Business models became popular as a result of the internet boom that made many companies to begin relying on web-based models. Companies shifted from the traditional methods that were based on strategy and competence in an attempt to embrace the new trend. The new models came with a promise of substantial profits and efficiency.
All the entrepreneurs who bought into the new idea ended up suffering huge loses because they did not implement the models in the right way. The concept of business models therefore did not perform well in the initial stages because many people did not actually understand the concept. The failure of these business models came as a result of misuse and distortion.
Many entrepreneurs wasted their capital by investing in flawed models without careful consideration. The new concept of doing business using models is still very applicable in different types of business ventures. A business model should be implemented in the right way for businesses to achieve the desired results. Business managers should come up with working definitions of a business model to introduce clarity and predictability in their models.
The arcane mathematical models have an influence on the structure of business models. Business models explain how a particular enterprise works using elaborate stories. A quality business model should answer the fundamental business questions that guide the success of a business enterprise. To begin with, a good business model should identify who the customers are in relation to their needs and preferences.
A business model should also reflect a clear plan on how the enterprise will make money. The main aim of doing business is to make profit and at the same time meet customer needs. Business models should also have a sound economic logic to prove their viability. The cost of a business enterprise should not in any way exceed he equivalent revenues.
The main objective of a business model is to tell a good story about a particular business venture in order to attract customers and prospective investors. American Express is an example of companies that attracted a lot of customers by telling a convincing story to customers using a business model. The company’s business model motivated customers by giving them an insight on the value of its services.
It is also important to note that the good narrative in a business model should be accompanied by numbers for it to be very convincing. Telling a story without credible numbers to substantiate the propositions in the model does not make any economic sense. The spreadsheet has played a significant role in improving business analysis. Each and every component of a business model can be tested and fully analyzed by using the spreadsheet.
Personal computers have played a vital role in improving the way business plans are designed. Spreadsheets enable managers to have some foresight in the expected performance of a business venture because of their effectiveness in numerical analysis. It is therefore very necessary to be realistic in coming up with a business model without relying on assumptions.
A quality business model should be designed using actual and relevant market insights. Business models should be flexible enough to accommodate changes incase things fail work out as planned. A business model should be practically tested and revised accordingly on a continuous basis. It is always a great challenge to get it right when it comes to revenue projections and this should always be expected by business managers.
A complete business model should have both the narrative part and the numbers part. The two parts should be tested and if one or both fail, then the model can not work. The narrative and the numbers tests are very critical in determining how effective a business model is. The narrative part of a business model helps a great deal in promoting the brand of a particular business.
The price of products or services falls under the numbers part. The competitive advantage of a business largely depends on the ability of its model to change the industry dynamics. A business model that is unique makes it difficult for competitors to replicate. The marketing and pricing strategies of an adopted model can contribute immensely in expanding the customer base.
The strategies adopted by a business enterprise can make the business stand out from its competitors. The competitive nature of modern business requires business managers to come up with competitive strategies. Michael Dell was able to maintain a competitive advantage in the computer business by adopting the strategy of selling computers to users directly as opposed to using resellers.
Dell was able to gain an inventory advantage over his competitors by using this strategy. The Dell example shows how businessmen can improve their businesses by coming up with innovative business strategies. It is important to note that a business strategy is very different from a business model. A business model that is implemented as a strategy tends to bring better results because it reflects clarity.
It is also important to emphasize the fact that having a good business model does not guarantee success in business. A good business model should be accompanied by good implementation strategies for it to achieve the desired results.