What is a Business Model: A concise explanation of what a business model is germane to every business executive or entrepreneur because it brings to limelight all the structures needed in setting up and running a successful business. A business model is a description of the structures and rationale of the key components of how a business or an organization creates, delivers and attracts value. The attraction of value is signifies the ultimate goal of a business that guarantees its sustainability.
There are 9 components or building blocks of a business Model canvass. It elucidates the logic and methodologies of how businesses create value.
1. Value Proposition: Value proposition is a component that defines the benefits customers would derive from a product or a service. It tries to identify the value such a product or service from a business would deliver to a customer.
Again, value proposition tries to identify what makes a business different from others offering similar product or service and also defines what makes a business’s offering superior.
2. Channels: The channels by which a business delivers its products or services to its customers are very important. This business model component tries to define some questions such as ‘where to find the business’s products and services’ and ‘what the customer touch points are’. The customer touch points relates to how customers interact with the business as it tries to deliver value.
3. Customer Relationship: Customer relationship is a key business model component that drives business sustainability. How a business acquires its customers, how the business retains its customers and even encourage repeat customers and referrals and how a business relates and interacts with its customers that may include the use of the social media and mobile technology. Customer relationship also includes how a business rewards its customers.
4. A Business’s Key Activities: A businesses key activity involves all that it does to create, deliver and attract value. These activities are very important in the attainment of the businesses goal. These activities are aimed at delivering value proposition, maintaining customer relationships, reaching targeted markets and earning revenue. The key activities include:- production processes, daily inventory, marketing, customer relationships finance and accounting, networking etc.
5. Cost Structure: The cost structure component of a business model examines all the costs incurred to operate a Business Model. The cost structure include fixed cost, variable cost, economies of scope, marketing, salaries, economies of scale, production, advertising etc.
A businesses cost structure may be value driven, fixed cost driven, variable cost driven, economies of scope driven or economies of scale driven.
6. Key Resources: The key resource component of a Business Model looks at the assets and resources needed to make a business work and deliver value. These resources could be intellectual(human resources), financial, infrastructural or financial. The key resources also include the facilities needed in a production process when the value delivered by a business is in the form of a product.
7. Customer Segments: Customer segmentation is a Business Model component that seeks to define who the value is being created for, whose pain is being cured, and whose need is being met and if they are willing to pay for the value that is being given.
In customer segmentation, the business must identify who it should serve and who it should ignore. It must also identify if the needs of the customers are homogenous or heterogeneous and also seeks to find out where to find these customers.
8. Key Partners: The key partners of a business are the relationships it has with other businesses, individuals and organizations that help it create value, deliver value and capture value. These partnerships include:- trade organizations, strategic alliances, regulatory authorities, suppliers and financiers.
9. Revenue Stream: As a business creates and delivers value, it also aims at capturing value by way of its revenue acquisition. A business must define how it generates cash(revenue), how the offering is priced and how much a customer sis willing to pay and how these revenue streams could be sustained and even increased.