What is the Business Model Canvas?
Introduction To Business Model Methodology:
Business model is about finding new ways to add value to a business in the face of rapidly changing circumstances – economically, socially, environmentally, technologically, politically, globally, national and locally. Business Model is also the plan implemented by a company to generate revenue and make profit from operations.
The model includes the components and funtions of the business, as well as the revenues it generates and the expenses it incurs. People have been devising innovative ways to do business for centuries. The explosion in the breadth, scope and power of communications and other technologies over the past decade, however, and in particular the emergence of the commercial Internet, has opened new business model possibilities which were previously unimaginable. This is so regardless of nature of the core business.
Objective: Business model primary objectives are: Determining Company Actions, Undestanding Positioning, And Competition, and build market strategies to ensure that your company success. A business model is the narrative of how your business works. Simply put, it particular business model to take new products and services to a market.
It is crucial to know what is doing your competence , and how you can differentiate from the others, but the most important part of your business comes to identify exactly what are the needs of your customers, try to work in close collaboration with them because they can be your precious your allied forces.
Business model requires of business owners and managers not just a thorough understanding of the key players in their particular industry but also a sophisticated appreciation of the likely impacts of emerging global, national and local trends and events. It is no longer enough to simply be aware of what the competition is doing. This is an outdated, reactive approach which completely misses the point that the global business environment is changing in ways, and at a pace, never before seen. It is businesses which properly understand this point which will be able to position themselves to take adventage og the most profitable opportunities these trends and events open up and to avoid their most adverse consequences.
The Business Model Canvas is a (one page) global standard used as a common language in strategic management and lean startup by millions of people in companies of all sizes. This visual chart, first introduced by Osterwalder and Pigneur in 2008, is useful to describe, design, challenge, and pivot your business model.
Click the video below to learn how the Business Model Canvas works in 2 minutes.
How to create a business model?
Here are few tips for you on how to create a business model of your own.
1.Acquire High-Value Customers.
High-value customers do not mean rich customers, but customers who meet the following requirements are:
- Easy to locate.
- Allow you to chage a profitable price.
- Are willing to try your product after minimal marketing expenses.
- Can generate enough business to meet your sales and profit objectives.
Customers don’t necessary need to be the end users of your product or service. They could be retailers, distributors; catalogs or whomever you sell your product or service. If youy end users or distributors don’t fit the this profile, you can still meet this requierement by attracting high-value customers through partnerships or alliance with companies in the market.
2. Offer Significant Value To Customers.
There are a number of ways you can create great value and competitive advantage, including the following are:
- Unique advantage in features and benefits.
- Better distribution through retail or distribution.
- More complete customer solutions through alliances with other companies.
- Lower pricing due to manufacturing efficiencies or princing options.
- Faster delivery, broader product line or more customization options.
The rise of the internet, outsourcing and, most of all, the increased willingness of companies to partner in creative ways to serve customers has resulted in every industry creating innovation in business strategy. This gives you opportunities, but also makes it imperative that you stay on the creative edge to fend off competition.
3.Provide For Customer Satisfaction
Consider whether it will be difficult-and therefore expensive-to satisfy customers once they buy. Some of the aspects of a business that create high customer satisfaction costs include:
- Great warranty costs.
- Extensive technical support.
- Extensive installation requirement.
- Extensive customer service.
- Interface problems with other equipment.
Customer satisfaction costs, which occur after the sale, are red flags because the costs are typically high and don’t produce revenue or profits. If your type of product might have high customer service cost, you need to configure your business to put these costs on someone else, either with partnerships or alliances or by restricting your sales to an aspect of the business that doesn’t require customer satisfaction costs.
4. Deliver Products Or Services With High Margins.
Better manufacturing cost due to overseas manufacturing is typically not the clear way to higher margins, as competitors will typically match your cost in the end. Higher margins come from having a product that can be made from an improved process or by having features that provide significant calue and allow you to charge more. You can achieve high margins with other tactics, including the following are:
- Use a more efficient distribution channel.
- Require less sales support and sales effort.
- Have an industry-leading lean manufacturing process.
- Offer more auxiliary products or other opportunities for revenue without increasing cost.
If you aren’t sure of your industry’s standard ratios, read this article and when you can purchase industry reports, or contact your local Small Business Development Center.
5. Maintain Market Position
A good business model uses its resources to improve its market position, adding new products, features and customers or expanding into new applications. The red flags that indicate it will be difficult to maintain position include: Two or three major customers buy most of your product.
- Major potential competitors control the distribution network.
- Technology changes rapidly and requires high-risk product development.
- There are alternative technologies being developed to meet the same need.
You have well-funded potential competitors who could quickly move into your market. Long term, your ability to hold market position is determinated by the characteristics of the overall market. For example, a company involved in the semiconductor manufacturing business must adjust and guess right on constant changes in technology to hold market position. Sooner or later they will guess wrong and fail.
6. Fund The Business
Startup costs, operating capital, personnel costs and overhead costs are just a small percentaje of the funding requierements for any business. The question is whether the investments will have a high return and whether the business can grow without substantial new investments. Red flags for a business model regarding investments include:
- ROI is lees than 25 percent in the first three years.
- Incremental production of products or services requires substantial additional investments.
- Fewer than 50 percent of the investment required will be used in revenue producing areas, such as sales and production.
- Investments have to be made prior to sales commitments.
- Industry as a whole has a poor ROI or poor profitability.
- Money is available for the right plan and the right model.
You will find money available if your ROI is right and if you have financial leverage, which means your initial investment will allow you to double or triple sales without requiring any more funding.
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