Business ModelStartup

Business model as a way to endure contact with a customer – Part II(5 min read)

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Key resources

Key resources could be in different forms, depending on the organization. They serve to support our company values, distributing channels, customer relations, customer segments, etc. The most common forms of key resources are physical assets, intellectual property, human resources and financial resources.

Physical assets represent valuable physical machinery that offers a great advantage in the companies market domain. It varies depending on the industry. For example, heavy machinery for manufacturing, extensive computational server network in the IT company, etc.

Intellectual property could be represented by patents for your product, copyrights, brand, etc. This kind of resource could help you to protect your product, but as well as make more profit. For example, if you have a patent on your product, you can sell licenses to other companies to use it. Many large worldwide companies use this model as a major tool for gaining revenue for their business.

Human resources represent your team or employees. If you have a strong founders team, with diverse knowledge and experience in a vast number of domains, you could have great leverage over the competition. When angels investors want to fund in a startup, they pay close attention to the team structure and their history, because in most situations, the team determines if the startup gains success or will fail in the future.

Financial resources represent how much money you have, or you can collect from the founds, banks, etc. Having the financial resources, you can speed up the growth rate of your company significantly (hiring experts, buying advanced machinery, etc.).

Key activities

Key activities represent the most important duties that a company executes in order to make their business and company successful. Depending on the industry, key activities can vary. For example, tech companies often need to focus their efforts on researching their customer needs and developing a product. Depending on your domain and strategy you should define a couple of key activities on which you will focus.

Key partners

Key partners outline who are our associates on the project. It would be desirable if partners are from the company domain expertise, someone who can connect the company with customers (or even new partners), or is even a customer himself, someone who has good network or expertise, etc. Also, it is good to have partners who can represent our distribution channels. A partnership differs from company to company, and on what company already has and what they additionally need to grow. 

Cost structure

Cost structure represents all (or most important) expenses that our business has. Often, key activities, key resources, and key partners influence the most important parts of the cost structure. Once the business model is completed, revenue streams and cost structure show whether the business is profitable or not.

There are 2 ways on how to define cost structure strategy. The first one is a cost-driven strategy. It says that company strategy is to look for any way to minimize their operational cost, and by that increase their profitability. On the other hand, the second one represents a value-driven strategy. Here, the company cares more about providing value to the clients, instead of focusing on minimizing the cost of their activities. Fairly enough, companies float between these two approaches.

Left and Right side of the business model

Business models could be represented as a human brain. The left side represents the efficiency (logic), while the right side represents values (creativity). Like the brain, both sides need to be balanced in order to obtain the best possible outcomes for the company.

Use it as a tool

Business model should help you to have the whole picture of your business before you start to research and define it more thoroughly. By having a business model, you can early spot confusing parts of your business idea and prevent them from the beginning. If on the other hand, you start to write a business plan right away, you will not be flexible enough to change it if you spot mistakes. When you find ambiguity in the business plan you will be probably forced to modify the whole business plan from the start. That approach can cost you a lot of time and money. So, to prevent it, think in advance, and be agile about your business and your future.

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