Business Model and its Key Ingredients
What is a business model?
Business Model is a set of planned activities designed to produce profits in the market space. A business plan is the document which describes the company’s business model.
There are 8 key ingredients of a business model:
1. Value Proposition: How you generate value for the customers? It defines how a company’s product or service fulfils the needs of the customers.
Think: Why will customers choose you over competitors? What do you offer which no one else does?
Ex. Personalization or customization.
2. Revenue Model (or financial model): How will the company make money? How will it earn revenues and make profit?
Ex. Advertising revenue model, subscription revenue model etc.
3. Market Opportunity: It refers to the actual or potential commercial need, want or demand identified by the company, which it intends to exploit. The area may not currently be addressed by the competitors or the company intends to do better than the competitors.
4. Competitive Environment: Refers to the companies offering similar products or services and operating in the same marketspace.
Think: How many competitors are there, how big their operations are, market share, profitability, pricing etc of the competitors.
5. Competitive Advantage: It can be in various forms such as you are offering a superior product or service at lower cost, you are offering a product or service which is not offered by anyone else, you have access to resources which your competitors don’t etc.
6. Market Strategy: It defines how a company intends to enter a new market and attract customers. Even the best products and services will fail if you are not able to get the word out to the customers who are intended to use it.
7. Organizational Development: Refers to how a company will organize the work that needs to be accomplished. In most of the companies work is divided between departments which are specialized and equipped to do the task.
8. Management Team: Management team is responsible to make the business model work or change a weak business model to a stronger one. A strong and able management team gives confidence to the investors who are interested in the business.