Entrepreneurs are endlessly creative, often generating innovative products and services from a unique vision. They work tirelessly to bring those ideas to fruition and grow their companies.
But starting a company to bring ideas to reality and scaling an operation are two different things. Every company, regardless of their product or service, must have a strong business model.
What is a Business Model?
A business model is a formal plan that outlines the purpose of a business. It lays out the company's goals and its strategy for reaching them. It's a way of thinking about a business as a system rather than rushing into production without plans for sales channels, marketing, revenue, and future growth.
4 Steps to Successful Business Modeling
1. Define Your Market
Identifying and understanding your target market is crucial for any new product launch. This critical step is reflected in statistics showing that as many as 42% of small businesses fail because there is simply no viable market or demand for their product.
2. Build a Revenue Model
The way a company generates revenue is critical. Companies within the same industry can pursue different revenue-generation strategies. Some may produce and sell a product (such as software), while others may rent out and service the same product (such as subscription-based SaaS). Your chosen revenue model will help define your profit, cash flow, and more.
3. Map Out Costs
Small companies often need to pay more attention to the cost of producing and delivering a product or service. Accurately calculating the cost of materials, labor, marketing, overhead, compliance, sales, and other expenses is crucial. Accurate costing allows you to set optimal pricing and understand where to offer higher-volume production discounts.
4. Research Your Resources
Many industries are currently facing significant labor and material shortages. New businesses often require tailor-made machinery that requires long lead times for construction. Additionally, they may need equipment to expand their operations, but high prices could impede their access to necessary capital.
Real estate and location are also resources that impact the business. For example, being too far from your customers can affect them, while expensive close-in locations may drive up indirect overhead.
The Benefits of Business Modeling
Business modeling empowers you to make informed decisions about resource allocation and develop a realistic path to profitability. It also helps you identify potential challenges at the beginning of your journey. By thinking through the different elements of the business model, you can identify areas that may be risky or require additional resources and areas with opportunities for growth or expansion.
Another benefit of business modeling is that it allows you to test your assumptions about the business. A realistic business model shows you how it would operate in different scenarios, and you can then adjust the model as needed. These "what if" strategies help you avoid mistakes and keep things on track.
Resources for Entrepreneur Business Modeling
The Henry Bernick Entrepreneurship Centre (HBEC) at Georgian College offers training and assistance to entrepreneurs who need help with business modeling and many other essential skills for starting and scaling their businesses.
With academic training, access to mentors within the business community, and more, we can help make your journey more productive and less fraught with risk.
Contact us today to learn more about our programs.