The first time I came across the phrase “business model”, the thought that came to my mind was modeling. I was taught a very important concept during my university days in econometrics class; it was about model and modelling.
The experts said the model is the representation of the real world situation in a design or equation form. We have models such as architectural plans, economic models, which are in the form of equations; we have other forms of models.
At Tekedia, we have come to see the business model as the nervous system of a business; it is a design of how a business will solve market frictions in the market in order to unlock value.
Can you answer these questions? What is the use of an architectural building plan? To me, it is to serve as a guide in building the real house.
When well designed and executed, the builders end up building the expected house. That is what a business model does. When well designed and executed, it can build a billion dollar business.
Our interest today is to know the simplified template to develop a business model.
Simplifies Template for Designing a Business Model
To gain mastery in doing anything, try to have a simplified template. Here are the dots that you need to connect in your business models. This serves as an upgrade to business model canvas.
Step 1: Market Friction
The term market friction is simply the problem you want to solve in the market. Business models are built on certain problems discovered in a market. Those problems serve as the foundation upon which other things will be built.
For example, in 1975, Bill Gates and Paul Allen discovered the need for software for microcomputers. They built Microsoft’s business model on that market friction.
Step 2: Value Chain
The value of a business is in its chain, that is why they call it value chain. The beauty of the value chain is that it divides the processes of a particular business into segments. It now allows entrepreneurs to focus on solving problems of individual segments.
Step 3: Value Proposition
Value proposition is the value that the target market will get from your solution. For example, Uber makes it convenient for people to order a ride. Pollstalker makes it easy to compare product prices across the globe.
Step 4: Products
The products should emanate from the value propositions and the ideas of solutions you imagined. It is always by you answering this question: how do we solve this problem in real terms? Bitcoin makes it possible to have a peer to peer transaction. This has eliminated the need for intermediaries.
Step 5: Target Market
Who are the people that need this solution? Business solutions or products are developed for markets. Your modelling should identify who needs the solutions.
Step 6: Key Activities
At this stage, we need to know what we are going to do in order to provide the solution to the market target in practical terms. Do we need to develop a digital platform? Do we need to build a team? Do we need to raise money? What are your key activities?
Step 7: Key Resources
As you model key activities, have it in mind that it works with key resources. You need key resources to execute key activities. For instance, you need developers (key resources) to develop digital platforms (key activity). You need funds to pay for what you use.
Step 8: Key Partnership
What are the things that you will need from others in order to be able to provide the solution? Partnership is taking what you don’t have from others and giving them what they don’t have. It is a win-win situation. Model this in your business model.
Step 9: Customer Services
Your solution is not complete if your customers are not happy. That means you need to model what you need to do in order for your customers to be happy using your solution.
Step10: Revenue Model
How will the business make money? How will the business unlock value? How will entrepreneurs and investors make money from solving this problem? This is called revenue modelling. For instance, Uber makes money from commission; Facebook and Google make money from ads, etc
Step 11: Cost Structure
What is the cost of providing the above solution? How much will it cost to provide that product and take it to the target market?
Consider Fixed Cost(FC) and Variable Cost(VC) when modelling this.
Step 12: Financing Model
How do you finance the business? What are the strategies you will adopt to raise money to launch your minimum viable product? We have equity financing, debt financing, crowd funding and creative financing.
When you follow the above steps, you will end up having a comprehensive business model that shows you a map or the nervous system of your business.
A good business model is the first success of a successful business.