“If you build it, they will come,” may work in a 1980’s Kevin Costner movie, but it’s a weak business model to have. However, many entrepreneurs are so enamored with their product that they believe that they’ll instantly have customers clamoring for it. In reality, creating and providing a great product is only two of four important pieces of the business structure. The other pieces? Finding your customers and convincing them that they need it.
We’ve talked about the significance of a great business plan, but that’s actually quite different from a business strategy. A business plan explains why you’re in business, what your business does, and how you plan to make it a success. It includes your mission statement and other essential information, such as your company’s name, location and projected starting date. The purpose of a business plan is to create an overall picture of your business. It’s used to present to potential investors that you have a plan to make a profit for all parties involved, and to secure funding.
A business model, on the other hand, focuses more on how and where you run your company, such as a franchise or a home-based business. Valerie Bolden-Barrett of Demand Media differentiates the two by explaining that “The U.S. Small Business Administration refers to the business model as a company’s foundation and the business plan as its structure. The foundation, or business model, is the original idea for your business and a general description of how it functions. The structure, or business plan, elaborates on the details of your business idea.”
With this in mind, here are 6 steps to creating a great business model:
- Ask yourself, How are you going to create constant value for your customers? Without customers and a growing base of customers, your business won’t become successful.
- Identify your customer base and get to know them. Why does your product exist and why would people buy it?
- Determine how you’re going to connect your customers to your product. Write out step by step plan of action on how you’re going to create a seamless transaction from start to finish.
- Ask yourself, what makes your business or product stand out from the crowd? What is your brand’s identity and how will your customers find you? Larry Alton, writer and former entrepreneur suggests, “Establishing exactly what your business offers and why it’s better than competitors is the beginning of a strong value proposition. Once you’ve got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.”
- Identity others with whom your company will need to partner with. Where will your order your supplies from? If you need legal advice, where can you find a competent business attorney? Know what resources are available to you and build strong relationships with these individuals to manufacture the best possible product.
- Be open to change. This may seem counterproductive since you’re creating the foundation for your business’s future, but if something isn’t working, go back to the drawing board. Ramon Casadesus-Masanell and Joan E. Ricart of the Harvard Business Review share that “Our studies over the past seven years show that much of the problem lies in companies’ unwavering focus on creating innovative models and evaluating their efficacy in isolation… However, the success or failure of a company’s business model depends largely on how it interacts with models of other players in the industry.”
Without a business model, you could feel like you’re blindly running your business. Writing out your business model will take time, some outside advice, and persistence, but the long term benefits will certainly be worth it.