Developing a business model: this is how it works

Every company is based on an idea and thus also has a business model per se. In practice, however, the wheat is quickly separated from the chaff. the better business models from the worse ones. The question is therefore: How do you develop a valid business model from an initial idea??

Not only start-ups would do well to spend a lot of time on business model development – this is also a good preliminary stage to the business plan for classic start-ups. We show below how to develop a successful business model in 11 steps.

What makes a successful business model?

An idea is far from enough to build a successful company. It is only the first step. In the second step, a business model should be developed from the idea. The business model outlines the essential factors of the company and thus shows why, with what and how the company will earn money. Accordingly, the most important questions in business model development are:

  • What is the offer?
  • Who is the target customer and what benefits does the offering provide to them?
  • How revenue is generated?

Often the business model discussion is focused on innovative startups. But from our point of view this is too short-sighted. Also for classic business ideas such as. from the trade, service or craft sector, the development of the business model plays an important role. And even if you have grown beyond this stage, you should periodically review your business model.

Use our free template to develop and test your business model yourself.

Why is the business model so important?

Business models used to be relatively simple and straightforward. The baker who sells his rolls, the hairdresser who cuts hair or the cinema that shows movies. Today, there are discount bagel stores, Starbucks, perceived oversupply of hairdressers, and movie theaters running operas from the Met, while Netflix and Amazon bring the latest movies to your tablet.

This shows that business models, and therefore the way companies make money, are subject to continuous change. And those who do not change as well, disappear. And even business models of large corporations suddenly don’t work anymore, as the examples of past years show (Nokia, Leica etc).).

Content: How to develop your business model

11 factors go into developing the business model. Accordingly, we recommend the following outline when developing a business model:

1. Start with the vision

Only if a business makes sense, d.h. solves a problem of the customers, respectively. fulfills an important need, it can be successful in the long term. So answer the question why you are doing something you want to do and what vision you are pursuing with your idea – where do you want to be with your company in the long term, i.e. in 8 to 10 years?? One or two concise sentences are sufficient at this point.

2. Founder (team) and capabilities: central factor

An idea remains an idea forever if it lacks implementation. This is why the founder or founding team plays such a big role in young companies. Because until the business model is established and the idea is accepted on the market, everything stands and falls with you. They fill the idea with life, initiate the decisive steps and accompany the implementation.

So, as part of developing your business model, you should answer the following questions:

  • What skills are needed to implement the idea?
  • What skills do you bring to the table as a founder (team)??
  • Where are there still deficits or. what skills are still needed?
  • How can these gaps be filled? (z.B. Look for additional team members, employees or external service providers – see also point 11 – Resources)

3. customers and their needs

Who is your offer aimed at? Who is your target customer? Next, it is the turn of the target group definition when you develop your business model. A fundamental difference arises in the target group definition from the distinction between private customers (called B2C) and business customers (called B2B market). In the B2C environment, for example, the description of the target customers includes. Demographic factors (such as gender, age, origin) as well as lifestyles and values (u.a. derived from the Sinus milieus). For business customers, on the other hand, it is factors such as industry or company size that characterize your market.

But no matter whether in the B2C or B2B environment, the following question is identical in every business model. What are the needs of your target customers? Often, potential needs can arise from existing problems that you can (better) solve with your own offering.

Not all functionalities of a product are equally important to target customers. To learn which features are critical to the business model, the Kano model helps.

When defining the target group, don’t just rely on your gut feeling or leave it at a rough idea. Create personas – we show how this works with an example.

4. Idea: What relevant customer problem will be solved?

In the next step of the business model development you show how your idea fulfills the needs of the customers in detail. First, simply list the basic needs or. problems of the customers. Then describe the specific products or services that solve the problems. This will make it clear for your business model what customer benefit you offer with your range of products and services and what customer desire you fulfill.

  • Example: If young parents want to go to a cafe with their young children, they usually do not offer suitable snacks or cakes for the little ones. However, since many parents now attach great importance to healthy eating, they have to bring something themselves, since the cake is not suitable for small children. A cafe can now e.g. Respond to them with a special offer for small children and set yourself apart from the competition.

Once you’ve done this, your business model already addresses how you stand out from your key competitors – what makes you unique? In this context, people often talk about the USP (Unique Selling Proposition) of a business model.

5. How attractive is the market?

You have already taken a first look at the competition in step 4. For the development of the business model, however, you should look a little closer.

However, this aspect is preceded by the market and the question of how large it actually is. Based on the defined target customers, you try to make estimates of the market volume and market development: Do you expect the market to grow or do you rather assume that the market volume will remain the same in the next few years? Show which trends will influence the market in the future. Maybe you have even found a gap in the market. Then you can be the first company to benefit, but you must expect competitors to quickly follow suit.

You have no competitors? This statement is usually wrong and an alarm signal with capital providers. And you should also beware of this assumption. Identify the three to five most important competitors for your company as part of the business model development process. In the course of the competitor analysis, also create a strengths/weaknesses profile of these competitors so that your positioning compared to the competition quickly becomes clear. To help you, we provide you with a free competitor analysis tool.

Finally, for this area of your business model, you should compile the three to seven most relevant factors for the purchase decision of your target customers.

