What Is The Ideal Model In Business?

Something I’ve learned in business is you can’t wait for the perfect timing, the perfect product or the perfect system to get your business going. Not only will the hesitation mean you never get your business further than the paperwork stage, but it also leaves plenty of time for someone else to swoop in and set up the exact business you were aiming for – believe me, this happens a lot.

No matter how carefully you plan and assess, a portion of your business (i.e. the best portion of your business) will always be made by adapting, adjusting and remodelling what you have to fit the real world, which turns out to be far more complex, messier and fluid than it looked on paper.

So it seems strange that my post today is all about the “ideal model” in business. How can that be a real thing when so much of business comes from learning and adjusting on the go? Especially when every business has its own strengths and weaknesses, even within the same industry and field.

Okay, so an ideal model in business refers to the framework you follow to achieve your business goals while maintaining optimal efficiency and profitability.

So obviously it’s not one model, it’s going to vary depending on the industry, the size of your company, and your business objectives, however, there are some common elements of an ideal model which is what I’m detailing here for you today. 

The big ones are:

• A clear mission statement
• A strategic plan
• Effective communication channels
• A skilled workforce

and I’m also going to be talking about leadership skills which tie all these things together too.

Before we get too deep into the planning stages here, I just want to point out that for my first business, I was having none of it. I was on a sure thing and I didn’t need business models or strategic plans to slow me down. I put a lot of that down to youthful exuberance (and a big ego) which almost cost me everything. 

In fact, I was bordering on bankruptcy after sailing high on success. The only thing that saved me was my perseverance…oh yeah and also an amazing business mentor who was able to explain how business models and strategies work to keep your business flexible, adaptable and ahead of trouble. So if you are anything like I used to be and think this is all a waste of time, stop reading and book in a time to talk to me and I’ll explain how it works (really works) to net you big fat profits for less risk and less effort.

Understanding Business Models

A business model is a plan or strategy that outlines how a company will generate revenue and make a profit. It is the foundation of any successful business and is essential for long-term sustainability. 

“A business model is a story that explains how an enterprise works.” Joan Magretta.

There are various types of business models, each with its own set of advantages and disadvantages, some will be a better fit for your personality and your business aims than others. The most common types of business models are:

• Subscription
• Freemium
• E-commerce
• Marketplace
• Franchise

I’ll get into these in a bit more detail so you know which ones to research more thoroughly.

Subscription Model

Subscription models have grown rapidly in popularity, this model is where customers pay a monthly fee to access the company’s services. 

There are a great number of ways you can make this work, basically by limiting your offer until someone pays to access them. Famously used by Netflix and Spotify it can be used for a variety of content, information, entertainment and data.  

Fee-for-Service Model

Under this model, customers pay a fee for each individual service that they receive. This model is commonly used by healthcare providers, legal firms and other professional service providers which can be the traditional brick and mortar location but more frequently doubling down with online consultations or video conferences too.

Freemium Model

The freemium model is used by companies like Dropbox and LinkedIn and is pretty popular for online tools. Customers can use the basic version of the product for free, but must pay for additional features. This works extremely well for the right product. Ideally, you will have a base product that gets by on its own but entices upgrades with amazing extras that add more value than the free version.

E-commerce Model

Online shopping! If you have a number of products to sell, or that you are the middle-man for then you’ll benefit from a shopping card and online purchase. The e-commerce model has worked for companies like Amazon and eBay. You will need to have a highly trustworthy and stable online platform that can handle high volumes.

Marketplace Model

We’ve seen the marketplace model burst into favour with Uber and Airbnb. These companies connect customers with service providers through an online platform. There is still so much reach with this model that hasn’t been explored yet.

Franchise Model

The franchise model is famously used by companies such as McDonald’s and Subway. Franchisees pay a fee to use the company’s brand name and business model. In return, they receive training and support from the company and get a business that is exactly like a successful one before them.

Do take the time to see what fits or find a way to make adjustments. Each model has its own set of advantages and disadvantages and choosing the right one can make all the difference in the success of a business.

Revenue Generation Methods 

Each of the methods I’ve outlined above are revenue generation methods. Each has its own advantages and disadvantages which you can’t really get away from, so you’ll need to be aware of what to expect as it will make it an important part of your Ideal Model opportunities and risks section.

Subscription Model Pros and Cons

One of the advantages of the subscription model is that it provides a predictable stream of revenue for the business. This makes it easier for businesses to plan and budget for the future. 

The subscription model also helps build customer loyalty, as customers are more likely to continue using something that they have already paid for (provided you don’t piss them off).

The subscription model can also have some disadvantages. For example, customers may be hesitant to commit to a recurring payment, especially if they are unsure about the quality of the product or service – which is why you see so many free trials for software and online tools or freemium models. 

The subscription model won’t work for products or services that are one-off or sporadic as customers won’t see the value of recurring payments.

