Embarking on your own business venture can be intimidating at first. The most difficult part may be how to start planning aspects beyond the initial spark. To get down to logistics and understand how best to approach the next steps for your future, you will need a business model.
Creating a business model
There are several crucial elements to a business model, including what your product or service is, who your customers are, and what you do differently than others. You’ll want to consider certain ideas and write down your thoughts on them. This can be part of your pitch when you are trying to obtain a business loan too. More planning up front can help out tremendously later.
6 categories to consider
Parts of your business to consider before choosing a model include:
- Value proposition: Why should someone choose your business?
- Target market: Who would choose your business?
- Competitive advantage: What does your business have that someone else does not?
- Cost structure: What are the expenses of your business and how do you profit?
- Key metrics: How does your business know when it is successful?
- Resources: What does your business have physically and intellectually that will allow it to succeed?
Once you have answered questions like these for yourself, you can move on to looking at business modeling. Of course, these aspects of your business can change over time based on how your model proceeds, but you’ll want to nail this kind of information down before moving on.
The 6 types of business models
Typical business models can be identified easily. The most prevalent models can be boiled down to about 6 different types:
1. The Manufacturer model
This is where you create a product that, of course, everyone needs. You do it from raw material (like cookie dough) and create a product: delicious cookies.
2. The Distribution model
If you bring delicious cookies to market then you are a distributor. You didn’t make the cookies, but you package them and make sure they get to a store.
3. The Retailer model
You receive the wrapped cookies and then sell them to customers. Of course, you’ve bought cheaply in bulk and then sell for more, making sure your pricing covers the costs you incurred from the manufacturer and distributor
4. The Franchise model
Once your cookie store gets a name for itself, others may want to pay to set up stores in your name with your branding. They get a recognized brand name and all the logistics already figured out for them, in return you get a taste of their profits.
5. The Freemium model
In this modeling, which is often used in an app online, you give SOME part of what customers want for free, and then they have to pay for added features. So they get perhaps one small free plain cookie per day, but if they want a larger one or chocolate chips, they have to pay.
6. The Subscription model
A cookie subscription has consumers pay upfront or monthly and then get cookies in a bundle or perhaps unlimited.
It is imperative to have your model well thought out and to understand your place in the market before approaching anyone for a business loan. When you have identified why you deserve investment and where you fit into the larger market, then you can connect with a bank to discuss how to work through start-up costs.
If you know exactly why your cookie is the next big thing, hopefully, the bank will too. The right business model can convince them.
12 business models explained with coffee metaphors
This infographic below from Fundera walks through 12 common business models and gives examples of each from multiple industries. For even more context, they use coffee metaphors to explain each type of business model.
This infographic was created by Fundera.