Published in The Tennessean March 10, 2014
By Ed Rappuhn – SCORE Nashville
Two weeks ago I began to answer the question, “What is a business model and why do I need one?” A business model allows you to visualize your business and its interrelationships on a single “canvas.” It allows for easy modifications as you adjust to changes in the market or add new products or services.
Imagine a blank artist’s canvas. In the center of the canvas is what you are selling, on the right is who will buy your product or service, on the left is how it is produced, and across the bottom is how much revenue can be generated and how much it costs.
In my last column I discussed the center of the model, the “what,” also called the value proposition. This describes your products or services in a way that emphasizes the value of your offerings as understood by your customers. You can find the entire article at Tennessean.com searching value proposition.
The right side of the canvas, the “who,” has 3 parts:
1. Customer Segments define the markets for your value proposition(s). Here you acknowledge that a given value proposition doesn’t have universal appeal. You can break your segments down demographically, business vs. consumer, or by interests. Your value proposition might be different as you focus on specific customer segments based on the customer’s different needs or interests. By breaking your market into segments you know where to focus your marketing, advertising and promotion.
2. Channels are the methods by which your value propositions reach your various customer segments. Examples include: on-line (downloads), retail storefront, or door-to-door delivery. You might use more than one channel depending on your value propositions and customer segments.
3. Customer relationships make your value propositions prized by your customers. These include extraordinary customer service, complete product or service offerings, and providing value beyond what you promise. Positive customer relationships result in increased customer retention and referrals to new customers. Repeat sales are generally significantly less expensive than generating new business, so strong customer relationships should lead to higher profits.
Across the bottom of the model is the “how much.” The right half of this section is “Revenue Streams.” Think of every way your value proposition can generate revenue. This obviously includes direct sales of your value proposition, service contracts and delivery revenue. But also think beyond these. If you can attract advertising revenue, include this revenue and the associated value proposition and customer segments. Several web-based companies rely largely on advertising revenue.
Two weeks from today I will conclude this discussion with the left side of the model (the “how”) that defines how you produce your value proposition and the associated costs.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org. Email questions about your business to email@example.com and watch for the answers in future columns.