To define a business model, it is first necessary to have a good understanding of what a business is. In the article What Is a Business Model, Andrea Ovans gives different definitions of business models, which are universal for different types of companies (2015). As a result, the author concludes that one of the key elements of a business model is a value proposition. Indeed, customers need to understand why they should choose a particular supplier. They need to be aware of the benefits and unique aspects of a product or service to decide in its favor.
One of the fairly general but accurate descriptions of the business model has two components. The first includes manufacturing, such as purchasing materials, making a product, and other activities. The second relates to sales: the supplier enters into a financial relationship with the buyer. Indeed, these aspects are the most important in any business model. On the one hand, the product or service must be of decent quality. On the other hand, any company needs to interact with buyers so that they are convinced to buy something.
The negative state of the business can be described as a gas leak. When a company invests more and more efforts in innovation, and they bring less and less results, one should think about the quality of the business model. The sooner a company does this, the more likely it is to stay afloat. However, knowing about a problem and solving it are not the same. Undoubtedly, company leaders may be well versed in crisis management, but it may be difficult for them to apply its techniques. At this point, it is essential to act and change the processes of interaction inside and outside the company.
Dr. Porter’s Five Forces is one of the most common ways to research the competitiveness of a business niche. Various factors affect rivalry in the industry (Porter, 2017). On the one hand, they include the threat of new entrants and the threat of substitutes. These aspects can indeed negatively impact sales as customers may find something cheaper or better. On the other hand, they include the bargaining power of suppliers and buyers. In other words, when starting a business, one needs to understand how much raw materials can be purchased from suppliers and what prices will be acceptable to customers.
This way of studying competitiveness is helpful and benefits business owners. By examining the business from different angles, one can understand whether it is worth doing it. It is an opportunity to adjust the assortment or choose a supplier with lower prices. It is crucial to pay attention to detail and do a good job of researching the market to benefit from using the Five Forces.
To research a business model, it is not enough to simply come up with a market proposition and study the audience. First, it is important to understand who will want to buy a product or service. Then one needs to understand what offers already exist on the market since there is a possibility that they are already of high quality and inexpensive. After that, it is worth researching suppliers and finding the best option. This will allow the business owner to be ready for any kind of competition and calculate all possible risks.
References
Ovans, A. (2015). What Is a Business Model, Harvard Business Review. Web.
Porter, M. E. (2017). Competitive strategy: Techniques for analyzing industries and competitors. CreateSpace Independent Publishing Platform.