How to Develop a Business Model for Your Small Business Startup
The business model for your small business startup should describe how it will operate, what resources it needs to operate and how it will generate revenue. A good business model should clearly explain the structure and nature of your small business startup. According to the creators of Strategyzer, there are nine key elements that makeup a good business model. These elements consist of identifying your key partners, key resources, key activities, value propositions, customer relationships, communication channels, customer segments, cost structure and revenue streams.
In this blog, I will explain the key elements of a business model so you can design one for your small business startup. I’ll use LenCred as an example. By the end of the blog you should be able to come up with your own business model using the business model canvas template created by the Strategyzer team.
- Key Partners – This part of your business model should identify the network of suppliers you need to work with for your small business startup to operate efficiently. Key partners perform activities that are complementary to the activities your business performs. For example, a key partner of LenCred would be a direct lender. LenCred helps small business startups understand what type of financing will work best based on the owner’s personal credit history and the company’s expenses. After determining what type of financing will work best for the small business startup, LenCred connects the business owner to a direct lender that will fund them.
- Value Propositions – This part of your business model should identify the problem you are solving for the customer. When your business solves a problem for your customer, it adds value to their life. For example, LenCred helps small business startups get access to capital so they can grow. They add value to the life of the owners by helping them get capital for their small business startup.
- Key Resources – This part of your business model should identify how you offer a value proposition to your customers. Key resources can be your employees and your website. Your employees are a key resource because they provide a service to your customers. Your website would be a resource because it educates your customers on the benefits and value of your product or service. Using LenCred as an example, the Advisors that help small business startups connect with direct lenders are a resource. The LenCred website is a resource in that it educates small business startup owners on how to get capital.
- Key Activities – This part of your business model identifies what products or services your company offers and how you offer them. For example, in the case of LenCred, its key activities would be advising small business startup owners on how to get capital. The service LenCred offers is assistance with helping small business startups obtain capital.
- Customer Segments – This part of your business model should identify your target customer. For example, in the case of LenCred, its target customer would be small business startups and established businesses. Your target customer is who you sell your product or service to.
- Customer Relationships – This part of your business model should outline the type of relationship you will establish with your customer. Are you establishing a long term or short term relationship. For example, LenCred is establishing a long term relationship with its customers as a “Small Business Financing Advisor.” Small business startup owners are encouraged to come back to LenCred whenever they need additional capital for their business.
- Communication Channels – This part of your business model should outline how you will reach your target customer and how you will stay in contact with them (even after your product or service has been delivered).
- Cost Structure – This part of your business model should outline your expenses. For example, how much does it cost you to pay your employees to serve your customers? Understanding your cost structure helps you determine how much you will charge your customers for your products or services.
- Revenue Streams – This part of your business model should outline the different products or services you sell to your customer segments to generate revenue.