A business model is a blueprint that defines your company’s mission, goals, operations and structure. It’s essential as the foundation for a prosperous business, particularly if you intend to develop it into a franchise.
Business models are concise explanations of how you plan to deliver goods or services, and attract and retain customers. Use these tips to develop a business model for success.
Keep It Simple
Believe it or not, the best business models are concise, easy to follow and only have one page. Business models aren’t the same as business plans, which contain more extensive data and project finances in detail. Business plans might get revised every couple of years, and can reach 100 pages.
A business model is more evergreen, and your emerging franchise’s reason for being. Think of it as the basis for your “elevator pitch.” It might lend itself well to an illustration or diagram that others can reference and understand.
Think of the business model as a single concept, then let that guide you through the development phase.
A business model is a company’s core strategy for profitably doing business.—Investopedia
How will your company operate? What departments are involved in delivering your services? How will you manage various departments and divisions? How and why will it be successful as a franchise?
Your business model should outline your company’s operational flow, from manufacturing to marketing. It should name each department and define the positions and job responsibilities within them. And it should outline your responsibilities as a franchisor, in addition to your franchisees.
Lay out the type of franchise arrangement you intend to use. According to Tulane University School of Professional Advancement, there are three main types.
- Business format franchise. The most common franchise arrangement. The franchisor allows someone to do business using their trademarks and business model in exchange for royalty fees and a recurring percentage of sales revenue. Franchisees under this model are run according to the parent company’s guidelines.
- Product franchise. The oldest form of a franchise arrangement. Under this model, franchisees exclusively distribute or sell the franchisor’s products.
- Manufacturing franchise. Within this model, third-party manufacturers obtain exclusive rights to produce and distribute products using the franchisor’s trade name and trademark.
Use your model to help determine costs, operational efficiencies and ways to achieve higher margins. Then, your business model could identify efficient distribution channels or other revenue opportunities that don’t increase costs.
Operations, sales, marketing, organizational structure, startup and labor costs are essential components of a successful business model. Over time, you’ll want to revisit your company’s organizational and logistical structure to keep your business practices current and efficient.
To rise above your competitors, you have to identify the best ways to meet your customers’ wants and needs. Include a customer profile (also known as a persona) in your business model to help you develop products and services specifically with them in mind.
Answer the following questions to develop a customer profile (whether a consumer or another business):
- What are your customers’ needs?
- What motivates your customers to purchase?
- What are your customers’ common characteristics?
- How can you provide value to your customers?
- How can you improve to attract and retain a larger customer base?
No matter who your customer is, you need to identify their needs and document them in your business model.
Include the reason your company exists in your business model. Why did you create the company in the first place? Whose unmet need did you decide you could address?
A mission statement helps everyone clearly see your customers’ needs and how the company intends on serving them. A clear statement will guide future decision-making, set the tone for your company’s culture and lay the foundation for day-to-day operations.
To help you write your company’s mission statement, ask yourself:
- What is my business?
- What do I want to accomplish for my customers?
- Why should we exist?
Probably of most interest to lenders, investors or franchisees is how you expect your business to make a profit. In addition to spelling out startup costs, you’ll want to identify how the company will be financed at the outset, and then over time. Let your annual business plans explain revenues and expenses in granular detail.
Don’t dismiss profit, even at the beginning. According to entrepreneur and author Michael Michalowicz, carving out profit from your income isn’t optional. He advises that at the outset, you should set up an account at a bank separate from your daily financial operations. Then, transfer a percentage of every deposit into that account.
The point is, if you can’t afford to take a profit, then your plan to make money isn’t sustainable. This means, there’s a flaw in your business model.
Probably the single most important feature of your business model is its elasticity. In other words, your model should — and will need to — change several times throughout the years to accommodate changes in the marketplace, technological advances, etc.
As the world changes, so too should your business model. It shouldn’t be strongest at the moment of its inception; build in flexibility to adjust your model as needed to keep it relevant. Over time, you’ll hone and revise to give it more staying power.
Think of your business model as your roadmap to success. Have a clear set of directions on hand, but know that you may need to detour for better routes.