Entrepreneur’s Guide: How to Make a Business Model

Do you have a great idea to start your own business but don’t know where to start? Don’t worry! Throughout these weeks we will present you a guide with all the steps you need to follow to start your online business.

We start in this post with the first step, which will be to create a Business Model that establishes your short term goals and that will serve as a presentation letter for potential investors. This is the first tool that you will have to work with as a previous step to the Business Plan and that will allow you to clearly define the following elements:

  • What you’re going to offer the market.
  • How you will define and differentiate your products.
  • How you will sell your products to generate profit and value.
  • Who your customers will be.
  • How you will get and keep customers.
  • How you will show yourself to the market.
  • What will be your strategy to go out to the market: advertising and distribution.
  • How you are going to generate income and profits.
  • How you will establish social benefits.

It is a very simple scheme that will allow you to see in a single sheet of paper the 9 elements that should make up your business model.

Business Model is to divide it into nine basic modules that reflect the logic that a company follows to achieve income. These nine modules cover the four main areas of a business: customers, supply, infrastructure and economic viability”.

Customer segment

Customers are the main base of your Business Model. You must know exactly who you want to sell your value proposition to and what their needs are. At this point, analyse the group of customers you will reach and think about the needs you will be able to cover with the purchase of your product.

Value Proposition

Your value proposition is what you expect to do better or differently than your competition. A company can have one or several value propositions, depending on whether it is targeting one or several groups of target audiences.

In this step you must describe the proposal you will offer to your customers, which will be based on the following points:

  • The problems that the customer will solve when using your product.
  • The needs you are going to cover with your product.
  • The characteristics of the product that will stand out in the market.

You have to offer your customers something unique that other brands don’t offer. Do you know what that is? If so, you’ve already done most of the work!

Customer relations

At this point you should analyze the type of relationship that will be established with your client at the time they purchase your product. The idea is to identify the most aggressive and creative way to establish long-term relationships.

How will you integrate the relationships with your clients so that they work in harmony with your Business Model? Will you talk to them about you or about yourself? What do they look for and expect from you?

Distribution channels

As the name suggests, you should include in this section how you are going to distribute your product so that it reaches the end customer in the most effective and safe way. You must identify the distribution channels that will work best for your product and to make your costs efficient.

This section also includes the communication strategy that you will carry out to promote your product. How are you going to make yourself known to new customers?

Sources of income

In this section you will have to evaluate what amount of money your client will be willing to pay for the purchase of the product, and you will solve the three main questions about how you will obtain income with your idea:

  • How much will they pay for my product?
  • How much do they currently pay for a similar product?
  • How much do you have to earn to get the desired profit margins?

Key Activities

Here you must define the key internal activities that will allow you to deliver the value proposition to your customers: production processes, advertising and marketing etc. In this way you will know the key activities that will give value to your brand, and you will know what strategies you will carry out to enhance them.

Key resources

At this point you should identify the infrastructure needed to operate your Business Model, what are the indispensable assets to carry out the whole process? This refers to physical, intellectual, financial and human resources, which cannot be lacking for your product to be a success in the market.

Key partners

Who will be your partners, business people and suppliers? What strategic alliances will you make? This point is a fundamental part of networking, since the more quality contacts you have within your own market, the better results you can achieve.

Cost structure

And we come to the last point. Now that you know what the necessary resources will be to carry out your idea and how much the clients will pay for your product, you will be able to define the strategy that your Business Model will have to follow to maintain the cost structure, calculating the investment expenses and the profitability of your proposal, and trying to take advantage of the benefits to the maximum.

You will have to decide between keeping costs low, or being a business that focuses on creating value at a higher price. To do this you must evaluate the following points:

  • What are the most expensive key resources and how can you reduce them?
  • Which key activities are the most expensive?
  • What are the most important costs for the realization of your business model?