Most businesses fail within the first 3 years of their operations. While environmental factors too play a crucial role in deciding success or failure of a new business, most businesses fail because of inadequate planning and strategy formulation. Three concepts go a long way when a new business is being planned: business plan, business strategy, and strategy management. A business model needs to be thought thoroughly before starting its operations. In the below article, we discuss these important components and understand the role that they play in the planning and implementation of new businesses.
This is the crux of any business. Before starting any business, it is important to work upon few foundation questions: How will you ensure profits or business sustainability? If you are creating a product, then where will you buy your raw materials from? Who is your target buyer? How are you going to reach that buyer? Do you have sufficient funds? If not, from where you will get those funds?
A thorough business strategy reveals the company’s strengths, weaknesses, vulnerabilities, advantages, resources and opportunities.
Strategic management model is used by business to plan and implement the business strategies to reach intended goals. It also enables managers to choose the best possible strategy. It is a continuous process and keeps evolving over time. Elements of the strategic leadership and management model include an environmental analysis, freezing an organizational direction, defining the organizational strategy, implementing the strategy and assessing and controlling strategy.
Every business needs to give some value in order to survive competition in the market. It is important to ask who your customer will be and why will they buy your product? You will need a business strategy model to explain to others what your product/ service is about and how it is going to add value to the existing scheme of things. A business model answers three questions:
- What would be the design of the product/service? How will you manufacture it?
- How will you sell and distribute the product?
- How you are going to make money out of it?
Types of business models:
Manufacturing: 3M, General electric, Toyota
Distributorship: Auto dealership
Aggregator: Uber, Airbnb, Oyo
Franchise: Pizza hut, Mc Donald’s, KFC
Retailer: Amazon, Flipkart
Nickel and dime: Low cost air carriers
Bricks and clicks: Apparel companies
Freemium: Youtube, Dropbox
Relationship between Business model and Business strategy:
A business strategy is an operational plan. A business model is a part of business strategy. While business strategy deals with the overall picture, business strategy model deals with the minute working details of it. If the business model is not working, then the organization can choose to change it. For example, if a website is not able to make money with the hosted advertisements on its page then it can decide to shift to some other model, probably sell some product online. While companies need to constantly work on its strategies and their management,