Business model made easy for your budding entrepreneur
Is your teenager more interested to set up something of her own rather than joining a regular job? If the answer is yes, then you need to ensure that she has a grasp over some basic business concepts. For optimal result, business aptitude needs to be backed by a strong foundation of theoretical knowledge.
Business model is one of the basics that your budding entrepreneur needs to understand before she embarks on her entrepreneurial journey.
What is a business model?
It is a tool designed to help stakeholders understand the product or service on offer. Ideally, it should aim to answer these questions:
- What is the goal of the product or service?
- Does it create any value for the customer?
- What value does it add to the company?
The role of a business model is to make a business viable and it includes the policies and operational processes that a business follows. It also outlines strategies to run the business in a cost-effective manner. In a nutshell, business model is the detailed description of what a company creates, how it delivers value to its investors, customers and the self and ways to function in a financially efficient way.
Components of a business model
Having a well-thought business model before starting a venture is an entrepreneur's first step towards success. In fact, this can become the deciding factor between success and failure. It should have all the necessary details, starting from target audience and modes of operation to revenue model and value addition to the customers. Here are some of the essential components of a business model.
Target Audience: The first thing that an entrepreneur needs to be sure about is who he wants to cater to and why. A business model defines target group and includes various segments of customers, divided on the basis of their needs, age, gender, purchasing power, personality type, etc.
Value Proposition: This component of a business model aims to answer two questions. These are:
- How does the business address the pain points of the customers?
- How does it ensure to deliver the gains to its customers?
Operation Plan: It is the modus operandi of a business. This part of a business model talks about the following:
- What the company sells, product distribution, R&D, strategy, etc. What all offerings does the business sell to the customers.
- Partners who will help the company deliver its value propositions
- Resources that the business needs to create and deliver it offerings.
- Cost-effective pathways or channels to reach out to customers. The channels can be a physical or a virtual store.
- The type of relationship that the business has with its customers.
Revenue Model: This component of a business model elaborates on the financial aspects of a venture. It has two components: Cost structure and revenue streams. While cost structure focusses on the expenses incurred to run a business, revenue stream talks about ways to generate revenue. There could be various sources of revenue including