Business Models: Importance, Plan Analysis, and Advantage

Introduction 

Businesses and companies make plans for generating profits. They develop a model to identify the products and services they want to sell, target markets, and estimate expenses. In business terms, this is called a business model. 

Why Business Models? No matter how small or how large a business is, it must have a business models plan, regardless of how established or new it is. The future of the business and the several unexpected challenges require businesses to update their plans and strategies regularly. 

In order to stay economically viable by 2023, 9 out of 10 businesses say they will need to change their business model. In fact, 64 percent of respondents believe their current business model needs to be enhanced through digital technologies, while 21 percent believe it needs to be re-engineered to use digital technologies. 

What Is a Business Plan? 

Businesses create business plans to describe their objectives and how they plan to achieve them. Business plans provide a blueprint for the operational, marketing, and financial aspects. Businesses of all sizes use business plans. 

The purpose of a business plan is to convey information to a company’s external and internal audiences. Investing in startups without a proven track record requires a business plan. Financial institutions may also be willing to lend to you if you have this type of credit history. 

In addition, business plans can keep executive teams focused on goals and on track regarding strategic actions. 

A business model plan is not just useful for new businesses but should be developed by every company regardless of its size. Periodically reviewing and updating the plan is ideal for reflecting goals achieved or changed. When an established business changes directions, it may create a new business plan. 

Importance of Business Models 

Let’s discuss some of the major importance of business models. The business model is crucial in helping the company target its customers. The type of business model and clientele that you have will help create marketing strategies and projections of revenues and expenses. 

For an investor to understand the company’s competitive edge, the business model must be reviewed in detail. In order for investors to be able to assess financial data with a better understanding of the business model, they need to understand it. 

By assessing the company’s business model, the investors can get a better understanding of the company’s products, future prospects, and business strategies. 

Types of Business Models 

The different types of business models are as follows: 

Business-to-Business Models (B2B) 

The business-to-business model can be defined as a type of business model that occurs when a company or a business has exchanges with another company or business. 

Market predictability is good, and it has greater stability in the market. In addition, since B2B sales are carried out in bulk amounts, this model lends itself to a significant reduction in the cost of doing business. 

Business-to-Consumer Models (B2C) 

A business-2-consumer model refers to a business model in which the business sells its products or services directly to the end users, the people who buy the products or services directly from the business. 

The products are in constant demand since they provide the essential items that are required daily. Therefore, the risk associated with fluctuating demand is eliminated, and the business can be maintained in its consistency. There is direct contact between the company and the customers so that they can share easy and direct information. 

Subscription-Based Models 

A subscription-based business model is a business model that is used by all software companies or applications-based businesses. They offer their products as one-time purchases for a certain amount of money. In return, the company earns revenue on a monthly or annual basis. 

In order to earn regular income through this type of business model, the company will allow the client to pay for the cost of the purchase over 12 equal installments instead of asking them to pay the whole amount at one time. 

On-Demand Business Models 

This is one of the most recent models that has been developed to answer the client’s needs as quickly as possible. This type of business model is prepared so that it can provide all the answers to all the questions within a few seconds by simply clicking a button on the website. 

Elements of a Business Model/Plan 

Listed below are some of the elements of the importance of a business plan/model: 

• Executive summary: As part of this section, you will find information about the company’s leadership, operations, employees, and location. 
• Market analysis: Identifying a firm’s industry and target market is essential. A company’s competitive landscape, how it fits in the industry, and its relative strengths and weaknesses are all detailed in this section. 
• Budget: Budgets are essential for every company. Expenses incurred by the business should be included here, including the cost of staffing, manufacturing, development, marketing, and other expenses. 
• Products and services: An overview of the company’s products and services can be provided here, as well as pricing information, product lifespan, and consumer benefits. A company’s production and manufacturing processes, its patents, and proprietary technologies are also included in this section. R&D information is also included here. 
• Marketing strategy: As part of this section, the company outlines how it plans to attract, retain, and reach its customer base. Distribution channels must be clearly defined. Also outlined are marketing and advertising campaign plans and the types of media that will be used. 

How Do Companies Use Business Models? 

Plans and models are used by companies in every industry and at every maturity level. Some move quickly to articulate the basics, while others use lengthy processes and complex models. By using this planning tool, we are forced to align ourselves internally. 

It is common for established businesses to revise and adapt their business models annually based on the changing needs of customers, employees, and the market. Business models help companies launch new products or enter new markets by aligning early marketing and product decisions with the overall business strategy. 

How to Create a Business Model? 

There should be a strong vision for the business growth in your model, and important questions about your business should be answered. Business models usually include information about your target customers, your market, the strengths and challenges of your organization, the essential features of the product, and how it will be sold. 

Once this foundation is established, you can use the product roadmap as your next planning tool. 

How to Validate Your Business Model? 

To validate your business model, follow these steps: 

• Ensure that your business model is collaborative and accessible: Make it easy to update and share your business model with customers, stakeholders, and team members. Collaboration can be encouraged and facilitated using a cloud-based business model canvas. 
• Extend the strategic model to other sectors: Consider other types of strategic models. What marketing strategy will you use to reach your target audience? How do you compare yourself to your competitors? Does your business face opportunities or threats? Analyze your business model to identify any gaps and anticipate the different market challenges it might face. 
• Create initiatives and goals based on your model: If your business model is successful, consider what that means. What is the target revenue for the year? How many users are desired? Determine what initiatives or work themes will lead to time-bound, measurable goals. External stakeholders, such as investors and partners, will use these as proof points. 
• Establish a timeline for delivering your business idea: Your business goals will be translated into actual product and service features at this stage. You may not have a fully developed offering at the start of the validation process, but you should decide what you need to deliver and begin testing your model. 
• Customer and stakeholder feedback is important: Your business model needs to be validated now. Conduct surveys, interviews, and crowdsource feedback to understand customer preferences and needs. Did you come up with the right hypothesis? Has your business model solved the problem you expected? Your business model will be adjusted based on this feedback. 
• Iterate and refine: Refine your business model template using these new insights. Continuing to iterate on your business model can also be accomplished by repeating the steps of the validation process above. 

Business Model Tools 

Various tools are used to create a strong business model, and they’re as follows: 

• Minimum Viable Product 
• Business Model Canvas 
• Lean Canvas 
• Business Model Framework 
• Social Business Model Canvas 
• Customer Exploration Map 

Advantages of Business Models 

The advantages of business models are as follows: 

• The business model of a company gives it a competitive edge. 
• Building a strong business model can generate an ongoing profit, leading to increased cash reserves and new investments. 
• Investing in a company with a strong business model will ensure the company has a good reputation in the market, keeping investors interested. 

Disadvantages of a Business Model 

• Business models restrict the implementation of new product ideas. 
• The business model might not always be accurate in the end. 
• Many factors need to be considered when creating a business model. 

Business Model Examples 

For example, let’s consider a video game rental and sales company named “A.” Video games are the business of the company. When the company spent 3 million on video game inventories, it made a profit of 5 million. The total gross profit margin is, therefore, 2 million. 

The Internet arrived in the market, compelling the company to modify its business model and include the internet to survive. This reduces inventory holding and distribution costs, and profit increases as expenses decrease. 

Conclusion 

A business model must be created to establish a meaningful business strategy. In order to achieve a company or product’s goals, deep thoughts need to be given to the assumptions underlying the way the company or product will generate value. 

So, now you might be aware of what a business model is, what is the importance of a business model, the plan analysis, etc. If you want to learn more about It, then it is recommended that you need to check out UNext and IIM Indore’s PG Certificate Program in Product Management.