Strategic Business Models

As you begin planning for a new business or retooling an existing one, your most important task perhaps is developing a strong, strategic business model. Business models are the foundation on which your business is built. They show you, your partners and your investors how your business is likely to profit and where the most work needs to be done. Placing a business model in a strategic framework helps to clarify this picture, adding the necessary detail and drive to make your business operate smoothly.

Identifying Your Customers

1. Good strategic business models will allow entrepreneurs and investors to examine how a business operates, from product and pricing to competitors and customers. When designing a strategic business model, one of the most important elements is defining how your product or service will matter to the customer. Without customers, you have no business, so you'll need to identify what makes your business beneficial to target markets most likely to purchase what you are selling. With a weak value statement, you will have a difficult time finding the traction you need to win over your perceived customer base.
   
   Not everyone will be a customer for your business. You'll also need to identify which of your target markets are the strongest and, from the onset, plan on your promotion, marketing and sales effort around these audiences. The better prepared you are to meet your strongest customers needs, the better you will able to find a successful niche and create early buzz.

Identifying Your Marketplace

2. There is a very good chance, no matter how specialized your business is, you will be met with some competition in the marketplace. Your strategic business model should take into account your overall marketplace, your competition and your product or service line. Know your product or service intimately. Know your costs, time-to-market, overhead, deliverability and all other factors surrounding the production of your business. Also, have a clear understanding of what makes your product or service stand out in the marketplace. Clearly define in your business plan what will make your business special and what resources you will need to make that happen.
   
   Know, too, the competition and the products or services they have developed. Study the strengths and weaknesses, who the marketplace leaders are, and what have they done to grow their customer base. In your business model, you must state how your business is different, or what steps you need to put yourself apart from the competition. Some factors to consider include technical expertise or equipment costs, people skills and the cost of recruiting such talent, and marketing and promotion costs. Perhaps your special skill sets or expertise set you apart. Make sure to place a value on your time and efforts in building the business. All of these factors and more go in to differentiating yourself from the competition.

Pricing Your Business

3. Your business can't grow or even begin without a price tag on your product or service. Pricing is perhaps the trickiest part of developing a new business model, but a necessary element. You need to get a handle on a price point to determine how your business can profit. Of course, first you will need to figure a cost for your product or service. Once determined, you'll need to decide how much profit margin you are comfortable receiving for each purchase or sell. Go too high and you might price yourself out of the market. If you set prices too low, however, you might find your business undervalued by your prospective customers. Setting the right price will also help you determine how much you need to sell to make your business viable and how much you can spend on development, production, salaries and expenses.