A brilliant idea can be the spark that inspires you to set up a new business. An effectively executed bright idea, however small, can bring incredible success and fortune. Similarly, a poorly planned big idea will most likely fail or end in disaster. To translate your imagination into reality, there needs to be a solid business model to lay the right foundation for your startup.
What Is a Business Model?
Despite often being used interchangeably, a business plan and a business model are two separate things. A business plan is a detailed document that maps out the steps to take towards an aspired future, while a business model is a structure that you design to generate revenue for your business. Simply put, a business model is how you intend to make money.
There are many tools available that can help entrepreneurs create their first business model canvas. You can use a business model canvas example template on an online whiteboard platform to fill out your canvas quickly and easily. On a robust platform, multiple users can collaborate in real-time, and engage over video and screen sharing to add sticky notes, images, files, and more.
Both a business plan and a business model are key items for a startup that is looking to kick off on the right foot. A business model looks at how your products or services can deliver value to your clients in exchange for income. Creating a business model helps an entrepreneur to set aside their enthusiasm and make an unbiased assessment of their idea’s potential.
Let us look at Google’s business model. They started by providing free quality search engine services to amass a large share of the user market. They then monetized their services through advertising. As the suite of their services grew, Google created more monetizing channels. Likewise, your business model may change as your startup evolves, but it is an essential guideline to keep your financial objectives in view.
What Is the Business Model Canvas?
The business model canvas was created by entrepreneur and business theorist Alexander Osterwalder and information systems thought leader Yves Pigneur. It was introduced in their 2010 book “Business Model Generation.” The business model canvas is a visual strategic management tool that helps startups to picture and evaluate their business framework.
The business model canvas is a concise one-page document, comprising nine building blocks. Each of these blocks represents a core element of the business, namely key partners, key activities, key resources, value propositions, customer relationships, distribution channels, customer segments, cost structure, and revenue streams.
Internal factors of the business that are completely within your control sit on the left side of the canvas. External factors such as customer or market characteristics—that are somewhat out of your hands—sit on the right. The value propositions are in the middle, signifying the exchange of value and benefits between the business and its customers.
Designing Your Business Model
The key partners, activities, and resources of your business will decide the scope in which you will be able to launch your startup. Numerous business models thrive on connections and partnerships that help to support the core products or services of a young business. For example, a virtual reality company that has secured a partnership with a large realtor will be more likely to attract investors and other clients.
Defining your target customer is the next big step. Who are the people that your product or service can help? How big is the market size of this ideal audience? Figuring out who you want to sell to is important to gain a better view of how to reach them with marketing. It is also a way to determine who your closest competitors might be.
Once you know who your target customer is, then you can think about the distribution channels that will speak to them. There are a variety of options including brick-and-mortar stores, e-commerce websites, social media channels, and direct advertising. Depending on your budget, your best distribution channels may be a combination of several options.
The value proposition is the solution that will resolve the key problems of your prospective customers. How is your product or service going to add value to their lives? How is it different from others that are already on the market? Research is the key here to ensure that your offering has an attractive and tangible advantage in the eyes of your audience.
Finally, the cost structure and revenue streams will be how your startup will stay healthy—and hopefully grow. Depending on your target customer, you could explore several ways of generating revenue for your business. Direct sales is probably a no-brainer, but consider advertising, commission-based collaborations, and subscription models as well.
Starting a new business is an exciting endeavor. Nonetheless, it takes more than just an interesting idea to create a credible and profitable business. A business model can assist entrepreneurs in strategizing their income streams. By using online tools to create a business model canvas, startups can visualize their business models and build a better foundation for success.