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Creating a Realistic O Scale Model Train Layout

Model trains are a great hobby for both adults and children alike. O scale model trains are especially popular because they are relatively easy to build and maintain. If you’re looking to create a realistic O scale model train layout, here are some tips to get you started.

Planning Your Layout

The first step in creating a realistic O scale model train layout is planning. You’ll need to decide on the size of your layout, what type of terrain you want to include, and what accessories you want to add. You should also consider the type of track you’ll be using and how it will be laid out. Once you’ve decided on the basics, it’s time to start building.

Building Your Layout

Once you have your plan in place, it’s time to start building your layout. Start by laying down your track and making sure it fits together properly. Then add any scenery or buildings that you want to include in your layout. Finally, add any accessories such as trees, people, or animals that will make your layout look more realistic.

Adding Finishing Touches

Once your layout is built, it’s time to add some finishing touches. This includes adding lighting and sound effects such as whistles or bells from the locomotives. You can also add smoke from the locomotives for added realism. Finally, make sure all of your wiring is secure and that everything is running properly before running your trains on the track.

Creating a realistic O scale model train layout can be an enjoyable experience for both adults and children alike. With careful planning and attention to detail, you can create a beautiful model train setup that will be enjoyed for years to come.

This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.


steps of creating a business model

How Companies Make Money

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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Learn to understand a company's profit-making plan

steps of creating a business model

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

steps of creating a business model

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale


A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company


Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP


Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T


Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza


Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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How To Create A Business Model In Seven Steps

Define the problem you’re going to solve, then define the customers for which the problem will be solved. Next, identify the customer and the problem. After that, define a set of possible solutions. After, define a set of possible monetization strategies for that solution, test, and choose your business model .

Table of Contents

A business model design in seven steps

Time needed:  1 day

How to create a business model in one day and seven simple steps


The most valuable asset any organization has is its business model .

Indeed, that is the way all the moving parts of the organization fit together to create a value chain.

The aim of the value chain is value creation for several players in that industry, market, and so on.

The business model is not static, it changes and evolves along with the scale of the organization.

The type of  business model you designed for your company will not work if your company scales. You’ll need to rethink and redefine it.

This is even more evident in companies that are trying to innovate.

When those organizations create a new technology or an innovative approach to existing industries, it is critical to understand who are the players involved in that industry and how you’re creating value for them.

In this blog, we covered the business models  of many organizations.

For instance, Google’s massive success is strictly connected to its business model .

The company managed to create a balance between several players in the publishing and information industry where each of those players gets back some value (economic and not) from having a relationship with Google .

Where do you start when it comes to creating a business model ?

Related : Successful Types of Business Models You Need to Know

It’s all about business model design

The primary aim of a business model is to create a sustainable chain, able to unlock value for several players in a market, industry, or niche .

Therefore, this value chain will start from a value proposition , a promise you make to the key players and partners in that market, industry, or niche depending on where you start.

For instance, when PayPal started out it didn’t look to dominate the whole market. It started from a niche .

As Pether Thiel put it in his book, Zero to One:

The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative.

Indeed, PayPal began by identifying its most valuable partner, what at the time they called “power user.”

That was a choice driven by its business model design .

Therefore, instead of focusing on generically offering a service for everyone, PayPal focused on acquiring and attracting as many power users as possible.

Those power users were mostly on another platform that had already scaled up: eBay.

Thus, PayPal focused all its effort on acquiring those power users from eBay , fast!

Only after PayPal had drafted, tested, and validated a clear value proposition for a small , yet critical group of power users, it could move on to take larger and larger segments of that market.

What is a value proposition?

At its most basic level, a value proposition is a promise you make as an organization to deliver something (either monetary or advantage) to a critical player you have in our industry.

For instance, when Google started it showed right away it was capable of offering 10x of search results, at a faster speed and more relevant to users.

However, had Google kept its search engine primarily focused on providing paid results, it would not have taken off.

Instead, Google focused on offering relevant paid results but also a bunch of organic results.

In short, Google managed to index and rank the web pages from blogs, journals, news sites and any other website that made those pages available to Google for its index.

In exchange for that content, Google offered back visibility as qualified traffic toward those sites.

Indeed, search engines back then (at the end of the 1990s) were not focused on offering quality traffic.

Thus, most of the audience you got back to your site might have been quite relevant to your business.

Google instead, with its dominant search engine allowed publishers, and businesses (small and large) to gain customers.

That sealed an implicit deal “Me (Google) will send you qualified traffic that helps you grow your business if you (publisher, business, or whoever publishes on the web) offer me your content to be indexed.”

We might call that an implicit contract, which is the beginning of a value chain.

In fact, from this sort of contract part of the Google business model has been built. Imagine the scenario where Google was not attractive enough to provide qualified traffic to content producers.

They would have stopped offering their content for free by blocking access to the search engine.

Instead, they allowed Google to index their pages because the visibility they got was too attractive.

A business model is also about how you make money but how you make money isn’t your business model

One of the biggest misconceptions of the business model is to confuse it with the monetization strategy or the revenue model of the company.

