Sometime last month, I had a Twitter chat with one of Africa’s growing platform for SME conversations @iSpeakAfricaChat.
Our discussion was majorly around Business Model and why every startup should develop one for their business. One of the questions I got on the day was “Why is it so important to have a clear business model?”
Today, I’ll share with you why you need a business model for your business but before then, WHAT IS A BUSINESS MODEL to start with?
Simply put, a Business Model is a description of how your business makes money.
Wait! Were you expecting some Karl Marx inspired definition? Nah! A business model is simply how your business makes or intend to make money.
Let me take it even further;
A business model must looks at 3 major things
1. VALUE CREATION: Every business model must look at your process of creating your product or service. From sourcing raw materials, to manufacturing to your cost of labor etc.
2. VALUE DELIVERY: Your model must capture how you intend to deliver the value you have created. Your marketing, distribution, sales etc.
3. VALUE CAPTURE: Finally, how do you intend to capture value in return. How much are you charging for the value you created and is it profitable? So here we look at your pricing strategy, payment methods, payment plans etc.
So simply, your business model just needs to do one job; HELP YOU MAKE PROFIT while delivering utmost VALUE FOR MONEY for the customer. This alone is enough WHY.
Let’s name a few more WHY’s
* Helps you control production cost
* Customer satisfaction
* Gives you a competitive advantage
* Plan for growth
* Financial stability for you and your business.
If these are not enough WHY’s, I don’t know what is.
DO YOU HAVE A BUSINESS MODEL?
Peace, Love and Cold Zobo