You might have heard the term “business model” a lot but not really know what it means. This can lead to some confusion. Are you confused by this term? That’s completely normal — everyone is at some point. But don’t worry, in this blog I will be going over everything you need to know about business models. By the end of today, you will be able to explain the role a business model can play and know if your business needs one or not.

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What is a business model?

Definition

“A business model describes the rationale of how an organization creates, delivers and captures value”.

A business model is a blueprint of how a business operates and makes money and should be thought of as the foundation for your start-up. When you think about it, most businesses are fairly similar, regardless of industry. They need to be able to generate sales and have sufficient cash flow to pay their operating expenses.

The difference between successful and unsuccessful start-ups is that successful ones have a sound business model that has been tested over time. If you are planning on starting a company, it’s important to understand exactly how your company plans on generating revenue.

The business model shows where you plan on making money from your customers, how much money each transaction will cost, and how much profit you will make. Typically, this information is shown in a table format that can be easily understood by anyone reading the business plan.

Business model - Wikipedia

Why do you need to create a business model?

There are many different ways to define a business model and many different classifications for the types of models that businesses use. But all business models have one thing in common: They are the conceptual structure that guides how a business will make money.

Business model concept, source: www.businessmodelgeneration.com

It may sound simple enough, but do you really understand how your business makes money? If not, you’re not alone. Oftentimes businesses lack a clear understanding of their most effective revenue-generating activities. This is one reason why so many businesses fail.

Successful companies know exactly how they make money, who their customers are and what their customers value. Without this knowledge, businesses tend to stumble through their early years and never find their footing in the market.

In fact, there’s plenty of empirical evidence that shows businesses with well-defined business models are more likely to succeed than those without them.

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How to create a business model with the Lean canvas

These days, as a startup, it’s easy to get hung up on what your business model is. It’s not uncommon for founders to go through several before they find one that fits.

The Lean Canvas is a tool used by entrepreneurs to help them develop their business models in a more structured way. It helps you get clear on your value proposition, the problem you’re solving, the solution you’re offering, who your customers are and how you’ll reach them.

The Lean Canvas was created based on the Business Model Canvas invented by Alexander Osterwalder and Yves Pigneur. It follows similar principles but has been simplified to make it easier for a startup to use.

The 9 building blocks of a Lean Canvas:

Customer segments: Who are your customers?

Problem: What problem does your product or service solve for them?

Solution: How do you solve that problem today?

Unique value proposition: What is unique about your solution?

Channels: How do you deliver your product or service to the customer?

Revenue streams: How do you make money from this product or service?

Cost structure: What are the costs associated with running your business?

Key metrics: What is the most important metric to measure in the growth of your business?

Unfair advantage: What makes it hard for competitors to copy what you’re doing?

Lean Canvas | LEANSTACK

Conclusion

There is no business model, in and of itself, that will guarantee success for a company. However, a proper business model does provide the framework for future strategies to be developed, implemented, and changed as necessary. This can allow a company to better utilize resources, respond to market movements, and build customer loyalty.

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business coach - Forbes - startups

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