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Business models for small firms

Business models for small firms

Having a clear and carefully planned business model is central to business success.

Richard Garland, director of Gradient Consultants, shares his experience on small business success.

As a partner, owner or director of a small business, you'll no doubt have had to don many hats: coach, manager, accountant, marketer, HR specialist, IT expert, tea lady etc. That's on top of your day job as a surveyor.

So how can you find the time and the tools to make the business do what you want it to do?

One thing that sits between your vision of your business and how you are going realise is a good business model. Your business model must make sense to you and the people you need to help achieve it.

Your business model must make sense to you and the people you need to help achieve it.

One popular tool to help you make an effective business model is Alexander Osterwalder's Business Model Canvas. Its popularity comes partly from its ability to communicate your model visually, in a way that everyone can understand.

The canvas uses a system of nine building blocks which very simply set out the key components of your business model. Each building block represents an essential part of your business model. The exercise of getting your team together and working through each of the key areas is a valuable process.

For this example, we have deliberately chosen not to look at a surveying practice. Instead, imagine we are setting up a business to make dairy ice cream.

1. Customers

A good place to start is to think of your customer segments: who will want to buy our ice cream? Would it be individuals, supermarkets, caterers, other ice cream sellers? Each segment has its own needs and we would need different resources to service those needs.

2. Value proposition

This describes the actual benefits for the customer. This is more than just the goods or services provided and takes into account the problems solved or jobs done for them. For example, as well as selling delicious ice cream, you may also provide value to the parent of a child who likes to give their child organic, additive-free local products.

3. Channels

This refers to the channels through which our customers want to be reached (not how you want to reach them). Which channels will you use? Will you provide your ice cream through the big supermarkets, through selected independent outlets, or through your own shops or fleet of ice cream vans?

4. Customer relationships

How do your customers relate to you? Do they have a love relationship with you in the same way that some people do with Apple? Do they stay with you for the long term, or will they make a once-only purchase? Do they prefer to buy your products online with the weekly shop, or to physically visit your ice cream parlour and hang out there? Is there co-creation? For example, do you want your customers to come into your shop and customise their ice cream with any mixture, any topping, or ask for their ice cream to be made into a milkshake?

5. Revenue streams

This question may seem obvious, but how are you determining your revenue stream? Is it always a fixed price or is it dynamic? For example, if you sell your ice cream via a supermarket, do you sell it at a cheaper price in the colder months? Do you sell it at a premium at certain points of sale (eg. at summer sporting events or seaside resorts)?

6. Key resources

Your model also needs to identify the resources needed to deliver your goods or services. These may be physical, such as your ice cream plant; it could even include your own herd of dairy cows, and your fleet of ice cream vans. It may be intellectual, in the form of your secret recipe. You will undoubtedly have human resources in the staff that you employ. You will almost certainly need financial resources to pay your bills, suppliers and staff. You will no doubt have a time delay before you derive income from your sales.

7. Key activities

This describes the things that you actually do. Yes, you sell ice cream, but does that mean in practice? Do you need to look after a herd of cows, milk them, and transport your raw materials to your factory? Do you do your own marketing and do you run a fleet of ice cream vans?

8. Key partnerships

You also need to think about your key partners that will help you deliver your proposition to your customers. This may be your ice cream distributors, you may have a franchise for your ice cream parlours, you may do a partnering arrangement with a fast food restaurant to bundle your ice cream with a kid's meal deal.

9. Cost structure

The other building block relating to cost: consider your cost structure. For example, is your cost mostly in your production, or is it the cost coming from your staff and your ice cream parlours, or keeping your fleet of vans on the road? Are your costs value driven? Does your top-of-the-range luxury ice cream cost massively more to produce than the others? If so, consumers may nevertheless be prepared to pay a premium for it.

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