How To Evaluate Your Business Model

Oct 06, 2010

Why Entrepreneurs should evaluate their business model is pretty much cut and dry.  The right business model will deliver value and benefits through cost effective distribution channels.  In fact, it’s often the most overlooked part of a start up, and instead Entrepreneurs tend to evaluate their business plan, when that’s not their strength.

A business model is the “big picture idea” behind innovation, and thats where the Entrepreneurs strength is.  There’s many building blocks that make up that business model as well.  If all your “building blocks” aren’t flowing together, than it’s definetly time to evaluate your business model.  A good example of business model blocks flowing together is your distribution channels and price.  In order for your product to be priced reasonable, you need to evaluate potential distribution channels that can distribute your product as cheaply as possible.

Businesses and Entrepreneurs that innovate well will be able to indentify these distribution channels for their business model in a creative way.  Our world is changing in the sense that there no longer are “easy ways” out; it takes committment, passion, and creativity.  Remember to have fun inventing your business model (because you’re not writing a boring business plan here!)

It may help to have a visual business model template in front of you while reading this.  We have one available here for free.

How to Evaluate your Business Model

Start by asking yourself the following questions to evaluate your business model:

1. Do all the components of my business model work together?

Think of it like this: a cost effective distribution channel through key partners, can in turn lower cost structure.  That affects the competitive advantage by allowing the business to provide lower costs, adding more value through key partners.  You’ll learn more about these business model blocks in my next questions.  The business model building blocks consist of:

  • Value Proposition
  • Customer Segments
  • Customer Relationships
  • Revenue Streams
  • Cost Structure
  • Distribution Channels
  • Competitive Advantage
  • Key Partners
  • Key Resources

2. Am I using the most cost effective way to distribute my product to my customers through my business model?

How cheaply you can distribute your product affects:

  • Cost Structure
  • Service

3. Did I evaluate (or identify) key partners in my business model that can act as a distribution channel or bring added value for my value proposition?

Bringing in key partners for your business model (strategic alliances, etc) can:

  • Add to your value proposition
  • Reduce costs
  • Increase your competitive advantage
  • Decrease the key resources your business still needs

4. Did I evaluate the potential for multiple revenue streams for my business model?

A company can have multiple revenue streams, and this is very important.

5. How will my business model maintain customer relationships through service?   

And is it relevant to the product I’m selling, and my customer?  The business model block that affects what type of service and relationship you offer is:

  • Customer Segments (who your customers are, and how they want service)
  • Value Proposition (is excellent service part of your business model?)

6. Did I evaluate if this service is the most cost effective means for my business model? 

In other words, a support forum may be more cost effective for a software company, instead of a call support center.

7.  What are my key resouces?  What will I need to execute my business model? 

There may be alot of your list, but take them one at a time.  Cover as many resources needed through the building block:

  • Key Partners

8. Did I evaluate my value proposition from a customer’s point of view?  What am I really giving them?

This question really doesn’t have anything to do with the business model, I just wanted to through some common sense in there. 🙂

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