Business model design

 

A business model describes the value an organization offers to its customers. It illustrates the capabilities and resources required to create, market and deliver this value, and to generate profitable, sustainable revenue streams.
This article below will help you design a business model for your start-up.
To begin, use the figure below to capture and refine the logic of your business.

Source: Alex Osterwalder / arvetica

Next, follow the steps below. They will help you develop a good understanding of your business model and where its strengths and weaknesses lie.

Part I: The Offering

• Value proposition: Start by formulating your value proposition. It is the central piece that illustrates how you plan to bind the supply side with the demand side. You can read more about this in the article entitled Value Proposition.

Part II: The Customer Side

• Target customer: Defining your value proposition leads naturally into a discussion about who your target customer is and what characterizes the ideal customer. Specifically, you should have a clear understanding of the target customer’s motivation to buy.
• Customer relationships: Consider the kind of relationship you want to have with each customer segment. Does your offering lend itself to a more transactional, one-off relationship, or will it be an ongoing relationship that should be organized with some sort of subscription or ongoing contract? Is repeat buying important for your success?
• Distribution channels: Keep in mind that your offering in combination with the relationship you would like to have with your target customer has strong implications for the choice of distribution channel. The trade-off you have to make is basically about balancing the complexity of your solution with the complexity of your marketing. You can read more about this in the article entitled Distribution.

Part III: The Infrastructure

• Core capabilities: List your core capabilities: the assets that you bring to the table when you create your offering. These include skills, patents, assets and expertise that make you unique and can be leveraged. Some of the“Strengths” identified in a SWOT Analysis can be considered a core capability.
• Partners and allies: Building your offering may involve third parties and suppliers who have key capabilities to complement yours. It is critical to understand how to integrate these in both your offering and your processes. See Partnering for more details.
• Value configuration: Describe how all the components together create your product and serve your customers. Explain the most important activities and processes needed to implement your business model, including critical tasks and timelines, the people and skills required, and your organization’s core processes.

Part IV: The Finances

• Revenue streams: Evaluate the streams through which you’ll earn your revenues from value-creating and customer-facing activities. Can you price your product in such a way that you optimize the volume?
• Cost structure: Calculate the costs you’ll incur to run your business model as determined by its infrastructure (above). Does the cost structure offer you a reasonable profit?

Note that examining the finances at the end of the process allows you to ensure that you have a balanced business model which produces value for your customers and profits for your shareholders at the same time.

For more information about developing a business model, download the MaRS workbook, Market Strategy Workbook 3: Strategic Marketing Approach. The information and exercises will help you design a business model by working through the key variables in executing a market strategy—competition, partnership, distribution, pricing and positioning.

References

Osterwalder, A.Business Model Design and Innovation(blog). Retrieved May 10, 2009, from http://business-model-design.blogspot.com/.

Tags: business-models, value-proposition