The word "business model" is often used in a wide variety of contexts, but what exactly is a business model? And why is it so important for managing directors to take a close look at it?

What is a business model?

A business model basically describes the logic of how a company creates, delivers and captures value. It is the foundation of every company, a blueprint for success. In short, it answers the question: "How do we make money?" But a business model goes far beyond this question. It also includes aspects such as market positioning, the way products or services are delivered to customers, and the internal structure and culture of the company.

The components of a business model

A business model is made up of several key components that should interact with each other and form a harmonious whole. The most important elements of a business model are

  • Value proposition: What does your company offer customers? This can be a physical product, a service or a combination of both.
  • Customer relationships: How does your company interact with its customers? This can be done through different channels and in different ways, e.g. via personal contact, social media or email.
  • Revenue streams: How does your company generate income? This can be sales prices, subscriptions, commissions, etc.
  • Resources and activities: What resources and activities does your business need to create and deliver its value proposition? This includes everything from personnel and equipment to processes and technology.
  • Partners and suppliers: Who does your company work with to create and deliver its value proposition? This could be suppliers, partner companies, consultants, etc.
  • Cost structure: What costs are incurred to create and deliver the value proposition? This includes all expenses, from personnel and material costs to marketing and sales costs.

Practical example: Starbucks business model

  • Value proposition: Starbucks offers its customers high-quality coffee and other beverages as well as pastries, snacks and snacks. In addition, Starbucks creates a "third environment" through its stores - a place that is not home or work, where people can meet, relax or work.
  • Customer relationships: Starbucks builds customer relationships through multiple channels, including its physical stores, website and app, social media, loyalty programs and personalized marketing campaigns.
  • Revenue streams: Starbucks' primary sources of revenue are from the sale of coffee, beverages and food in its stores. In addition, Starbucks earns money through royalties, sales of products in supermarkets (such as packaged coffee or iced coffee drinks), and through its customer loyalty program.
  • Resourcesand activities: Starbucks' resources include its stores, coffee machines, raw materials (such as coffee beans), personnel, its brand, and its technology (such as the Starbucks app). Key activities include operating stores, preparing and selling coffee and food, sourcing raw materials, marketing and customer service.
  • Partners and suppliers: Starbucks works with a variety of partners and suppliers. These include coffee farmers and other food suppliers, real estate owners (for store locations), technology partners (for the app and website), advertising agencies and more.
  • Cost structure: The biggest costs for Starbucks are probably the cost of raw materials (especially coffee), salaries and wages for employees, rent for store locations, costs of maintaining and operating stores and equipment, and marketing costs.

The development of business models

The continuous adaptation and further development of the business model is essential for every company in order to be able to hold its own in a constantly changing business world. In the following section, we will look at why continuous business model development is necessary, how existing models can be optimized and new models created, and who is responsible for this within the company. Only through regular review and adaptation can you ensure that your business model continues to be successful and gives your company a competitive advantage.

Why is it necessary to continuously develop the business model?

In a rapidly changing business world, it can be fatal to rest on your laurels. Business models that work today may already be morgen already be outdated. It is therefore crucial to constantly develop the business model and adapt it to new market trends, technological developments and customer needs. Continuous development of the business model can help to secure competitive advantages and ensure the long-term survival of the company.

Business model development means optimizing existing models and finding new models

The further development of the business model concerns not only the improvement and adaptation of existing business models, but also the development and implementation of completely new business models. The focus of business model development is the constant pursuit of improvement and innovation.

When working on existing business models, the aim is to continuously optimize them and adapt them to current market conditions, customer needs or technological developments. This can be done, for example, by tapping into new target groups, developing new products or services or improving internal processes. It is crucial to constantly scrutinize the business model and look for ways to improve it.

The development of new business models, on the other hand, requires an innovative and visionary approach. It is about breaking new ground and finding creative solutions to respond to changing market conditions or seize new market opportunities. This can be done, for example, by using new technologies, tapping into new markets or creating new value chains.

Both the optimization of existing and the development of new business models require a high degree of strategic thinking, creative problem solving and entrepreneurial courage. These are tasks that play a prominent role in the area of responsibility of managing directors and have a significant influence on the long-term success and competitiveness of the company.

Who is responsible for the further development of the business model?

Responsibility for the further development of the business model generally lies with the managing directors and top management. They are the ones who determine the strategic direction of the company and must initiate the necessary changes. However, employees from various departments can also make valuable contributions by providing feedback and ideas and helping to implement changes.

Analysis - understanding your own business model

In order to better understand your own business model and possibly uncover optimization potential, it can be helpful to break down the business model into its individual components and analyze them in detail.

