Creating a successful business model is essential for any business to thrive. It requires understanding the relationship with target customers, the market, the strengths and weaknesses of the organization, the essential elements of the product, and the way it will be sold. Leaders should ask themselves a question and then do three things to ensure success: identify value propositions, make detailed financial projections, and create a strategy for contingencies. Value propositions explain, in as few words as possible, what benefit users get from a product or service and why it is better than others.
For example, a restaurant could make its value proposition of supporting local businesses using only locally sourced meat or vegetables. Customers choose that restaurant because they want to support local businesses, even at a higher price. By making detailed financial projections for your company, you'll have a better idea of how much capital you'll need to start or grow your business. Everyone agrees that executives must know how business models work in order for their organizations to thrive, but there is still little agreement on the operational definition.
One business model may seem superior to others when analyzed in isolation, but create less value than others when interactions are considered. Few executives realize that they can design business models to generate winner-takes-all effects, similar to the network externalities created by high-tech companies such as Microsoft, eBay and Facebook. Most business models share six main elements, according to business researchers Henry Chesbrough and Richard S. Business models are more focused on closing the gap between technical and business expertise, but generally speaking other companies can employ them as well. The convergence of information and communication technologies in the 1990s caused an ephemeral fascination with business models, but forces such as deregulation, technological change, globalization and sustainability have rekindled interest in the concept today. However, the success or failure of a company's business model depends largely on how it interacts with the models of other players in the sector. A good business model should be able to maintain its effectiveness over time by defending itself against four threats, identified by Pankaj Ghemawat.
No company can function properly (let alone achieve established goals) without key partners who contribute to the company's ability to serve customers. This section should also briefly describe your customers, how big their target market is, and why now is the perfect time to develop your business concept. There has never been so much interest in business models as there is today; seven out of 10 companies are trying to create innovative business models and 98% are modifying existing ones, according to a recent survey. When a new business model creates complementarities between competitors, traditional companies are less likely to respond aggressively. Before your business can get up and running, you need to understand the activities needed to make your business model work.