How to build a business model: an example
Consider how to start building an effective business model step by step using the example of a luxury furniture store:
- Determine what you offer: exclusive furniture from famous European designers in stock and to order.
- Who might be interested in the offer: Entrepreneurs aged 30-50 with above-average income. Of course, it is better to paint the portraits in more detail, but as an example, we decided to choose only one portrait of the target audience.
- Interaction channels: website, social networks, showroom.
- How to maintain relationships: promotions, selection of furniture for the interior of the house, full support when choosing positions.
- What they pay for: for the furniture itself, for the work of designers and managers (full support), delivery.
These items are related to the revenue side. Now let’s move on to consumables:
- Resources: specialists, warehouse, website and software.
- Processes: debugging logistics and connecting the cash register.
- Attracting partners abroad.
- How much it will take to start a business: calculations are required here, an example of which, for obvious reasons, we cannot provide, but for a knowledgeable businessman who knows all the introductory information, this is not difficult.
Common mistakes in business models
- Error in understanding the organizational structure. Often, when building a scheme, there is a misunderstanding of who to put as the head of a unit if, logically, it is subordinate to several persons. You should not jump over the leadership team: the hierarchy should be clearly visible, and there should be a clearly designated boss in the field.
- Problems with the formation of divisions or departments. There is no understanding of how the work is built inside them, who manages and is responsible for what. Because of this, there is confusion and failures in the distribution of responsibilities.
- There is no clear separation of processes and projects. For the first, it is important to prescribe the stages of the work and appoint those responsible for their passage. And projects are one-time works that are performed on demand, so it is impossible to prescribe possible outcomes in advance, you need to act based on the situation.
- Excessive or insufficient description of business models. Options are equally bad for efficiency. Often, when trying to prepare an ideal business model, aspiring entrepreneurs include a lot of unnecessary details in it, which is why they miss important details. You should not rush from one extreme to another: extra details can always be put in a separate document and a link to it – the responsible persons will get acquainted with it, and those who do not need it will simply not fill their heads with information they do not need. About the abstract description everything is clear. If there is an understatement, then everyone understands it in their own way, which means that the result will be different for everyone. It is unlikely that we will be able to come to a decision in this scenario. After all, what TK, such is the result.
In general, a lot is built on the business model. Particularly business success. It depends on the degree of its development whether the start will be successful, how soon it will be possible to achieve development, how large the army of the company’s fans will be.
Business model – a description of the process of making money. It describes the conditions under which interaction with consumers takes place and what is their benefit from cooperation. The term originated in the era of mass distribution of personal computers and accompanying programs for building tables. They helped businessmen make plans and control cash flows. Changes are made in real time, and therefore all fluctuations in processes are visible here and now. This is how entrepreneurs manage to control changes in the situation and understand which of them will affect their business today.
The structure consists of three simple elements:
- Startup: raw materials, production, people, etc.
- Sale: promotion, advertising, service.
- Money: how payment is made, in what terms, what is the volume of receipts, etc.
Thus, it can be used to conduct research on what is already available for the business, what is missing, and how much money you will earn.
Note that a business model is not the same as a business plan. There is no detailed analysis of the situation, and therefore it cannot be used to make important decisions. It helps to evaluate key hypotheses and determine the list of risks that a startup or a long-lived business may face. It helps to make sure that the product will meet the expectations of the client, and also to understand how the profit will come. Therefore, its choice and construction should be approached with all responsibility.