Analysis of the value proposition

A thorough examination of your company's value proposition is the core to understanding and improving your business model. The value proposition is the heart of your business and defines what makes your company unique and why customers should choose your products or services.

First, you should look at your products or services from your customers' perspective. Try to understand what makes your products or services unique or better compared to your competitors' offerings. Next, it is important to check the alignment of your value proposition with your target group. This involves analyzing how well your offering meets the needs and expectations of your ideal customers.

It is also crucial to evaluate the clarity and comprehensibility of your value proposition communication. Consider whether it is clear to customers what your company offers and how they can benefit from it. Finally, look for opportunities to improve or expand your value proposition. This can include new customer needs, market opportunities, technologies or trends.

Analysis of customer relationships

Customer relationships are an essential part of your business model and contribute significantly to the success of your company. They not only influence customer satisfaction and loyalty, but also the turnover and growth of your company.

First, you should analyze how and where you interact with your customers. This includes all touchpoints, from initial contact to after-sales service. In the next step, you should evaluate how effective these interactions are. This includes the quality of customer service, the ease of use of your products or services and the response to customer feedback.

Next, you should consider how well your customer relationships are meeting the needs and expectations of your customers. This can be determined through regular customer satisfaction surveys and feedback. Finally, you should look for ways to improve or expand your customer relationships. This can include new communication technologies, customer loyalty programs or personalized offers.

Analysis of revenue sources

Revenue sources form the financial basis of your business model. They determine how your company earns money and make a decisive contribution to the profitability and sustainability of your company.

Start by taking a close look at your existing sources of income. This includes direct income from the sale of your products or services, but also indirect sources of income such as service contracts, licenses, subscriptions or advertising revenue. In the next step, you should assess how stable and predictable your revenue sources are. Fluctuations in revenue can represent a risk for your company and should be analyzed and minimized if necessary.

You should also consider how well your revenue sources fit your business model. Finally, you should look for opportunities to diversify or expand your revenue streams. For example, could you offer new products or services, enter additional markets or introduce alternative pricing models?

Analysis of key resources and activities

Key resources and activities are the cornerstones of your business model. They enable your company to create and deliver its value proposition, maintain customer relationships and generate revenue. Start with a review of your key resources. These can be physical (such as buildings or equipment), intellectual (such as patents or know-how), human (such as employees) or financial (such as cash or credit).

Next, evaluate your key activities. These could include production, problem solving, platform/network management or a combination of these. Ask yourself which activities are critical to creating and delivering your value proposition, maintaining customer relationships and generating revenue. Finally, look for opportunities to optimize, expand or diversify your resources and activities. This could be through automation, outsourcing, training or investment.

Analysis of partners and suppliers

Partners and suppliers play an important role in your business model. They support your company by providing resources, expertise, technology or other services. Start by reviewing your existing partnerships and supplier relationships. How do they contribute to your value proposition, customer relationships and revenue streams? Then assess the quality and reliability of these relationships. Are your partners and suppliers reliable? Are they performing as expected? Finally, look for new partnership or supplier relationship opportunities that could strengthen your business model.

Analysis of the cost structure

The cost structure is an essential part of your business model and has a direct impact on the profitability of your company. It includes all the costs involved in creating and delivering your value proposition, maintaining your customer relationships and generating revenue.

Start with a detailed review of your cost structure. This includes direct costs (such as raw materials or wages) and indirect costs (such as rent or administration). The next step is to assess how well your cost structure fits your business model. Do your costs match your value proposition, customer relationships and revenue streams? Finally, you should look for ways to optimize your cost structure. This could be achieved through efficiencies, economies of scale or price negotiations.

Conclusion - It's worth it!

The business model is at the heart of every company. It defines how a company creates value and generates revenue. A well-thought-out and effectively implemented business model can make the difference between success and failure. This is why it is so important that managing directors take a close look at it and are prepared to constantly develop their business model. This is the only way they can ensure that their company remains competitive in the future and can operate successfully on the market.

A clearly defined and well-understood business model is not only essential for your own understanding, but also for communicating with employees, partners and investors. It is a powerful tool for communicating the company's direction and goals and getting everyone involved on the same page. So, dear managing directors, take the time to reflect on and optimize your business model. It's worth it!

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MORGEN is a specialized management consultancy that focuses on the development of new business models for medium-sized companies. In particular, it supports owner-managed companies in their future-proof transformation. Knowledge transfer is at the heart of its consulting activities, which is why the MORGEN Blog regularly publishes articles on key topics such as digitalization, transformation, customer centricity and sustainability.

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