While this is an essential piece of the puzzle, it is just one of the components of a successful business model .

In this blog, we’ve discussed at great length how companies make money  as a way to start the discussion of a business model .

However, a business model implies the understanding of

operations, customer acquisition and retention, supply chain management, and the cost above and revenue aspects

According to the business model you designed over the years for your organization there will be a piece that plays a more critical role compared to others.

For instance, a vital component of the Coca-Cola business model is its distribution strategy .

For other companies like McDonald’s, the key to its business model success is the heavily franchised restaurants that helped the company scale up all over the world.

Each company will develop a unique  model  among the many types of business models which is what makes it thick in the long run!

What principles should I follow to create and design a business model?

Developing a deep understanding of your business model implies asking a few critical questions. For instance, some of those questions might be:

  • What value do I offer my potential customers? Or what problem do I solve with my product/service?
  • How do I charge my customers?
  • What does my acquisition cost look like?
  • What channels can I tap into to find my ideal customer?
  • Did I create a predictable revenue stream ? If not what can I do to generate that?

Your business model will be based on a few critical assumptions about who your customers are, how your product or service should look like, what are the favorite channels to reach them, and a few others.

Those assumptions will be tested as soon as you start kicking off your operations.

Your main concern should be just that. You need to check those assumptions as quickly as possible. 

Steve Blank has identified 17 principles in his  Customer Development Manifesto :

  • There Are No Facts Inside Your Building, So Get Outside
  • Pair Customer Development with Agile Development
  • Failure is an Integral Part of the   Search for the Business Model
  • If You’re Afraid to Fail You’re Destined to Do So
  • Iterations and Pivots are Driven by Insight
  • Validate Your Hypotheses with Experiments
  • Success Begins with Buy-In from Investors and Co-Founders
  • No Business Plan Survives First Contact with Customers
  • Not All Startups Are Alike
  • Startup Metrics are Different from Existing Companies
  • Agree on Market Type – It Changes Everything
  • Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
  • If it’s not About Passion, You’re Dead the Day You Opened your Doors
  • Startup Titles and Functions Are Very Different from a Company’s
  • Preserve Cash While Searching. After It’s Found, Spend
  • Communicate and Share Learning
  • Startups Demand Comfort with Chaos and Uncertainty

I suggest you read this manifesto over and over again. This should be the first step!

What tools can you use to design and create your business model?

One of the most used tools to design and create a business model has revolved around the customer development manifesto above.

However, it is essential to keep in mind that this manifesto was the fruit of an era where venture capital had become scarce compared to the dot-com bubble at the end of the 1990s.

Those tools for business modeling have been developed in that context. Thus, those are not a one-size-fits-all toolbox but rather work better in a context where capital is scarce, and you need to test your business model assumptions as quickly as possible. In that context three primary tools are:

  • Business model canvas.
  • Lean startup canvas.
  • Customer development canvas.

Those tools can be used by entrepreneurs in the phases of the business model generation:

  • Map the business model hypotheses.
  • Test these hypotheses with customer feedback.
  • Iterative this process.

The result will be an incremental development of a product that will reach a minimally viable version .

The better the product, based on customer feedback, the larger the audience it will reach.

Lean makes sense when capital is scarce and when you need to keep burn rates low.

Lean was designed to   inform the founders’ vision  while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions .

Is the lean startup still a valuable model?

As Steve Blank has pointed out in an HBR article entitled “ Is the Lean Startup Dead? “

I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

In other words, the more risk capital that is available on the market the least the lean startup model might work.

The reason is, that if you have massive risk capital, you won’t need to test all your assumptions.

Quite the opposite, you’ll need to execute them fast.

Also, one of the primary logic of the lean startup is to burn cash at the slowest rate possible, while evolving (so-called pivoting) your business model .

If money is not an issue, then why go for the lean startup?

Steve Blank went further:

Rather than the “first mover advantage” of the last bubble ,  today’s theory is that  “massive capital infusion owns the entire market.”

Therefore, if you secured a massive injection of money, then your aim might be primarily toward growth , rather than profits.

In that context, the lean startup might not work!

Are capital moats sustainable?


When a company or startup has a substantial capital allocate for growth , that is when this injection can become a short-term competitive advantage.

However, as companies finance growth through artificial injection of capital, those also become extremely risky, because many of the assumptions underlying the business model can’t be tested organically, thus leaving the company’s foundations weak.

An example of this excess of use of capital as a competitive moat has been WeWork , which has proved one of the most disastrous business endeavors of the last decade.

Thus, capital moats and technological moats need to be balanced with careful business model testing and organic validation in the marketplace!

