Writing a business model looks different to each company. It can be a simple plan that evolves over time or even be accidental, becoming clearer after the fact. Regardless of when or how it is created, it is universally understood to be critical to your business’ success.
This week we ask: where do you start with writing a business model?
Alan Manly, CEO of Group Colleges Australia & author of The Unlikely Entrepreneur
There are many templates of a good business plan available on a quick Google search. Writing down your great new idea in the space provided will be followed by lots of meaningful questions that may not have come to mind in the excitement of creating a new business opportunity. If any section looks a bit hard, skip it for now. Revisit when you have had some time to complete the rest. Sometime later you will start to redo the first entries as you rethink the ideas and how they look in writing. There is no need to rush. Ask someone for their interpretation of the questions in the plan. Remember that you are about to invest your emotional and financial future in this idea. This is the greatest opportunity that an entrepreneur has to avoid a sad mistake.
Oliver Ranck, Co-founder, Future Neutral
Fundamentally business models are simple. You need to make money. There are only a few ways this typically happens – a good product, service or offering. This is then a value exchange for the buyer – you are providing something they value, which in turn should increase their utility/value either as an individual or as another business.
When people assess a business model, what they are actually doing is product market fit and opportunity. The underlying business model may not be new, but the product, service or offering is novel. So how do you know if the idea is fit to exist in the deathly jungles of a competitive market? Testing.
You want to start your own financial advisory business? Ask friends if they’ll trust you, literally, with their money. A lot of people will “love your idea,” but don’t be fooled by false smiles – ask people to part with their cash – that is the litmus test.
Finally, be very careful with survivorship bias – 70 per cent of businesses fail. Had we tried to make Future Neutral two years ago it would have flopped. Be honest and blunt with yourself, you have to learn to call your own babies ugly.
Jim Softsis, Managing Partner, Findex
Most are familiar with the saying, businesses that fail to plan, plan to fail. Planning is critical for a business, and a clear business model should sit at the core of that plan. There should be two-way interaction between your business plan and the specific business model you choose. Material changes to the business plan will impact the business model, and vice versa.
The inherent connection that exists between the “Operational How” (i.e. the model) and the “Strategic What” (i.e. the plan) requires the core elements of your strategy to be considered in the context of both “model” and “plan” together.
Core elements should include:
- Summary – Short, thought-capturing statements that provide overview and context about your business and why it exists – make it personal.
- Structure and operations – How your business will run, your preferred legal structure, your management or decision-making team, information flow, digital infrastructure (key during COVID-19).
- Identified market need – A clear and concise definition of the product or service identifying what problems you’re attempting to solve and the specific needs you’re addressing.
- Analysis of customers and competitors – Marketing strategies should evolve constantly to ensure continuity of business so it’s important to understand the barriers to entry and buying habits of those you are ultimately selling to as well as any threat of competition – new or existing.
- Finance – Build out simple cash flow projections and put money aside in the good times. Understanding the seasonality of your business will help you handle any surprises.
- Have an exit plan – Longevity in business is not always guaranteed so establish steps and procedures to action a future sale, a shut-down or similar.
Once in play, review regularly and update as necessary – good luck!
Bruce Perry, COO, Wontok
2020 has been the Year of the Pivot: where many business plans and strategies have been tossed out, as market conditions forced a total rethink. Food outlets switched to home delivery. Perfumiers and distillers pumped out hand sanitiser, clothing manufacturers made face masks. Other businesses simply moved online.
The lesson to take from this is flexibility and adaptability. To build a resilient business, your model needs to be able to respond to change and disruption and evolve to whatever the “next normal” is.
Fundamentally, most businesses involve three aspects: a customer, a problem, and a solution. And overarching this: a reason why that customer is going to pick your solution (assuming you’re not the sole operator in the market). In other words, a USP – unique selling point.
This is what you build your model around, and what will subsequently guide your brand and your strategy.
Vijay Sundaram, CSO, Zoho
Your business model is the framework that sets out what you want to achieve, how and why. It covers everything from value proposition and market analysis to customer segmentation and marketing strategies. It’s easy to get bogged down in the details or skip to the exciting bits, but your customer is the most valuable part of your business, so take some time to identify and understand them first and foremost. Your target customer should determine everything that you do; from what you charge to where you advertise. For example, if you know your target customer is in an older demographic, you perhaps won’t market heavily through Instagram. Or if your target customer is a recent graduate, ensure your pricing is fair, or offer a free trial. Once you understand your customers – central not only to writing your business model, but every decision you make thereafter – everything else should fall into place.
Ian Yip, CEO and Co-Founder, Avertro
The key to a business model is that one should not fall into the trap of over-thinking or over-analysing. There’s a reason that the tried-and-tested models exist, and it is unlikely that you can come up with a revolutionary way to make money right at the start. Those who get somewhere interesting usually iterate their way there by listening, learning, and adapting.
Instead of writing a long business plan that very few will read, use a framework. At Avertro, we started with the Lean Canvas, which is a 1-page template focusing on key business considerations. This will help articulate how you make money, and the challenges that will prevent you from doing so.
The right business model should allow you to determine the total amount of money one can make per customer over the lifetime of your company’s relationship with them, and how much it costs to get that customer in the first place. This is what’s known as Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC). Ultimately your CLV should far outweigh the CAC. Otherwise, you aren’t likely to be profitable.
Brodie Haupt, CEO and Co-founder, WLTH
I’ve always been a big fan of the Doblin innovation model, and the structure that exists in this method when creating a business plan. The beginning of any business is the profit model, so this is always a great starting point when writing a business plan. Once you understand how you are going to make the business profitable you need to work out the organisational structure, and the exact team you will need to get things off the ground and deliver on your plans.
The next step is to understand your product back to front, being clear on the point of difference from your competitors and any additional offerings that will add value to your business. Dive deeper into your key market and how you will introduce your product to them and explain your “why,” as well the reason they need to use your product.
Once you have successfully completed all these steps you can start focusing on your overall brand, and how you are engaging with your customers to ensure ongoing success.
Jeremy Fleming, Managing Director, Stagekings
When we first started, our business model was simple – we built stages and supplied them to large scale productions; including concerts, the Commonwealth Games and reality TV shows. We were on an upward trajectory – that was until COVID-19 hit. As quickly as the lockdowns set in, our revenues disappeared as the entertainment industry was crippled by restrictions that came with the pandemic. We went back to the drawing board – we knew how to build things but had no one to supply to. So we changed what we built, carving up working from home desks, accessories and partisan screens. As quickly as our revenues were falling, they began to increase again, allowing us to hire back all our laid off staff and continue business operations. I think our biggest learning here was the need to build adaptability into the business model, right from the start. We had to adapt from an incredibly physical based job to an e-commerce business literally overnight, which meant we then needed to bring in partners like Stripe, to help us in processing the online orders. Being part of the e-commerce world wasn’t something I had in mind when we started Stagekings, but being adaptive has essentially saved the company. There is no one size fits all business model, and if COVID-19 has demonstrated anything about business – it’s that.