What Really is a Business Model?

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A business model describes the rationale of how an organisation creates, delivers and captures value. It gives you a blueprint to follow and refine, ensuring your business is sustainable long into the future.

Below we explore the 9 key elements of a business model and offer tips on how you can easily restructure your model to align with best practices.

 

The 9 Building Blocks of Your Business Model

It’s a good idea to understand how each of these 9 elements functions individually, and how they work as a whole. We will use Australian telecommunications company, Optus, as an example to help illustrate this.

 

1. Customer Segments

There’s no business without customers. Your customer segments are the groups of people your business aims to reach and serve. Consider who your most important customers are, how they typically interact in the marketplace and the ways which they can best be served.

Optus has a number of different customer segments. However, after doing their research they may decide that targeting their millennial customers who operate in the digital world is the best strategy for a particular campaign.

 

2. Value Propositions

The second element of your business model is your value proposition.

Your customers need to feel that they’re getting value from you, otherwise they’ll quickly take their business to a competitor. Value propositions are the reasons why customers will choose your business over others, and stay with it. Your business will ultimately be successful if your offers effectively solve the problems of particular customer segments in ways that your competitors can’t.

Let’s say that for a particular campaign, Optus wants to focus on its millennial customer segment. They may find that these customers spend a lot of time on their smartphones and often run out of data. If Optus then offers this customer segment cheaper data bundle packages than their competitors, they will be providing a value proposition which solves a major problem.

 

3. Channels

Channels are the way your business communicates with particular customer segments and delivers value propositions. You need to know the best place to find these customers and the most efficient methods to communicate your message and sell your product.

Millennials spend a lot of time online, particularly on social media, and so this may be the best place for Optus to target them.

 

4. Customer Relationships

The strength of the relationship you build with your customers is another key ingredient in an effective business model. Different customer segments require different relationships, and all should be as personalised as possible. CRM (Customer Relationship Management) software can help with this.

Optus may seek to improve loyalty by regularly communicating with its customers and offering new value propositions which solve their problems. For example, they may notice than one particular customer had a recent complaint about their customer service. By following up this complaint and working hard to rectify the issue, the customer will be satisfied and more likely to be retained.

 

5. Revenue Streams

The money you generate from different customer segments is your revenue stream. Research your customers and find what they are willing to pay for particular value propositions and how they would prefer to pay it.

Optus may find that millennials aren’t flocking to their data bundle packages because the price is too high. Or perhaps they may find that monthly deductions from their customers’ bank accounts are not a preferred method of payment everyone. Reducing the price of the package and offering different payment options may alleviate these issues.

 

6. Key Resources

When outlining your business model, you need to consider the assets that you rely on to operate. For example, a publisher may require a printing press. However, not all resources are essential. And some may need improvement to be successful in the future.

One of Optus’ main assets is its mobile phone towers which give its customers service. After surveying their customers, they may find that in certain areas, coverage is faulty. Improving these technological assets will set up the business for the future.

 

7. Key Activities

Your business has a clear function. Examine each of its activities and note which of these are necessary for the business model to succeed. This may be how you strengthen customer relationships or generate money from your revenue streams, for example. Ask yourself how these activities can be improved to enhance customer experience.

Optus may find that a key aspect of their business is their data speed. And by improving data speed, they are enhancing the online experiences of their customers.

 

8. Key Partnerships

Most businesses rely on other businesses to make their model work. By having a network of suppliers and partners, your business only has to focus on what you do best.

Optus has a number of different partnerships. From the suppliers of its phones, like Apple and Samsung, to the courier services which deliver online orders to customers, Optus’ partners keep the business functioning

 

9. Cost Structure

Your business’ profit will depend on how much revenue you can generate and how much it costs to operate your business model. Look closely at how much each process costs to run and if there’s a more efficient way.

As an example, Optus may find that their profit can be increased by improving their online customer service capabilities and reducing their reliance on call centres.

The strength of your business model will determine the success of your business. Speak to a trusted business advisor if you need assistance.

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