Key Highlights

  • This step is the foundation of your business model . It involves identifying a specific problem that your product or service aims to solve.
  • Problems can be functional (solving a practical need) or emotional (addressing a psychological desire or pain point).
  • Defining the problem clearly helps you focus on delivering value to your target audience.
  • Once the problem is defined, it’s important to identify the individuals or groups who are facing this problem. These are your potential customers.
  • Group your potential customers into categories, keeping it to a maximum of three types. Each type may have distinct characteristics and needs.
  • From the categories of potential customers and the identified problems, narrow your focus to one key customer type and one specific problem.
  • This step helps prevent spreading your resources too thin and allows you to concentrate on understanding your primary audience and addressing their primary need.
  • Brainstorm a range of solutions that could address the key problem for your chosen customer type.
  • List up to ten solutions. Then, evaluate these solutions based on feasibility, cost, time, and resources required.
  • Narrow down the list to three solutions that are viable given your constraints.
  • For the solution you’ve chosen, consider how you’ll monetize it. Determine how your business will generate revenue from providing the solution to your target customers.
  • Brainstorm up to five potential monetization strategies. These could include subscription models, one-time purchases, freemium offerings, etc.
  • Focus on the two strategies that can be tested quickly and efficiently.
  • This step involves practical validation of your selected solution and monetization strategies.
  • Test your product or service with real customers to gather feedback. Evaluate how well your monetization strategies perform in real-world scenarios.
  • Based on the feedback and data collected, choose the most effective solution and monetization strategy combination.
  • With a validated solution, monetization strategy , and a clear understanding of your target audience, you have the foundation of your business model .
  • Your business model is the blueprint that outlines how your company will create, deliver, and capture value in the market.
  • Continuously monitor and refine your business model as you gather more insights from customers and adapt to changing market conditions.

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Steps to Building a Successful Business Model

1. define your business model, 2. research your industry and competition, 3. create a value proposition, 4. design your revenue streams, 5. develop your cost structure, 6. build your team, 7. create your marketing and sales strategy, 8. launch and grow your business, 9. evaluate and pivot.

When starting a business, it is important to have a well- defined business model . This will help you determine the best way to generate revenue and make a profit. There are a few key steps to take when defining your business model:

1. Determine what you are selling. This may seem like an obvious step, but it is important to be specific. Are you selling a product or a service? What is the nature of the product or service? What needs does it address?

2. identify your target market . Who are you selling to? What are their needs and wants? What are their demographics?

3. Choose your pricing strategy. How will you price your product or service ? Will you charge by the unit, by the hour, or by the project?

4. develop a marketing plan . How will you reach your target market ? What marketing channels will you use? What message will you send?

5. Create a sales strategy . How will you generate sales? Will you sell online, in person, or both? What is your sales process?

6. Determine your costs. What are the costs associated with producing and selling your product or service? This includes materials, labor, overhead, and marketing expenses.

7. Calculate your profit margins. How much profit will you make on each sale? This will help you determine if your business is viable and how much money you need to make to break even.

8. Review and revise your business model as needed. As your business grows and changes, so too should your business model. Be sure to periodically review your model and make adjustments as needed.

Following these steps will help you develop a successful business model that can be used to guide your business planning and decision-making .

Define your business model - Steps to Building a Successful Business Model

As the first step in building a successful business model , it is important to research your industry and competition. This will help you understand the landscape in which your business will operate and identify potential opportunities and threats.

There are a few key things to keep in mind when researching your industry and competition:

1. Know your industry: Understand the trends, drivers, and key players in your industry. This will help you identify opportunities and threats.

2. Know your competition: Understand who your competitors are, what they are offering, and how they are positioned in the market. This will help you develop strategies to differentiate your business.

3. Keep up with industry news: stay up-to-date on industry news and developments. This will help you identify changes in the market and adapt your business model accordingly.

4. conduct market research : Conduct primary and secondary research to understand your target market . This will help you determine your value proposition and marketing strategies.

The first step in building a successful business model is understanding your industry and competition. By researching the landscape in which your business will operate, you can identify potential opportunities and threats. Keep these four things in mind as you begin your research to set your business up for success.

Research your industry and competition - Steps to Building a Successful Business Model

The first step is to create a value proposition. This is what your business offers that is of value to your customers or clients. What need does your product or service fill? What problem does it solve? Why should someone buy from you instead of your competitor? Answering these questions will help you to create a strong value proposition.

Once you have a value proposition, the next step is to determine your target market . Who are your ideal customers or clients? What demographics do they fit into? What needs do they have that your product or service can address? Once you know your target market, you can start to create marketing and sales strategies that will reach them.

The third step is to develop a pricing strategy. How much will you charge for your product or service ? What payment methods will you accept? Will you offer discounts or promotions? Your pricing strategy should be based on your target market and your value proposition.

The fourth step is to create a distribution strategy. How will you get your product or service to your target market? Will you sell online, through brick-and-mortar stores , or through a combination of both? Will you use a direct sales force , or will you use distributors or resellers? Your distribution strategy should be based on your target market and your sales goals.

The fifth step is to create a promotional strategy. How will you let people know about your product or service? What marketing channels will you use? Will you use online marketing, offline marketing, or a combination of both? Your promotional strategy should be based on your target market and your marketing budget.

The final step is to create a financial plan. How much money do you need to get started? How will you generate revenue? What are your operating expenses? What are your long-term goals for the business? Your financial plan should be based on your business model and your overall business strategy.

creating a successful business model takes time and effort, but it's worth it if you want to build a successful business. By following these steps, you'll be well on your way to creating a business model that will help your business succeed.

