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Essential tips to defining your business model

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Your business model will make or break your start-up. The better your model, the more likely you are to succeed. It defines the way you will generate revenue and make a profit, providing the foundations for success and longevity. Here are our essential tips for defining your business model.

Tip 1 - Cover all areas of your business

Essential tips for your defining business model, tip 1 - Cover all areas of your business

 A shared vision will strengthen your company and inspire your team. But make sure they have the resources they need to thrive in their roles.

- Richard Bradshaw, Head of operations, Foodit

Your business idea will be based on providing a solution to a problem, an answer to a need. Your USP sets your product or service apart, but your business model describes how you will create, deliver and capture value from that USP, as well as clearly defining your market.

You’ll need to cover all areas of the business – from premises to staffing, and from health and safety to IT infrastructure.

Key elements to work through:

  • Value propositions – where or how does your product add value?
  • Target customer segments – who are you selling to (and where)?
  • Distribution channels – how will you get your product to market?
  • Customer relationships – how will you create and grow customer relationships?
  • Value configuration – what elements do you need in your business model to create the value proposition you’re offering to customers?
  • Revenue model – how will you earn income, produce profits and generate a return on investment?
  • Core capabilities – what does your business do best? What sets you apart from the competition?
  • Commercial network – how will you sell your product to retailers and/or end users?
  • Partner network – who will you partner with to ensure business success – for example, suppliers, distributors, logistics firms?

Tip 2 - Use templates

Essential tips for your defining business model, tip 2 - use templates

Look for strategic frameworks and guiding templates. They ask you fundamental questions about your business goals and brand vision. Most importantly, they help you get started.

- Asli Sonceley, Co-Founder Xtensio

A great way to ensure you cover all the key elements of a business model is to use a tried and tested template or toolkit. There are several online, including the widely used Business Model Canvas.

Templates offer a complete, structured work-through on all areas of your business, enabling you to refine your model and present it clearly.  There’s also plenty of online advice for start-ups, covering the key elements you need to consider when shaping your business.

For younger entrepreneurs, the Prince’s Trust offers a range of business planning tools and advice.

Tip 3 - Validate early

Essential tips for your defining business model, tip 3 - validate early

Offer your product to an impartial group of target users before going to market to spare guesswork and discover common pain points.

- Thomas Smale, Founder, FE International

Don’t underestimate the importance of validating and testing your ideas. Before launching your business, contact some of your target market and ask them some questions.  When you talk to real people (not just friends and family, who are always more likely to be complimentary about your ideas), you can test your idea in the real world. Do your potential customers find it valuable and would they be willing to pay for it.

You need to see things from your customers’ perspective. Why would they buy your product or service? Ask them what their biggest issue, obstacle or need is – what you’re offering might be good but it might not solve their problem, or they might have a bigger need that you could help them with.

How much would your prospective customer be willing to pay for the right solution? You will already have an idea of what you want to charge, but it’s important to find out what the market thinks your proposition is worth.

When you’re confident that the product is right, consider test marketing to a small sample demographic, and invest in some scalable, low-cost advertising like a Google Adwords campaign.  This will give you tangible evidence of likely sales, as well as allowing you to adjust both your offering and the way you market it before your main launch.

Once you’re up and running, build milestones into your business plan.  For example:

  • User base – how many people are actually using your product or service? This is particularly relevant for software solutions or online businesses.
  • Registrations – how many registered customers do you have (i.e. those who are tied-in by service agreements or contracts)?
  • Installs/downloads/integrations – this is another good measure of success, particularly for software or online services.
  • Conversions – what percentage of ‘warm leads’ have you been able to convert to actual business? How will you improve on this figure?
  • Revenue – are you on track in terms of projected revenue? If not, what how can you improve this?

Tip 4 - Continuously refine your model

Essential tips for your defining business model, tip 4 - continuously refine your model

Reviewing and adapting your business model is crucial to surviving and thriving as a company.

- David Bennison, Director, HBD Associates Ltd

View your business model as a work in progress and refine it continuously, learning from day to day operations. Adapt it to meet changing marketing conditions, customer needs and competitor challenges. The following are some of the factors that could affect your model:

  • Cost pressure – you could find the raw materials used to create your product become more expensive or difficult to source
  • Price pressure – competitors may undercut you and force you to consider selling at a lower price
  • Competition – new entrants to your market could tempt your customers to look elsewhere
  • Innovation – technology is constantly evolving: make research, development and innovation a key focus
  • Environment – you may find safer, greener ways to source, manufacture, sell or distribute
  • Legislation – don’t get left behind when new legislation changes the requirements on your business

You need the strongest possible foundation for your business, so it’s worth taking the time to cover all bases in the preparation stage. These simple steps, thoroughly executed, will be the roadmap to success for your start-up.

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