A business model describes the way a business works.
At its core, it distils all of the company’s potential into its most basic form. It answers fundamental questions such as how you will resolve a problem, what you will be doing to solve it, and how to best implement it in the marketplace. A business model often begins with one or more goals and how those goals interact with one another. From there, the model will describe how to make the business a success. There is a lot to learn about business models, but thankfully not as much as there is to lose!
There are two basic types of business models: linear and flexible.
Linear business models are more static; they reflect only what has happened in the past, present, or future. They entail a great deal of planning and metrics to track progress and make adjustments when necessary. Linear business models have very low flexibility because you must commit to what has already happened at a particular point in time.
Flexible business models (also called contingent business plans) are proactive. Instead of simply reflecting what has happened in the past, they anticipate future changes and how these changes will affect your company. By modeling future conditions, contingent business plans allow you to make adjustments to your business model as conditions change. Depending upon these changes, your revenue stream may change. Contingent business plans also allow you to incorporate changes more readily as your company grows and develops.
So what really makes a business model successful?
The four primary elements that make up a successful business model are clear goals, clearly defined procedures, a strong support infrastructure, and consistent accurate monitoring of key activities. Clear goals give you direction. Goals also help people understand what their role is and how they are expected to contribute to overall success. A strong support infrastructure lets people know what to do, when to do it, and how to do it.
Next comes the business plan.
A business plan creates a baseline from which you can evolve and improve your business model based upon your circumstances and consumer needs. The business plan canvas is the map that helps guide you from here. It provides an understandable road map so you can keep going and continue to grow. In the canvas, the basic business model outline is shown along with detailed information about each element of the business model. You can then modify the elements to reflect your current conditions and requirements or you can add or change features as circumstances dictate.
Customer segments are another important aspect of the canvas.
These personas provide you with a richer and deeper way of thinking about your business model. The customer segments discussed in the business plan canvas assume a fairly simple business model with two to five customer segments. However, as your business model evolves, you may need to revise these assumptions or change the dimension presented in the segment canvas. This allows a personas expert to revisit your assumptions and changes on a continuous basis for a seamless flow within the organization.
Your business plan canvas also assumes a fairly straightforward view of the basic elements of your model.
The value proposition is the promise of the business model outlined in the business plan. The customer segments described in the plan represent individual customers and their specific needs. To address these customer segments and their unique requirements, you will need to specify and describe your product, service, environment, and strategy.
These details represent the primary activities that constitute your company, the fundamental building blocks of which lie in the basic product-driven processes outlined in your business plan. Each of these key activities represents potential growth opportunities and challenges. They also represent opportunities for you to utilize your key resources and create even greater value for your customers. The creation of the canvas will facilitate the prioritization of these key activities, allowing you to better align your activities to achieve both of your strategic objectives.