The most important thing when it comes to designing your business model is to focus on your revenue streams. You need to figure out how you're going to make money and what sources of revenue you're going to tap into.

There are a few different ways to generate revenue for your business . The most common are through selling products or services , advertising, and licensing.

Selling products or services is the most direct way to generate revenue. You need to figure out what it is that you're going to sell and who your target market is. Once you've figured that out, you need to come up with a pricing strategy.

Advertising is another way to generate revenue. You can sell advertising space on your website or blog, or you can sign up for affiliate programs. With affiliate programs, you earn commission on sales that are generated from links on your site.

Licensing is another option for generating revenue. If you have developed a product or service that others might find useful, you can license it to them for a fee. This can be a great way to generate passive income .

Once you've figured out how you're going to generate revenue, you need to design a pricing strategy. There are a few different pricing models you can use, such as subscription-based, pay-per-use, or pay-as-you-go.

The subscription-based model is where customers pay a monthly or annual fee to access your products or services. This is a popular model for software service (SaaS) products.

The pay-per-use model is where customers pay for each individual use of your product or service. This is a common pricing model for online services such as web hosting or online backup storage.

The pay-as-you-go model is where customers only pay for the resources they consume. This is a common pricing model for cloud-based services such as amazon Web services .

Once you've decided on a pricing model, you need to set prices for your products or services. When setting prices, you need to consider your costs, desired profit margin, and what the market will bear.

You also need to consider how you're going to bill your customers. There are a few different options here, such as monthly invoicing, per-use billing, or usage-based billing.

Once you've designed your pricing strategy and figured out how you're going to bill your customers, you need to start thinking about how you're going to collect payments. There are a few different options here as well, such as PayPal, Stripe, or direct debit.

Finally, you need to think about how you're going to deliver your products or services. There are a few different options here as well, such as digital delivery, physical delivery, or subscription-based delivery.

Now that you've figured out how you're going to generate revenue, it's time to start thinking about your costs. You need to consider things like product development costs, marketing costs, and customer support costs.

Once you've considered all of your costs, you need to come up with a profit margin that you're comfortable with. Your profit margin will determine how much money you make on each sale.

Once you've designed your business model and figured out your pricing strategy, it's time to start marketing your business. There are a few different ways to market your business , such as online marketing, offline marketing, and word-of-mouth marketing .

The most important thing when it comes to marketing your business is to focus on your target market. You need to figure out who your target market is and what needs they have that your product or service can fulfill.

Once you've figured out your target market, you need to come up with a marketing strategy that will reach them. There are a few different options here as well, such as content marketing, social media marketing , and search engine optimization (SEO).

Once you've designed your marketing strategy, it's time to start implementing it. There are a few different ways to do this, such as creating a website, starting a blog, or using social media platforms like Twitter and Facebook.

Finally, once you've implemented your marketing strategy and started generating traffic, it's time to start converting that traffic into customers. There are a few different ways to do this as well, such as using lead magnets, creating landing pages , and running ads.

What are the steps to building a successful business model ? This is a question that entrepreneurs ask themselves all the time. While there is no one-size-fits-all answer, there are some key steps that all business es should take in order to increase their chances of success .

One of the most important steps is to develop a clear and concise cost structure. This means understanding all of the costs associated with your business, both fixed and variable. Fixed costs are those that remain constant regardless of how much your business produces, such as rent or insurance. Variable costs, on the other hand, fluctuate based on production levels, such as the cost of raw materials.

Once you have a good understanding of your costs, you can start to develop pricing strategies that will allow you to generate revenue and profit. It is important to remember that your pricing should not only cover your costs, but also leave room for profit. Otherwise, your business will not be sustainable in the long run.

Another key step in developing a successful business model is to create a sales and marketing plan . This plan should include strategies for generating leads, converting leads into customers , and retaining customers. It should also detail how you will promote your products or services and what channels you will use to reach your target market.

Finally, it is important to have a clear understanding of your target market . This includes identifying your ideal customer, understanding their needs and wants, and knowing where to find them. Once you have a good handle on your target market, you can develop marketing and sales strategies that are tailored to them.

By following these steps, you can increase your chances of developing a successful business model. However, it is important to remember that there is no guaranteed path to success. Every business is different and will face its own unique challenges. The best way to increase your chances of success is to learn from your mistakes and continue to adapt and improve your business model over time.

building a great team is critical to the success of any businessmodel. The team is the heart and soul of the business - they arethe ones who will make your vision a reality.

There are a few key things to keep in mind when building yourteam:

1. Hire people who share your vision and values. This iscritical, as you want to build a team of people who are all rowingin the same direction.

2. Give your team members the freedom to be creative. This doesnot mean that you should not have any rules or guidelines - but itdoes mean that you should give your team the space to be creativeand come up with new ideas.

3. Encourage open communication within the team. This meanscreating an environment where team members feel comfortablesharing their ideas and feedback with each other.

