If You’re Not Using the Right Business Model, You Could Be in Trouble
Posted by Resource Nation on December 11, 2013 in Business Financing, Business Management, Business Start Up Advice [ 0 Comments ]
In a new survey from KPMG, research found more than 90 percent of multinational companies are currently altering their business models to better align with what their customers want, among other reasons. While a particularly daunting challenge, changing business models has proved successful for companies in the past. In 2003, Apple made the decision to transform its business by introducing the first iPod alongside its online marketplace, iTunes. In three years, the combined products accounted for nearly half of the company’s revenue. While Apple’s success is a bit unusual, benefits on smaller scales are common. The only hurdle in making the change, however, is determining what business model an organization needs.
Companies can discover this for themselves by answering the following five questions:
Who is your market?
Determining your target demographic will be invaluable as you move forward with structuring your business model. Start with a funnel approach: define who your business is hoping to target and then narrow that audience into a size manageable for your business. Research should also include annual purchasing trends and an analysis of your competition.
Have you defined your product?
Obviously, without a product or service, your business is likely to struggle. Clearly outlining what your company will be providing is imperative to later attracting customers. Figuring out what your product will be, what its life cycle will look like and finalizing any pending copyrights or patents will be crucial elements to rounding out a successful business model.
How are you attracting and keeping customers?
Once you understand exactly what your product is going to be, getting people to buy it will be the next real hurdle to finding success. Creating a comprehensive marketing strategy to attract customer will include four separate strategies: a market penetration strategy; a growth strategy to help grow the business, which may include franchise and HR details; a channels of distribution strategy dealing with the logistics of delivering your product or service; and a communications strategy for promoting, advertising, public relations and a number of other popular techniques.
Will you be seeking financial assistance?
Most businesses don’t start out with a surplus of funds. For many, acquiring external investors will be the most viable avenue toward getting your business into a place of profitability. When structuring funding requests, be sure to consider the amount of money your models have already projected you’ll need to be sustainable for the next five years. Include information about how you intend to use the funds, which may consist of capital expenditures and debt retirement.
Are you capable of managing your costs?
With your other information collected, like market analysis and objectives, the final step in determining your new business model will be calculating your financial projections. To do this, you’ll need to include both past and prospective financial data. If you’re not starting a wholly new business, examining previous numbers can help shed insight into your company’s performance, thus far – and most creditors will require the information. Estimating future performance will be a requirement for almost all creditors. They’ll likely request forecasted income statements, balance sheets, cash flow statements and capital expenditure budgets.
Forcing yourself to evaluate how you’ve done so far and how trends suggest you’ll do in the future can help you determine the viability of the plan you’ve set forth. If the numbers seems off, you may need to make adjustments to your plan.