Startup and established business fail because not enough customers buy the products and services. The customer is neither inspired nor compelled to pay for whatever was on offer and the business has become unable to retain or generate sufficient sales revenue from its customers to be viable.

Now other forces may be at play like regulatory shifts, natural disasters or change of ownership however the fundamental problem for failure is operating or starting without a viable business model.

The nuts and bolts of a business model are easily understood but demanding to achieve. A business model is the process of selling product and services to customers who readily pay and whereby business generates profitable revenues – the model is the key functions performed creating value for both the customer and the business. In short how does business makes it money

Business models map the flow of activity and revenues through the essential components of a business. Often referred to as building blocks or elements these key components constitute the business model.

  • 1 Value proposition – what is the value that business brings to the customer, what is the problem being solved and which customer need is being satisfied in ways that compel them to buy and from you and not competitors.
  • 2 Customer segments – who will be the customers of this business, which type of customer is most important, how are their fears and barriers overcome and what is their need to pay.
  • 3 Customer relationship – when customers are identified, how will business acquire customers, keep them and what relationship will need be established and maintained.
  • 4 Channels – how will business reach, connect and interact with the customer and the various segments.
  • 5 Resources – what key resources are essential to deliver the value proposition?
  • 6 Activities – which key activities are required to action the customer relationship and deliver on the value proposition. What must be done to be viable and make profit?
  • 7 Revenue – what is the customer prepared to pay for the value proposition, how is pricing determined and what is the preferred way to pay.
  • 8 Operational – what is essential and important to the business model and value proposition and what are the various costs.
  • 9 Partners – what key partners does this business require, what do they need to provide.
  • 10 Research and Actions – what is known, unknown what proof for this business model exists and what needs to happen next.
Variation on the number of business model components may be subject of review however the critical components value proposition and customers are the foundation, nucleus and DNA for what constitutes a business worth doing. Until each element is addressed business planning must focus on answers that validate the business model before plan writing and prior to launching business.

This article by Business Sauce appeared in Inside Business Magazine