4. Set clear goals and expectations for the team. This will helpkeep everyone focused and on track.

5. Celebrate successes together. This is a great way to buildteam morale and keep everyone motivated.

Building a great team is essential to the success of any businessmodel. By hiring people who share your vision, giving them thefreedom to be creative, and encouraging open communication, youcan set your business up for success.

Build your team - Steps to Building a Successful Business Model

Now that you have your business model figured out, it's time to start thinking about how you're going to market and sell your product or service . This is an important step in the process because without a solid marketing and sales strategy, it will be very difficult to generate revenue and grow your business .

There are a few things to consider when creating your marketing and sales strategy. First, you need to identify your target market. Who are you trying to reach with your product or service? Once you know who your target market is, you can start to think about how to reach them. What channels will you use to get your message in front of them?

Once you have a good understanding of your target market and how to reach them, you need to start thinking about what type of messaging will resonate with them. What are their needs and wants? What will make them want to buy from you?

Once you have all of this figured out, you need to start putting together a plan of attack. How much are you willing to spend on marketing and advertising? What types of promotions will you run? When will you launch your marketing campaigns?

All of these questions need to be answered before you can start executing your marketing and sales strategy. But once you have a plan in place, it's time to start reaching out to your target market and selling them on your product or service.

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Congratulations on taking the first step towards launching your own business! Building a successful business model is no small feat, but it is definitely achievable with careful planning and execution. Here are a few key steps to help you get started:

1. Define your business model.

The first step to launching your business is to define your business model. What are you selling? Who is your target market? What is your pricing strategy? These are all important questions to answer before you start promoting your business.

2. Create a marketing plan.

Once you have defined your business model, you need to create a marketing plan. This plan should include market research, target markets, and promotional strategies. It is important to set realistic goals and budget for your marketing activities.

3. Build a strong team.

No business can be successful without a strong team behind it. As you start to grow your business , make sure to surround yourself with people who share your vision and who are passionate about your product or service.

4. focus on customer satisfaction .

One of the most important aspects of any business is customer satisfaction . Make sure that you are providing your customers with a high-quality product or service and that they are happy with the overall experience.

5. Always be learning.

The business world is constantly changing and evolving, so it is important to always be learning. Stay up-to-date on industry news and trends, and be willing to adapt your business model as needed.

By following these steps, you will be well on your way to launching a successful business . Just remember to stay focused and dedicated, and always put your customers first.

Launch and grow your business - Steps to Building a Successful Business Model

There are a lot of moving parts to a business, and it can be difficult to know which ones to focus on. But if you want to build a successful business, it's important to have a strong business model.

A business model is the foundation of a business, and it defines how the business will make money. It's important to have a well-thought-out business model because it will help you make decisions about how to grow your business.

There are a few key things to keep in mind when you're evaluating and pivoting your business model.

1. Know your customer

The first step to any successful business is understanding your customer. Who are they? What do they want? What do they need?

You need to know your customer inside and out. This means you need to know their demographics, their buying habits, their pain points, and their motivations.

Only then can you start to build a business model that will appeal to them.

2. Know your competition

The second step is understanding your competition. Who are they? What are they doing well? What are they doing poorly?

You need to know your competition so you can differentiate yourself in the market. You need to know what they're offering, and what their weaknesses are. This way, you can position yourself as the better option.

3. Know your value proposition

The third step is understanding your value proposition. This is what makes you different from your competition, and it's what will make your customers choose you over them.

Your value proposition should be clear, concise, and easy to understand. It should be something that sets you apart from your competition, and that your customers will find appealing.

4. Know your costs

The fourth step is understanding your costs. This includes both your fixed costs (things like rent and salaries) and your variable costs (things like materials and shipping).

You need to know your costs so you can price your products or services accordingly. You also need to know your costs so you can make decisions about where to cut corners, and where to invest more money.

5. Know your revenue streams

The fifth and final step is understanding your revenue streams. How will you make money? What are your pricing strategies? What are your sales strategies?

You need to have a clear understanding of how you're going to make money before you can start making money . This step is critical, and it's something that many businesses struggle with.

When you're evaluating and pivoting your business model, these are the five key things you need to keep in mind. By keeping these things in mind, you can make sure that your business model is strong, and that you're making the right decisions for your business.

Evaluate and pivot - Steps to Building a Successful Business Model

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What is a business model? (Plus, how to define yours)

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Business model large

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

steps of creating a business model

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

  • What is value-based product development?
  • What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Business model in Aha!

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

Lean canvas example in Aha!

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

  • How to price your product
  • How to position your product

Have we forgotten what SaaS stands for?

  • What is a business model?
  • What is customer experience?
  • What is the Complete Product Experience (CPE)?
  • What is a customer journey map?
  • What is product-led growth?
  • What are the types of business transformation?
  • What is enterprise transformation?
  • What is digital transformation?
  • What is the role of product management in enterprise transformation?
  • What is a Minimum Viable Product (MVP)?
  • What is a Minimum Lovable Product (MLP)?
  • What is product vision?