Fee-for-Service Model Pros and Cons

One of the advantages of the fee-for-service model is that it allows businesses to charge based on the value that they provide to their customers. Additionally, this model can be more flexible than the subscription model, as customers can choose which services they want to pay for, however, it can be difficult to predict revenue as the amount of revenue generated will depend on the number of services provided. 

Retailer Model Pros and Cons

Under the retailer model businesses purchase products from suppliers and sell them to customers at a markup.

One of the advantages is that it allows businesses to generate revenue from a wide range of products and offer more flexibility than the subscription or fee-for-service models, as businesses can adjust their pricing and product offerings based on market demand.

Businesses may face stiff competition from other retailers selling similar products and there is a pretty big overhead investment in inventory and logistics infrastructure to support these operations.

The Ideal Business Model

An ideal business model is one that is designed to deliver value to customers while generating profits for the company. You do need both. Your business won’t be around long if you are only able to fill one half of this equation.

To get it right you’ll need a strategy that outlines how you plan to operate and make money. The model should be scalable, meaning it can grow and adapt to changing market conditions – even if you don’t have plans to level up in the foreseeable future – plan for it anyway.

Value Proposition

The ideal business model should have a clear value proposition that sets it apart from the competition. This is the unique benefit that the company offers to its customers. It could be a lower price, better quality, or a more convenient service. Whatever it is, the value proposition needs to be upfront and clearly communicated to customers.

Scalability

A scalable business can grow without incurring significant additional costs. This means that the company can expand its operations and increase revenue without having to increase its workforce or invest in expensive equipment.

To achieve scalability, the ideal business model should be designed to leverage technology and automation. This could involve using software to streamline processes, or developing systems that allow customers to self-serve.

Adaptability

As a business owner, you need to be a leader who looks forward, not just to goal targets, but also to various ways to get to the goal. Think about what obstacles you might encounter, what might the competition throw at you and come up with some ways to overcome them, financially (having extra funds or sponsors), through technology or by thinking outside the box for product innovation or adaptation.

Market Analysis and Target Audience

Before creating an ideal model for a business, you need to stop and assess the market your business operates in. Market analysis involves gathering information about the industry, competition and trends to identify opportunities and threats that can impact your business (for better or worse).

Market analysis can be done using various methods you plan or schedule yourself, like surveys and focus groups as well as professional and secondary research. 

The data collected can be used to identify the size of the market, demand for the product or service as well as your customer’s buying behaviour and any gaps you or your competitors might have missed.

Identifying the Target Audience

Once the market has been analysed, the next step is to identify the target audience. Hopefully, you already have a good idea of what this is, your product development depends on knowing who you are catering to.

What I find is that a lot of business owners are scared to hone in on just one group because they think it will reduce sales – I know it sounds counterproductive but the opposite is true. 

When you have a clear product for a clearly defined audience you get more sales.

The target audience is the group of people who are most likely to buy the product or service because they have the greatest need for you to solve their problem. 

To identify the target audience, the business needs to consider factors such as age, gender, income, education and lifestyle. It can really help to make your own perfect customer, your ideal. Go into detail, give them a name, a job title, a suburb to live in, partner status, and even their preferred car to drive.

Customer personas are created based on the characteristics of the target audience and can be used to guide your marketing efforts and particularly your communications. 

Market analysis helps to identify opportunities and threats in the industry, while identifying the target audience helps the business to tailor its marketing efforts towards your most eager group.

Product and Service Offerings

Customer needs are becoming more diverse in our growing global market, meaning companies need to offer a wide range of products and services to keep up and satisfy demand.

This means that businesses need to be innovative and flexible in their approach to product development and service delivery. Consider factors such as:

• Market demand
• Competition
• Pricing
• Quality

You also need to ensure that their offerings align with your brand values and customer expectations.

A company’s product or service offering is what differentiates it from competitors and creates value for customers.

Products: Physical items that a company produces or sells.

Services: Intangible offerings that a company provides through skills. 

Products and services can be further categorised into subcategories based on their features, benefits and target audience and some businesses may even overlap them, for example, product purchase and then a service installation, personalisation or delivery.

Pricing

In terms of pricing, businesses need to strike a balance between affordability and profitability. That can be a lot harder than it seems on paper, especially as a start-up (yet another area where you need to have a plan that includes flexibility). Structured flexibility in your pricing model will help you maintain profit as your skills and services reach grows. That way you are not confusing customers with sudden price drops or escalations as you try to juggle your way around your changing market landscape.

Competitive Analysis

When it comes to building an ideal business model, conducting a competitive analysis is crucial. A competitive analysis involves identifying and evaluating the strengths and weaknesses of your competitors. This analysis helps businesses understand the market and make informed decisions about their products and services.

To conduct a competitive analysis, businesses can use various tools such as SWOT analysis, Porter’s Five Forces analysis and market research. It’s not overkill, I promise that these tools help businesses identify their competitors, their market share, their pricing strategies, and their strengths and weaknesses.