6. Validate your assumptions

Already in the planning process of your start-up, it is helpful to validate the assumptions made as early as possible. Market research is the classic way to do this. Create a questionnaire (there are now numerous survey tools for this) and approach your presumed target customers. The questionnaire should cover the following areas:

  • Customer needs and problems: Use a questionnaire to find out whether the identified problems and customer needs actually exist and are perceived as such.
  • Purchase decision factors: What moves the target customers to buy, have you identified the right factors?
  • Assessment of the competition: are there any. nor competitors you have overlooked and do customers share your assessment of competitors? Or do competitors have. have other advantages that you have not seen so far?
  • Willingness to buy: Are your target customers willing to buy your offer – especially if the price is too low?. above that of your competitors?

Analyze the results of the survey in detail. Negative feedback can be used to either improve your offer or to change the target group for your offer.

If the feedback is so far positive, you can validate the market. To do this, you will need the following key figures:

  • Size of the target group
  • Frequency of purchase
  • achievable price
  • Forecast of your market shares

This then determines the sales potential of your company.

Excursus: test the business model directly in practice

In the market research with questionnaire, you primarily collect opinions and views. These can, of course, differ significantly from the actual subsequent purchase decision. Use the following methods to test your product or service in a real-world environment at a very early stage.

The lean startup stands for a quick market entry with a "lean" Prototype that can be improved and matured based on customer feedback.

If you go to market with a Minimum Viable Product, start with the simplest version of your product that nevertheless already offers added value for customers.

A pop-up store is a retail store that you open temporarily to test how your offer is received with a manageable budget and low risk.

7. Determine the optimal positioning

Important point in the business model is your positioning in the market and the related strategy. Price and quality are among the classic cornerstones of positioning. Are you the price leader or quality leader in your market?? And what position do your competitors take? To make positioning easy for you, we provide you with a positioning tool. In addition to the factors of quality and price, you can also use other components for positioning. However, these should always have relevance with regard to the customer’s buying decision.

8. How do you want to acquire customers?

Marketing and sales in particular are important from the outset. During the development of the business model you should already determine the essential marketing activities. Depending on your target group there are big differences in the marketing concept for the B2B or the B2C area. List the essential marketing activities. And estimate how expensive it is to acquire a customer. This will help you make a reliable marketing budget calculation. Compare the advertising efficiency of individual marketing channels: We have a free tool for you for this as well.

Also define the main sales channels and acquisition activities you are aiming for. For this purpose you can use e.g. count the following points:

  • Distribution in your own store or online store vs. Sales via Amazon
  • Listing in supermarkets
  • Use of sales representatives
  • Telephone acquisition (internally or via a call center)

It is much easier and cheaper to retain a customer than to acquire a new one. Therefore, customer retention measures also belong to the marketing and sales area of your business model.

9. Revenue model: How do you make money?

Record the key revenue items and provide details of your revenue model. Do you have e.g. a subscription model or sell products directly to the customer or earn a commission on the sale of certain products such as bspw. in the insurance sector? Conceivably, z.B. also that you have a freemium model, where you earn money only later as part of the use of your offer.

Then make initial forecasts for sales development. Key figures that you need to determine in this context and depending on the specific revenue model are u.a. average sales per customer or shopping cart, the frequency of purchases and the duration of the customer relationship. The revenues in your business model are followed by the expenses.

10. Record the main expenses

First, calculate the start-up costs and investments involved in implementing your business model. With the start of the company, operating costs are added. What are the main cost items arising from the current business. These include direct costs, which can be allocated to their revenue drivers and include marketing expenses in particular, as well as traditional cost items such as rent, insurance, wages and salaries.

By comparing revenues and expenses, you can now make statements about the margin and profitability of the business. Determine the expected break-even and capital requirements necessary to successfully place your offer on the market.

11. What resources are needed?

After all these considerations, the final step is to show which essential resources are necessary to implement your business model. These include for example. Capital, employees, the equipment for your store, the first warehouse, the online presence or pending technological developments.

However, the decisive resources for a business model often also include important partnerships that determine success or failure. This includes u.a. Suppliers, sales partners or development partners, if you cannot map important elements for this in the company.

What is the next step after the business model?

In your business plan, you can take many elements from your developed business model, but present them in much more detail. A business plan software helps.

The financial plan presents your business development in figures and tells you whether your business idea can be profitable. Use a tool to save yourself unnecessary work.

If you are looking for investors, you can already use the developed business model to create a pitch deck to present your idea appropriately.

Conclusion on business model development: stay tuned

The idea alone is not enough to build a successful business. You should therefore outline the key factors of your company in 11 steps as part of a business model development and show why, with what and how the company will make money. In addition to the vision, this also includes the founder or. The founding team, the target group, the idea as well as the market and competition and the validation of the market. As part of a business model development, also examine strategy and positioning, market and sales, as well as finances and resources.

Even if you are already past the idea and planning stage, business model development is relevant. Because markets are changing at an unprecedented rate these days. New competitors enter the market, new marketing channels emerge, and emerging trends change purchasing decisions, sometimes radically.

Therefore, your business model is not set in stone. Existing companies should consistently continue to work on their business model and always question it. Of course, you should not constantly change your strategy or other elements completely. But there will always be improvements, adaptations or even complete innovations (in start-up lingo, this is also called disruption). So stay tuned – this is the only way to ensure that your successful business model will still be successful in the future.

By the way, the Leica company we mentioned at the beginning of the article managed to avert bankruptcy and become successful again by adapting its business model.

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