HOW to DEVELOP A BUSINESS MODEL

A business model explains the source a company's revenue. It also explains the how much these sources pay and how often. So it's not enough to say that a company sells PCs or burgers. You need to be able to explain the structure of how the dollars are earned. 

Does the business include franchises or company-owned outlets? Does the company own the outlet real estate, or does it lease the space? Does the company generate most of its money through direct sales, or does it sell via retailers?

The business model also details how the product is delivered. Does the company sell one of its component products at cost to sell more profitable add-on components.  Or, does the company's product require that the money is received upfront, rather than from a stream of add-on sales.

Times change and so do business models. For rexample; Kodak and the camera business. For years Kodak generated revenue from film cameras and the rolls of film used by the cameras. But new digital cameras did away with film sales and processing fees. So, in response, Kodak had to create a new business model. The company has established digital printing centers, where users can have their digital camera pictures printed on genuine Kodak paper. The business model that was once based on film sales and processing has become a model based primarily on photograph printing.

So how do you know whether a business model is any good?  Examine the bottom line.  Is the company making money?  What about the comparison of last year's sales to this year. Examine the operation of the company for trends.  What is the competition doing? 

The Business model must demonstrate a realistic method for generating revenue and  profits.  Profitability is the real determiner of whether or not the business model makes sense.   A business that is burdened with high operating costs because of a cumbersome business model will not  last long.

There will always be costs associated with doing business.  The way the company does business is a function of the business model.  The objective is to operate in such a way as to be as efficient as possible while delivering value to the customer.  How to get and relate to customers is also part of the business model.  The customer is the mechanism by which we are paid.  The customer is the goose that lays the golden egg.  Your business plan should always have the customer in mind, because the ease with which the customer is able to do business with us is a function of the business plan.  The mechanisms of doing business should be as simple as possible.  The easier it is to do business, the greater the liklihood of a positive cash flow.

Evaluate the maketplace continuously.  Look for trends.   Don't be afraid of change.