A business model that suits your idea

1.1. Value proposition

At its core, the value proposition defines what a company offers its customers and, in particular, how its offering differs from that of its competitors. This requires in-depth knowledge of the market concerned.

A winning value proposition addresses the needs, wishes, or problems of (potential) customers and comprises the following features:

• Uniqueness: The product or service is clearly different from other competing offers on the market.
• Relevance: The product or service solves specific problems or needs faced by the target customers.
• Clarity: The benefits of the product or service are immediately apparent to customers.
• Availability: The target group understands how to access the product or service.

As an example of a value proposition, let’s take a fictitious company that offers a mobile app for managing personal finances. This is how the value proposition could look:

• Uniqueness: The app uses Artificial Intelligence to personalize savings tips and automate transaction categorization.
• Relevance: It addresses the general need for simpler financial management and helps users to manage their budget more effectively and achieve their savings goals.
• Clarity: The benefits offered by the service are clear: simplified financial management and personalized savings.
• Availability: Being easy to use, the app can benefit every user, regardless of their previous financial experience. The app can be downloaded from the Apple and Android app stores by all prospective users, and the basic version is free of charge.

1.2. Customer segments and target groups

Another key aspect when developing a business model is to identify the relevant customer segments. A precise definition of the segments is helpful in aligning a product or service, as well as the marketing and sales, to the specific needs, behaviors and preferences of potential customers.

As a rule, customer segments are defined by the following attributes:

• Demographic characteristics: age, gender, level of education, income, occupation, etc.
• Geographical characteristics: location, urban or rural areas, etc.
• Psychographic characteristics: interests, hobbies, values, attitudes, lifestyle, etc.
• Behavioral characteristics: purchasing habits, usage rate, brand loyalty, price sensitivity, media behavior, etc.

By thus permitting entire groups with similar preferences to be addressed rather than individual persons, marketing campaigns can be better controlled, higher sales achieved, and advertising costs saved, because there is less coverage waste.

1.3. Sales channels

The choice of the right sales channels to reach (potential) customers also determines the success of a business model. The channels are used not only to market and sell the products or services, but also to support and retain customers. They can be real-world (retail stores or events) or digital (websites, social media, or email marketing). By using these channels effectively, it is possible to communicate with customers, build relationships, and ultimately achieve the defined sales targets.

1.4. Revenue model

The revenue model defines how a company plans to generate revenue. Different business models generate income from a variety of sources, depending on their product or service range, their market, and their strategic orientation. The most common sources of income are the direct sale of products and services, subscription models, or usage-based models such as pay-per-use.

1.5. Key resources

To be successful, a company needs the right resources: they make it possible to define the value proposition and market, sell, or deliver the products or services. Identifying and managing these key resources is crucial to the performance and sustainability of a business model. Key resources can be divided into different categories: physical, intellectual, human, and financial resources.
For a software company, for example, the key resources could look something like this:

• Intellectual: software code, databases, and patents.
• Human: development experts with specialized knowledge of programming languages and system architecture.
• Physical: server infrastructure for the provision of cloud services.
  
• Financial: capital for research and development as well as for marketing campaigns.

1.6. Costs

A company’s costs include all expenses required to operate and maintain the business. The cost structure forms the basis for pricing, profitability analysis, and strategic planning, and costs can be divided into different categories:

• Fixed costs: expenses that remain constant regardless of production volume, e.g., rent for business premises, wages, insurance, and the cost of services or software. These costs are incurred on a regular basis and can therefore be planned.
• Variable costs: expenses that vary directly in proportion to the production quantity or service volume, e.g., material costs, direct labor costs, sales commissions, or shipping costs. The more products a company manufactures or the more services it offers, the higher the variable costs.
• One-off costs: non-recurring expenses incurred for special projects, purchases or events. These include the cost of setting up the company, major investments in equipment or technology, relocation costs, or major marketing campaigns.
• Cost of capital: the cost of financing the company – through equity or borrowed capital, e.g., interest on loans taken out and dividends.
• Operating costs: ongoing expenses for day-to-day business operations, including administrative costs, sales and marketing costs, as well as maintenance and repairs.

It is well worth getting to grips with the question of the right business model. A well-thought-out business model lays the foundation for the success of your company. Here are a few general tips to help you develop the right business model:

• Customer focus: Understand your target customers in detail – their needs and wishes must be at the center of your business model.
• Flexibility: Be prepared to adapt your business model based on feedback and market research.
• Simplicity: A complex business model is difficult to communicate and implement. Strive for simplicity wherever possible.
• Sustainability: Consider how your company can create and maintain value in the long term.
• Make use of networks: Build relationships with mentors, industry experts, and potential partners to get the support you need.