Build a Business Model That Works

If you know what unique value you bring to others, it is time to turn that into a business model.  A business model is to a business as a toy jet is to a real one. The toy does not fly or drop bombs, but given sufficient detail, it gives us a good idea of how the jet functions. Your business model needs to include a description of how raw materials (even intangible ones like ideas) are turned into value-added products. Sometimes, a graphic depiction is helpful. Keep it simple, along the lines of the following:

Stuff goes in > I make it more valuable > Stuff goes out (and customers pay me for it)

For example, I take flour, sugar, eggs, and other stuff, mix it together, shape it up, and out come wedding cakes.  Separately, those things are not worth anything like what the beautiful cake is worth.  Sound silly?  Well, I have worked with any number of people over the years who have not a clue what they are really doing.  Their business model is vague, too complicated, or simply won’t work.

Start with figuring out your “input.”  In the above example, this is the flour, etc.  Where do you get it?  The store?  Do you grow the wheat and sugar cane yourself?  Raise the hens?  Once you know that, you can figure out what those inputs cost you.

Next, make those inputs more valuable.  Remember that you are the magic ingredient.  If I were to take those inputs and attempt to make them more valuable, it would look like Armageddon in our kitchen and my wife would throw me out of the house.  Wait, she did that yesterday.  Well, you know what I mean.  If you are good at that kind of thing, the result would be a picture of beauty and good taste.

Last, figure out how to sell what you make.  You might cater cakes, sell them in a store, or bake them on site.  You might deliver them in a van.  No matter how you do it, remember the customer.  The way you “harvest” the value depends on what is convenient for the people who buy.

Drawing out your business model may seem unnecessary, but trust me, this is important stuff.  Many business owners try to do it all.  Let’s say that Wilma of Wilma’s Wedding Cakes grows her own wheat, raises her own chickens, and grinds her own sugar cane.  Not only that, she delivers each cake by hand and sets it up on site.  Now Wilma is great at baking, but only fair at farming and delivery service.  She is wasting her time and energy doing things that other people could do better.  To make it work, she would have to charge much more because it costs her more to, say, deliver a cake than a delivery service.

In other words, pick out what you do best and focus on it.  There are thousands of people out there ready to do everything else.  When your business model starts to look like a clean, sensible proposition, it is time to move on to more detailed planning.

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Terry takes specialization seriously.  He won’t change light bulbs in his own house because writing is what he does best.  That is why his wife threw him out yesterday.  Since he needs a new place to live, maybe you could sign up for a course at entrescape.com.  Thanks.  It’s cold outside.

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Filed under business, economy, entrepreneurship, new business, wealth

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