Summarize your value with clear and concise statements that are easy to convey. Define value propositions and tie them to long-term goals.

Channels

This section shows how your business will interact with customer segments. Channels are often used as touch points, such as websites or social networks.

SWOT analysis – identify the strengths and weaknesses of your business
SWOT analysis – identify the strengths and weaknesses of your business

Customer Relations

What relationship will you have with each customer segment? This should be determined from the start to help you develop your sales strategy. Some companies will opt for a more personalized approach, while others may opt for an automated path.

Income Streams

Determine the revenue streams you expect to generate from each customer segment. This section of the business model is especially important for investors who need to know where and how the business will generate cash flow and profits.

Key Resources

What resources are needed for the day-to-day running of your business? Think beyond capital, but also physical property, online space, and intangible assets such as intellectual property.

Business model
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Key Activities

What steps will you need to take to get your business up and running? This can be both product development and employee training.

Key partnerships

What vendors will you need to work with? Do you have strategic partnerships with investors or advertisers? All of these should be identified as key partnerships in your business model.

SLA – Service Level Agreement
SLA – Service Level Agreement

Cost structure

Finally, the cost structure takes into account all the costs required to keep your business model running. Advertising, maintaining relationships, and creating valuable products all come at a cost.

Example business model

Ekaterina Kraivanova, co-founder of the Next2U rental service comments:

I would like to give an example of a business model of a growing circular economy. We see that more and more companies are beginning to change the linear business model to a cyclical one, including such market giants as Ikea, H&M, Volvo, Sony and others.

One example of this model is the subscription to rent goods instead of using them. For example, you can subscribe to Apple smartphones, make monthly payments, and change your phone to a new one every time an updated model comes out. For the average consumer, this model doesn’t look cost-effective when you consider selling your old phone when you buy a new one. But there are those who are tired of these resales, and the service is aimed at such an audience.

Online store – a fast, economical and convenient tool for shopping
Online store – a fast, economical and convenient tool for shopping

Here is another example of the same business model. Subscription to utilitarian children’s goods – strollers, car seats, electric sun loungers, carriers and more. This model gives the consumer not only convenience, but also significant savings. The service specialists calculated that it is necessary to spend $2,000 on the minimum set of necessary goods for a child for the first year of life. The same set can be borrowed with a $500 subscription. Since after a year these things are no longer needed, the benefit is obvious.

There are also benefits for businesses:

  • First, a subscription brings loyal customers.
  • Secondly, a new interesting and environmentally friendly offer on the market is a good informational occasion for advertising and PR, assets that can “work” for the benefit of the company for a long time.