Its may interest you to know that that executives must know how business models work if their organizations are to thrive, yet there continues to be little agreement on an operating definition. Management writer Peter Drucker, who described business model as the answer to the questions: Who is your customer, what does the customer value, and how do you deliver value at an appropriate cost? A good business should be able to answer those questions.
business model requires the same diligence as designing the right product, but the approach and skills required are different. That’s why investors acknowledge that two co-founders are often better than one with one focusing on the technical solution, and the other focusing on defining and building the business model. These two jobs need to be done in parallel.
If Peter Drucker says Who is your customer, what does the customer value, and how do you deliver value.than remember that your customers must meet the following requirements:
Are easy to locate
Allow you to charge 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 necessarily 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 to. If your end users or distributors don’t fit this profile, you can still meet this requirement by attracting high-value customers through partnerships or alliances with companies in the market.
Sure Five Ways to Design Business Model
1. Measure the Value of Your Solution in the Target Segment.
Customers often complain that existing approaches are not intuitive or integrated, but old solutions may be familiar and locked in. Estimate your costs, including a 50 percent gross margin, as a lower bound on a price. Products too expensive for the market won’t succeed, and prices too low will leave you exposed. Match with competitor prices and market demographics.
2. Add to Your Strategy and Test Your Channel
Now is the time to pitch the entire business model to a group of customers or a specially selected focus group. This is not just a product pitch, but must include all elements of your pricing, marketing, distribution and maintenance. Here again is your chance to make pivots for almost no cost.
3. Plan and execute a pilot or local rollout.
Good traction on a limited rollout is great validation of a business model. It allows you to test costs, quality and pricing in a few stores or a single city, with minimum jeopardy and maximum speed for recovery and corrections. Save your viral campaign and major inventory buildup for later.
4. Focus on collecting customer references.
Give extra attention to those first few customers, and ask for publishable testimonials and word-of-mouth support in return. If you can’t get their support, even with your personal efforts, take it as a red flag that the business will probably not scale at the rate you projected.
5. Target national trade shows and industry association groups.
You need positive visibility, credibility and feedback from these organizations as a final validation of your business model, as well as your product model, in the context of major competitors. This may also be a great source for leads as a key part of that final rollout and scale-up effort.
Your business model can be a better sustainable competitive advantage than your product features, or it can be your biggest risk exposure. Too many of the business plans I see are heavy on competitive product features, but light on business model details and innovations.
If you or someone on your team hasn’t spent at least the same effort on the business model as on the product service, you are only half prepared for the real world of business today. It’s hard to win by doing half the job, especially if that is the easier half.
What you’ll learn
How to design a business model in a structured way
How to select the appropriate tools for designing or innovating a business model
How to present your business model in a single sheet
How to reason from your needs (“I want to’s”) to a business model solution