What is a business model?
Constant and strategic innovation is number two in Tony Robbins’ 7 Forces of Business Mastery. Innovation is vital to any company, in any industry. Market forces change every day, and your customer is always on the lookout for something new – something better, faster and stronger. You must give it to them, or see your company fall behind. Business model innovation is just as important.
Tony says, “Stay committed to your decisions, but stay flexible in your approach.” This is what business model innovation is all about. Your business must be adaptable and responsive to those changing market forces. But before you can innovate and adjust your business model, you need a starting point.
How do you know what to consider when creating a business model?
Tony teaches that owners must create business maps, not business plans. While the goal is the same, a business map takes a more in-depth look at how you provide value to customers and what success looks like for your company. Whether you’re creating a business model from scratch or feel you need to make some innovations to keep up with the market, a business map can help you get there.
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What is a business model?
A business model is a design for your company. In short, it describes how you will create value, and how you will turn that value into profits. It’s a relatively high-level plan, but it includes things like:
- Your target customer
- Your value proposition, which is part of your brand identity
- Your business partners, like suppliers and advertisers
- Your key business processes – shipping, retail, providing a service, etc.
- Your key business resources, like customer information, real estate and even your website
- Your sales strategy
- Your business model is a starting point. It provides a foundation, but it isn’t set in stone. Business model innovation – or making changes to your business model – is just as essential for your success.
Types of business models
Business models vary widely, especially when you take into consideration business model innovation that customizes each model to its specific business. However, there are some general types of business models:
Advertising-based businesses get most of their revenue by offering advertising space on their owned channels. Websites and online media frequently use this business model, as well as radio and print publishers. The key to success here is that you must have an audience – otherwise, your advertising space will not reach anyone and will therefore not be worth any money. Print newspapers quickly learned this at the advent of the internet. They required massive business model innovation in order to stay alive.
Franchises allow business owners to quickly grow their business by selling the rights to use their brand to individual entrepreneurs. If your business has a strong brand identity and a business model that franchisees can easily replicate, starting a franchise could be a way for you to scale without much direct investment. Did you know that businesses like The UPS Store, Ace Hardware and Orangetheory Fitness are all highly successful franchises?
Direct sales is a business model in which employees sell the product directly to the end consumer, eliminating “middle men” like wholesalers and distributors. Interacting with the consumer in this way has many benefits – you have strict oversight of your sales team and can ensure everyone follows the same strategy, and you get direct feedback from the consumer. You’ll also have more control over your costs and the price of your product, so you can be more competitive. Network marketing is a great example of direct sales.
Retailers purchase products from a distributor or wholesaler and sell them to consumers. This business model differs from direct sales because there is a “middle man” involved. Retailers therefore have less control over prices and product quality. Both online stores and brick-and-mortar locations are types of retailers; in fact, many retailers have both of these options available for consumers. Physical storefronts are not a thing of the past, contrary to many reports: a 2016 Forrester study found 62% of millennials prefer to shop in a physical store.
How do you know which business model is right for you? Creating a business model is an in-depth process. You need to determine which combination of factors allows you to provide value to the customer, while also keeping your prices competitive and your costs under control.
Creating a business model
Asking yourself the right questions is the first step toward creating a business model that will lead to long-lasting results. And the best way to start asking those questions is to create a business map. Having a business map is the first point on the list of the 7 Forces of Business Mastery – it’s that important.
Business maps are different than business plans. They dig deeper to discover what business you are really in. Business plans address the more obvious points you might think of, like sales, operations and plans for scaling. These are all important, but you will not even get that far if you don’t first ask yourself, “What business am I really in?” This means thinking beyond your product or service and discovering the value you provide.
Does Apple sell computers? Yes. But what is it about Apple that lets them crush the competition? The business they are really in is selling sleek, design-focused technology that lets the consumer feel they are part of an exclusive club. Does Starbucks sell coffee? Sure. But the business they are really in is selling a relaxed, casual café experience. Once you know what business you are in, you can begin to determine what success looks like for your company. Business model innovation will follow.
If you’re wondering “What is a business model?” and how you can create one, Tony can help. He’s built many successful businesses, and he shares all his secrets at his 5-day live event, Business Mastery. It’s time for you to start innovating – and that starts with your business model.
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Discover how to cultivate the business model your company needs with Tony Robbins’ 7 Forces of Business Mastery free content series.