Business models are not only important for new businesses, they also help established companies who are looking into potential business expansions and tapping into new markets. It could also help to attract new investments and recruit the right talent for the company.
Both for existing and established companies, such models are vital to regularly update their business plans. Failure to do so may result in them missing out on trends, evolutions and changes in their industries.
In the past, it was sufficient for businesses to be able to manage a portfolio of a product by developing, designing, and launching them correctly.
However, nowadays, the bar has been set much higher, mainly driven by increased competitiveness of economic markets. Businesses need to be able to design products, maintain their reputation, launch them but in a portfolio in synchronisation with its business models. To be able to design efficient business models, you need to be able to detect specific patterns.
This blog will provide tips and tricks on how to build an effective and efficient business model, with a focus on each of these building block of the business model.
The frontstage of a business model is the space in which businesses interact with their clients and potential customers. It also represents the value for customers and what they are willing to pay for.
It’s important to be clear and very specific when defining customer segments. These are vital, as an organisation exists through people. Build groups and be clear on the job that must be done.
Focus on what the customer wants and needs, what is the demand here? Think binary in the first design phase, like transactional (Ryanair) and tailored-made (like tailors who make suits, it is designed specifically for the customer). Do not be overly general, for example: “we provide services that help our customers…”
By clearly defining customer segments and groups, the customer relationship will be stronger.
Communication channels are not always channels in the literal sense of the word, for example advertising. It is merely a not channel, it is a way to promote your products/services. Specify the means and channels through which your products/services will be accessible to clients and where they can find more information about these.
Think of platforms, people and organisations that help you to deliver your value proposition and in what way your services/products can help potential customers.
Be specific about the costs of your products and services (the price per product or per hour), the frequency of production and transaction, …
The backstage is used to manage and drive the front stage. It makes it all possible and it drives all your revenues.
Try to limit it to key elements in the value proposition, and again, don’t be too generic. Focus on pain relievers and gain enablers, and on the activities required to develop or operate key resources and establish or exploit key partnerships.
When defining the key resources, don’t reiterate basic processes, but instead focus on resources that are required to perform your key activities.
Again, determining relevant resources that are necessary to build or exploit key partnerships as mentioned previously or that are the result of key activities and/or key partnerships.
Important is to note here is that not all suppliers and customers are key partners. Key partners are people and organisations that inject crucial elements into your business model. They enable businesses to deliver their value proposition and provide key activities and key resources.
A key characteristic of key partners is that they must be unique. If they are interchangeable, then they are not key partners.
Key activities and key resources are needed to support the partnership. Focus on uniqueness and extremely limited interchangeability as a criterium.
When setting up the cost structure, focus on costs that are linked to key resources, key partners and key activities, as mentioned above.
Be specific, and group these key costs where possible. Every group of activities, resources and partnerships should be reflected in the cost structure.
Costs related to basic business processes do not need to be added to this structure.
What to consider when setting up a business model
- Make sure there is a strong fit between all building blocks of the business model
- There should a clear link between value proposition and customer segments, and between
- customer segments and revenue streams
- Separate groups of customer segments, defining their specific characteristics, and use different colour schemes to differentiate the various customer groups.
- Different customer relationships require specific channels. Explaining the connection between channels and customer relationships can be helpful.
- Link value proposition to key activities. This can be achieved by having clear and specific customer segments.
- When the customer segments are laid out, define pains and gains, pain killers, and gain enablers for the various customer segments.
- There should be strong interactions between key resources and key activities
- Key partnerships need key activities to maintain or explore them
- All these elements should be reflected in the cost structure