Businesses can also use a competitive matrix to compare their products and services with those of their competitors. This matrix helps businesses understand their competitive advantage and identify areas where they need to improve.

This isn’t a one-and-done activity, competitive analysis is an ongoing process. You’ll need to regularly monitor your competitors and adjust your strategies or at the very least explore the new risks and opportunities that come up. This analysis helps businesses stay ahead of the competition and remain relevant in the market.

Financial Aspects

Finance is an area where business owners like to stick their heads in the sand. Don’t fall for it. Your finances will not look after themselves.

You need to know what’s happening financially, even if it’s not good news.

Cost Management

It is crucial to have a well-defined cost management plan to ensure that a business is operating efficiently and effectively through identification, analysis and control of expenses including fixed and variable costs. 

A business plan should include a detailed cost management strategy that outlines the steps to be taken to reduce costs.

Investment

You’ll need to keep putting a portion of profits back into your business to ensure that it can grow and remain competitive. As well as maintenance, you’ll have new technologies you want to dip into at some point as well. Investment can look a little different to how you might be thinking, assets can include new technology, expanding operations as well as hiring new staff.

You can’t just splash out, you’ll need to conduct a thorough analysis to determine the potential return on investment (ROI) that includes the:

• Investment costs (direct and indirect)
• Potential revenue
• Risks
• Customer benefits and drawbacks
• Employee benefits and drawbacks

Conclusion

The ideal model in business is one that is adaptable, innovative, and customer-focused. The ability to pivot and adjust to changing market conditions is crucial for any business to remain competitive and successful (as well as for your enjoyment in the business too). 

Companies that prioritise innovation and creativity are more likely to stay ahead of the curve and provide unique solutions to customer needs.

While earning money is the biggest goal you might have, you’ll need to put your customer needs first to create a perfect product or service to meet your target audience’s needs and exceed their expectations. Without that, you are not going to be able to expand your customer base, win customer loyalty, increase brand recognition or see higher revenues.

Overall, the ideal model in business is one that is flexible, innovative, customer-focused, and sustainable. By prioritising these key elements, companies can set themselves up for long-term success and growth.

What is the Ideal Model in Business – FAQs

Q: How do you create an ideal business model?

A: Creating an ideal business model requires a comprehensive understanding of your target market, the value you intend to provide, and the resources available to your business. Begin by identifying your customers’ needs and pain points, then design a unique value proposition that addresses those needs effectively. Consider factors such as revenue streams, cost structure, and key partnerships while ensuring the model aligns with your overall business strategy. Continuously iterate and refine your business model based on customer feedback and market dynamics to stay competitive and relevant.

Q: What is one of the characteristics of an ideal business model?

A: One characteristic of an ideal business model is scalability. An ideal business model should possess the ability to grow and expand without significant proportional increases in costs or resources. Scalability allows a business to handle increasing demands, reach wider markets, and capitalise on growth opportunities. By leveraging scalable processes, technologies, or distribution channels, a business can efficiently accommodate higher customer volumes or market penetration, ultimately leading to improved profitability and long-term sustainability.

Q: What is the most popular business model?

A: The most popular business model varies across industries and changes over time. However, in recent years, the “Platform as a Service” (PaaS) model has gained significant popularity. PaaS enables businesses to provide cloud-based platforms and tools for developers to build, deploy, and manage applications without the need for extensive infrastructure. This model offers flexibility, scalability, and cost-effectiveness, making it attractive to both startups and established enterprises looking to leverage cloud computing capabilities.

Q: What makes an effective business model?

A: An effective business model is characterised by several key factors. Firstly, it should create value for customers by addressing their pain points or providing solutions to their needs. Secondly, it should be economically viable, generating sufficient revenue to cover costs and generate profits. Additionally, an effective business model should have a clear and compelling value proposition, a well-defined target market, and a sustainable competitive advantage. It should also be adaptable and capable of evolving in response to changing market conditions and customer preferences.

Q: What are the four key elements of a business model?

A: A business model typically consists of four key elements:

1. Value Proposition: This element defines the unique value or benefit that a business offers to its customers. It encapsulates the products, services, or solutions that solve customer problems or meet their needs better than competitors.
2. Revenue Streams: This element outlines how a business generates revenue from its customers. It encompasses various revenue sources such as product sales, subscriptions, licensing fees, advertising, or service fees.
3. Cost Structure: This element involves identifying and managing the costs associated with delivering the value proposition and operating the business. It includes both fixed and variable costs, such as production costs, marketing expenses, employee salaries, and infrastructure expenses.
4. Key Partnerships: This element encompasses the strategic alliances and collaborations a business forms with external entities to enhance its capabilities or reach. Key partnerships can include suppliers, distributors, technology providers, or other businesses that contribute to the overall value proposition or facilitate market access. By considering and optimising these four elements, businesses can design a well-rounded and effective business model that aligns with their goals and maximises their chances of success.