How to set product strategy

  • What is product-market fit?
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  • What are product goals and initiatives?
  • How to set product goals
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  • Introduction to marketing strategy
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  • Marketing vs. advertising
  • What is a creative brief?
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  • Understanding the buyer's journey
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  • 10Ps marketing matrix
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  • Lean canvas
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  • Porter's 5 forces
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  • Pricing plan chart
  • Pricing strategies (Kotler)
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  • How to do market research
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  • Roadmapping: Your starter guide
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  • How to choose a product roadmap tool
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  • What milestones should be included on a roadmap?
  • How often should roadmap planning happen?
  • How to build a roadmap for a new product
  • How to build an annual product roadmap
  • How to build a brilliant roadmap
  • How to customize the right roadmap for your audience
  • How to build an agile roadmap
  • Product roadmap examples
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  • What is a content marketing roadmap?
  • What is a digital marketing roadmap?
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7 Steps for Establishing the Right Business Model Building a product may be the easy part of a startup. Don't forgot about the other, equally important half of the equation.

By Martin Zwilling • Jan 30, 2015

Opinions expressed by Entrepreneur contributors are their own.

Most technical entrepreneurs focus hard on building an innovative product, but forget that an elegant solution doesn't automatically translate into a successful business. Businesses require an equally elegant business model, with the right price, messaging and delivery channel to the right target customers to keep the dream alive and growing.

Defining the right business model requires the same diligence as designing the right product, but the approach and skills required are different. That's why investors acknowledge that two co-founders are often better than one -- with one focusing on the technical solution, and the other focusing on defining and building the business model. These two jobs need to be done in parallel.

Related: 6 Great Business Models to Consider for a Startup

This dual-leadership approach would have avoided the frustration I felt in a startup a few years ago where beta customers loved our software solution as a free prototype, but we couldn't sell one in the first few months for a price that seemed reasonable for all our work and innovation. The founder had simply not done the work to validate a price and customer segment.

In the investment community, this work is called proving the business model. It starts with validating a business opportunity (a large customer segment willing to pay money to solve a real problem), in much the same way as your proof of concept or prototype validates your technical solution. Here are seven steps I recommend for establishing the right business model:

1. Size the value of your solution in the target segment.

Customers often complain that existing approaches are not intuitive or integrated, but old solutions may be familiar and locked in. Estimate your costs, including a 50 percent gross margin, as a lower bound on a price. Products too expensive for the market won't succeed, and prices too low will leave you exposed. Match with competitor prices and market demographics.

2. Confirm that your product or service solves the problem.

Once you have a prototype or alpha version, expose it to real customers to see if you get the same excitement and delight that you feel. Look for feedback on how to make it a better fit. If it doesn't relieve the pain, or doesn't work, no business model will save you.

3. Test your channel and support strategy.

Now is the time to pitch the entire business model to a group of customers or a specially selected focus group. This is not just a product pitch, but must include all elements of your pricing, marketing, distribution and maintenance. Here again is your chance to make pivots for almost no cost.

4. Talk to industry experts and investors.

A small advisory board of outside people with experience in your domain can give you the unbiased feedback you need, as well as connections for setting up distribution and sales channels. It's also valuable to talk to potential investors for their views, even if you are bootstrapping the effort.

Related: 5 Things You Must Do to Successfully Launch a Business

5. Plan and execute a pilot or local rollout.

Good traction on a limited rollout is great validation of a business model. It allows you to test costs, quality and pricing in a few stores or a single city, with minimum jeopardy and maximum speed for recovery and corrections. Save your viral campaign and major inventory buildup for later.

6. Focus on collecting customer references.

Give extra attention to those first few customers, and ask for publishable testimonials and word-of-mouth support in return. If you can't get their support, even with your personal efforts, take it as a red flag that the business will probably not scale at the rate you projected.

7. Target national trade shows and industry association groups.

You need positive visibility, credibility and feedback from these organizations as a final validation of your business model, as well as your product model, in the context of major competitors. This may also be a great source for leads as a key part of that final rollout and scale-up effort.

Your business model can be a better sustainable competitive advantage than your product features, or it can be your biggest risk exposure. Too many of the business plans I see are heavy on competitive product features, but light on business model details and innovations.

If you or someone on your team hasn't spent at least the same effort on the business model as on the product service, you are only half prepared for the real world of business today. It's hard to win by doing half the job, especially if that is the easier half.

Related: 5 Tips for Building Adaptivity Into Your Business Model

Veteran startup mentor, executive, blogger, author, tech professional, and Angel investor.

Martin Zwilling is the founder and CEO of  Startup Professionals , a company that provides products and services to startup founders and small business owners. The author of  Do You Have What It Takes to Be an Entrepreneur?  and  Attracting an Angel, he writes a daily  blog  for entrepreneurs and dispenses advice on the subject of startups.

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How To Build a Business Model (3 Basic Steps Guidance)

  • by IdeaBuddy
  • June 16, 2023
  • 6 minute read

business model - cover

Table of Contents Hide

Business model — always be assessing , business model ideation, business model prototyping, identifying assumptions, testing and validation.

Learning how to build a business model is an important step in each aspect of your business journey. From pitching to investors to entering new markets or rolling out new products, your business model needs to tell a coherent story, where all elements of your business plan fit together. So, in this post, we look at how to build a business model that strikes a balance between delivering value and making a profit.

