business model for beginners a complete step by step guide

The Business Model – How To Get Ahead Of Your Competition

In this guide you’ll discover different approaches to creating a competitive business model, avoid common mistakes and get access to some free canvas templates and tools. I’ll share with you some quick ways to dismiss business designs that aren’t going to work so you quickly hone in on business models that you can shortlist and select.

Why Use The Business Model?

Most startups fail because entrepreneurs, and indeed corporate innovators, put too much energy, time and faith into the idea.

They fail to consider the business model. When corporate teams first develop a business model approach it is often a replica of the common model associated in the industry.

Successful new ventures do not go to market with their first idea; instead, the product/ service they go through several iterations before arriving at the final version. Similarly, organizations are more sustainable if they have considered several business models before deciding on a particular one.

I’ve found that some people struggle with business models at the beginning simply because they are trying to get to grips with too many things at once.

I’ve been at accelerator programs where often it is assumed that people are familiar with the business model canvas. The problem then arises as they march straight into using it. People start to hesitate often because it’s simply the first time they come across it.

In the first place, they are trying to understand the whole concept of the business model. On top of that the approach. It’s hard trying to slot all of the pieces together if you are not armed with how they work

If you master how to use each section of the business model canvas it will transform how you create and innovate business models.

Get to understand the concepts first and then it becomes a lot easier. This is why I’ve put this guide together.

I’m a visual thinker, yes I write, but I prefer to have diagrams to help me as well.

In this guide, I will illustrate how a business model can be used and applied to create very different types of businesses, one that could even disrupt your market.

This guide is aimed at helping you choose the right business design for your idea, to help you increase and improve your chances of success.

The Business Model for Beginners

business model for beginners part one

The benefit of using the BM approach is that it forces you to look more strategically at how you take your idea and turn it into a viable business.

While you might be obsessing about your business idea and the potential customers, you might be missing the bigger picture of how your business could be designed.

For any business, there is a myriad of options available but sadly only a few that might actually lead to success.

More importantly, some of these options can dramatically transform a market and change the fortunes of you and your business.

Stepping back and analysing how to design your business can make the difference between being a massive success or another startup casualty.

While you might not be crunching numbers yet, it does force you to analyse the profit model and numbers as part of the design process.

business model for beginners
An explanation of the business model for beginners

The business model concept has three fundamental elements:

  • How to produce value – produce something (product or service) that offers value to a customer segment.
  • How to deliver value – distribute your product or service – take it to a market and sell it.
  • How to capture value – make a net profit after making and selling it.

Something to remember is that value is a relative concept. It is hard to define value in absolute terms. The important thing to remember at this stage is that you are trying to create value for either a business or a person or both (in the case of a platform).

3 Steps To Creating Better Business Models

The most famous approach to developing a business model is the Business Model Canvas developed by Osterwalder and Pigneur. However, other approaches exist and I’ll start here by covering a good way to frame your approach.

Step 1. Define Your Idea and Market

Imagine you walk into a conference and there are hundreds of tables each one labelled differently. Each table represents a market, a set of customers that you have the chance to meet and get to know. Which table are you going to choose?

Any market that exists already has customers and businesses selling to those customers. Your idea doesn’t exist in a bubble.

Most organizations and entrepreneurs already have an idea of a market or even a set of potential customers who could buy the product or service. However, the idea is often loose and not very well framed.

The starting point is to give the idea some more structure and define it. This is where you need to do some research, get beyond dreaming about the millions of dollars of revenue your idea will generate, and start to do the hard work of turning your idea into a business.

1. MAP OUT THE MARKET

Identify the top 10 players in the market you are targeting and see how they differ.

Can you break the market up into suppliers, retailers…There are lots of different dimensions you can use. The reason for doing this is that you start to understand the gaps in the market as well as potential partners. If there is a specific set of potential competitors you can also start to assess their business model and how your idea differs and adds value.

cannabis market map
Cannabis Market Map – Source: CBInsights

2. Pick Out The Key Market Trends

Research the size of the market and the trends in the market.

Free Reports and Data

Some of the top Consultancy companies provide free data and market overviews.

  • McKinsey
  • Deloitte
  • Bain
  • PWC
  • Forrester
  • Gartner

Paid Reports

Step 2. Create a System Map

Before jumping in and using the Business Model Canvas, I often start by mapping interactions and focus on what is being exchanged. For digital platforms and ecosystems, this is often data, analytics and media.

As an example, I’ve included below the Spotify business model as a system map.

spotify business model as a set of value exchanges. The map demonstrates the different actors and interactions across the Spotify ecosystem.
Spotify Business Model Shown as a System Map

I started years ago plotting out ideas this way – here is a poor first attempt – Social School App.

Despite, the poorly designed diagram I started to get to grips with how things could work together and how the main pieces connected.

If you’re designing a new business often creating a map with the main actors and interactions can help you see how the main pieces fit together.

1. Identify The Main Actors

Map out your idea using post-it notes. Use one note for each of the following:

  1. Partners you need.
  2. Customer Segments
  3. Technology and exchanges.

2. List Out What Each Actor Offers and Receives

Place your post-it notes on a board or wall, and then start to join lines so you see the process and main interactions. When you first do this it can get messy so you might need to move things around a lot until they make sense and you start to see the natural connections between the actors.

Sometimes if you place producers on the left and consumers on the right you can start to split the overall system into a natural flow.

3. Organize Into Sections

Reorganize into logical sections so that you can see how the system works. Sections are the logical ways that you can group either activities or the common elements around the main actors in a system. Remember that this is not a process flow diagram. A process flow contains all elements and gets into a lot of detail. To create a system diagram for a business model you want to keep it high level and understand how value is created and exchanged.

Step 3. The Business Model Canvas

The Business Model - How To Get Ahead Of Your Competition 1
The Spotify Business Model Canvas

The Spotify Business Model Canvas shows how the broader elements of the business come together. Often, I will use both methods to help review the logic and exchanges within a business model.

In the rest of this article, I will walk you through the main sections of the business model canvas as a start point and then start to look at easy ways to harness the power of recombination.

NEXT SECTION

In the next section, you’ll discover the best ways to find profitable markets and customers and help you to create your customer segments. You will learn 1) what is a customer segment? 2) Types of customer segments, 3) creating a customer profile (customer jobs, customer gains and customer pains)

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