The business model is where your initial discovery efforts continue. Once you’ve researched the market, customers, and opportunities, you build a business model that fits that discovered gap and offers genuine value to the customer.

But to have a lasting business, you need to be constantly assessing whether there is coherence between what happens in the market and what your business model delivers to the customers.

For instance, when the pandemic hit, many brick-and-mortar restaurants and shops moved from a traditional business model to a hybrid model , offering takeout food or moving laterally to do the delivery of other types of goods.

Other firms clung onto the existing model, only to find it impossible to do business and eventually had to close their shops.

So, the reason why you build a business model is to create attunement between your target audience and your offering, within market and industry constraints and possibilities. These conditions change fast, so you need to continuously check all parts of your business model for this fine-tuned connection.

One good framework that lets you do that is the lean product lifecycle. This framework focuses on continuous improvements and shipping to gradually improve the product/service and deliver the best value. Think of it as a three-step journey that consists of:

  • business model ideation
  • business model prototyping
  • identifying assumptions

The final stage is validation/testing phase as a bonus step, after you have created a valid business plan.

Let’s now go through each of the stages and look at the must-haves you need to identify after each stage and what to focus on for maximum value.

build a business model banner

The business model ideation stage is about collecting input from the outside: market, competitors, industry, customers, investors. To keep things neat, it’s best to use some of the business model tools available, such as the lean canvas or business model canvas .

There are different ways to go about business model ideation, but the most important bit of this stage is to create an early draft of your business model. Your task in this stage is to answer the question: How is the mechanism of your business going to work?

This means collecting information on several key aspects of your new business, such as partners, resources, customers, or channels.

Key partners

Building partnerships with other organizations helps bring down risks and get access to capabilities and resources you might not have initially

Key activities

These are the core activities of your business, whether it’s product building, problem solving, building a platform, or providing services such as consulting, teaching, or marketing

Key resources

This is what makes your model work — people, finances, physical resources, intellectual property

Value propositions

This is the value you provide to the customer segments you want to focus on for the time being.

Customer relationships

How do you plan to work with your customers? Are you going to provide an automated service, with as little interaction as possible? Or are you in for the dedicated services of a personal assistant?

How will you reach your audience? How are you going to communicate with them? Think back to what your brand is like, but don’t spend too much time fine-tuning at this point. Leave refinement for later.

Customer segments

These are all the different groups of customers you have identified during your research. Chances are you will approach each differently, so this part forms the basis of your customer relationships, channels, and value propositions.

Cost structure

These are all the fixed and variable costs you will incur on your way to delivering value to customers. Early on, you might not have a precise estimate of the cost structure. So, it is fine to work with ballpark assumptions in the earliest stages.

Revenue streams

This is the part where you capture value back from customers. Will you use licensing, subscription fees, freemium, asset sale, usage sale, or something else?

Once you identify and phrase all this information, you should end up with something like this business model:

business model - cover

Now you have a bird’s eye view of your business, with all the foundation stones of a lasting business venture. But since it is difficult to narrow down this information, especially for first-time founders and startups in the early stage, your must-haves should include:

  • Product (the four blocks in the middle of the business model above).

The key to getting a lasting and valid business model is to go wide and explore as many options as possible. Then you can narrow it all back to a business model that will really make your business work. So once you have a draft business model, you should start over and build the next one.

You can use the business model template from above as a prototyping tool. After you’ve created your initial business model, create dozens more. That’s a safe way to think through all the options in which you can deliver value to customers.

Imagine and walk through several different business models with your team. It is important not to skip prototyping as you can get trapped in the first model you thought of. This can lead to ignoring other viable options and missing out on the potential that could really take your business venture to the next level.

To get the most out of business model prototyping, you should gather small cross-functional teams and have each create their own business model. They can then present their ideas to the big group. In the end you will end up with many more business model ideas to use.

Once each group has its own model, play a game of ‘What-ifs’. How would each business model change based on a hypothetical scenario? For example ask yourself:  What if…

  • …there was a pandemic?
  • …another bigger competitor entered your market?
  • …an investor decided not to follow through with the investment?
  • …you failed to acquire x customers in six months?

This is an important step in identifying bottlenecks and pitfalls early on, and getting a more realistic, data-driven estimate of how your business will perform in the short- and mid-term.

If you followed the earlier steps, you should have hit several milestones in your business model building process by now:

  • You have built several business models, identifying different customer segments and their pain points
  • You have identified several different scenarios on how to act in case of market changes and events outside your control

In the third step, you expand on each of these ideas. The goal is to identify assumptions that you then need to test before you arrive at a working business model.

So, iterate through each of the business models you and your team have come up with. The goal is to find risky assumptions that can have a big impact on your business performance.

To do this, take a look at each segment of each business model. Then, assess whether the point is tested and there is evidence for your item. For example, if you say you plan to acquire 300 customers for your beta app, how did you arrive at that number? Has one of the competitors managed to do so? Or a fellow startup founder in a similar niche? Which data do you have to back up this idea?

Be ruthless here. The more you test and refine each of these items and plans, the higher are the chances your business model will last.

So, after this stage, your output should be:

  • List of assumptions not tested and purely hypothetical
  • List of evidence-based assumptions
  • Graded list of all these assumptions, in order of degree of impact they have on the business

Once you identify the riskiest, high-impact assumptions, you proceed with testing. After you test them, you return to the business model and make changes if necessary, based on your findings. You then test the next assumption, then the one after it, and so on, until you build a business model that rests on tested assumptions.

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10 key steps to developing a business model.

Business Model for Product Development

Understanding your business model is crucial for evaluating the ability of the company to support a new product idea. Too often we see companies taking on a new product development project, only to discover late in the process that the company is missing key infrastructure, such as the appropriate distribution channels, expertise in key technologies or the ability to finance large product purchases for customers. This post will help you decipher your business model in 10 key steps.

Definition of a Business Model

Before we get started on those 10 steps, a brief definition of a business model: It describes how a company creates and distributes a compelling value proposition that customers are willing to pay for at a price that yields an acceptable profit for the company.

10 Steps to Developing a Business Model

Now for the 10 steps to developing a business model. Throughout the process, stay at a fairly high level and focus on the most important attributes. It’s easy to get lost if you get into every little detail.

  • Choose a particular target segment and describe it. A segment is a group of customers with similar needs, behaviors or other attributes that the company chooses to serve.
  • Next, what channels are used to market to, sell to, distribute to and support this segment? Are there any partners we need to establish or maintain relationships with?
  • What products and/or services are offered to this segment, and are there any differences by channel? If so, make that clear.
  • What are the revenue streams? How are prices set? How are customers charged for products and services? How is revenue collected?
  • Now, what is the value proposition delivered by each product. Think not only of value propositions for the customer (including the end-customer and any intermediaries), but also partners. Remember that the value proposition is from the perspective of the customer and can vary by customer segment; that is why we focus on one segment at a time.
  • What are the key activities the company must perform to ensure the value proposition is delivered? This can include activities supporting partners and channels that are key to the value proposition. This may also involve outsourcing.
  • What are key inputs and resources that must be acquired and maintained? This can include human, physical, financial and intellectual assets, as well as suppliers and vendors.
  • Next, what implications do the elements defined so far have for the infrastructure of the business? They may not have been captured already. Is there significant investment required in maintaining certain technologies, skills or branding, for example?
  • The cost structure includes the fixed costs of maintaining the value chain, as well as variable costs. Where are the biggest or most volatile costs?
  • Finally, have you adequately identified what the company does differently to deliver on the competitive strategy (how the company differentiates itself from the competition)? If it’s not evident in the activities or resources identified you’ll need to take another pass at it. It may take several iterations to get something you are comfortable with.

Arranging your Findings for Easy Reference

Repeat for each customer segment, noting similarities and differences with the previous segment(s). You may find it helpful to arrange your findings for easy reference in a diagram like the one below.

steps of creating a business model

The business model is one of the most powerful, and most overlooked, tools of the product developer. New products must fit the existing business model, unless the company is expressly willing to adapt its model to support the new product. Evaluating fit with the business model early and often throughout the development process helps prevent costly mistakes and improve new product success.

Learn more about how the Product Risk Framework® (BFF) integrates important business model components. The BFF is a business intelligence SW tool for product developers.

Create a Business Model

NEW DEMO: In addition to a Business Model, you can first create a Business Model Canvas via import excel data to model your business.

This tutorial will introduce how to create a business model via de AR and VD.

The Dragon1 modeling language enables the creation of business models at a conceptual, logical, and physical level, high-level and in detail. This makes sure you can model the problems in the current state and solve the problems with solutions in the future state.

Dragon1 has a unique approach to creating business models. You start with three circles depicting three different worlds: The consumer/customers world, the channel partners world, and the supplier/producers world.

Next, you deepened every world: what does it look like, what are the drivers for the stakeholders and actors in a different world? What applications and technology are you using? How do you, with your goods, products, services, and business, bring them all together?

Business Model Example

This visualization shows an example of a business model.

Example of the Uber Business Model.

An overview like this makes it easier to communicate your business model with stakeholders. And also to measure and improve your business model.

Common Entity classes to use in Business Model are:

Steps in the Tutorial

To create a business model, you will take the following steps:

Step 1. - Create a Dossier Structure

First we are going to create a dossier structure in a cabinet to store our data.

To create a dossier structure:

Step 2. - Enter Data

On Dragon1, you can enter data by dragging shapes to a folder.

To enter data:

Step 3. - Create a Model, using the data

To create a model:

Step 4. - Create links between models

To create a link between models:

Step 5. - Create a View, using the model

To create a view:

Step 6. - Create links between views

To create a link between views:

Step 7. - Create a Visualization, using the views

To create a visualization:

Do this for all three view shapes

With this rule you will only see the processes from the view data. You can also show the whole view with Rule Condition = *.

Step 8. - Publish the visualization

To publish a visualization:

Read more about business modeling here.


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