The 10 Main Components of a Business Model
I learned how to write business models in graduate school. Although, it really felt more like writing long and complicated novels. I once spent three months working on one for a hypothetical home services referral website. I even conjured up crowd-sourced reviews for my would-be business. The process revealed a depressing plot twist.
In the time I worked on this detailed plan, I could have actually built a meaningful version of the product (with technical help, of course). This is why people are often told to avoid business models altogether. But I think that advice is misguided.
When done right, a business model lays out a clear path for building something meaningful. It distills the potential for a business down to its essence.
This is because it answers the most important questions about your business: What problem are you going to solve for whom? How will you solve it? How will customers pay for the solution? And how profitable will it be?
Your business model is the foundation for your strategy, setting the direction for success. And whether you are just starting a business or you are moving into a new market with an existing offering, you need a plan to guide you — a model for your emerging business or product.
Our team at Aha! has always taken this strategic approach. From day one, we laid out a strong vision for the business and made sure everyone on the team understood it.
But we did not write a long, comprehensive document. We focused on the specifics of the business that we needed to better understand.
Our business model has never been overly complicated, and yours does not have to be either. You can start with a single piece of paper or by using a tool like the Aha! Business Model Builder.
There are a number of approaches you can take, but here is our approach and what we believe to be the 10 main components of a business model:
1. High-level vision: A basic description of your business model — two or three sentences that are your true north.
2. Key objectives: The top goals and how you plan to measure them.
3. Customer targets and challenges: The types of customers who will purchase your solution, along with their exact pain points.
4. Solution: The primary way that you solve your customer’s problems.
5. Value: The core elements of your solution that make it unique and differentiated (and ultimately valuable).
6. Pricing: How you will package your solution and what it will cost.
7. Messaging: A clear and compelling message that explains why your solution is worth buying.
8. Go-to-Market: The channels that you will use to market and sell to your customers.
9. Investment required: The costs required to make the solution a success.
10. Growth opportunity: The ways that you will grow the business, including key partnerships if you need them.
A good business model is simple and easy to understand. It answers the key questions about what you are trying to achieve and for whom.
Once you distill the elements down to their essence, it is important to get feedback and uncover any incorrect assumptions or biases. The hard part is understanding what feedback to listen to and what to ignore because everyone has an opinion on the viability of a new business or product extension. And often those opinions are just that or even misguided.
But a strong business model will protect against this. It forces deep analysis and removes anxiety from your work by providing a framework for progress. And this is the ultimate benefit of a business model. It requires you to make assumptions and decisions, and it encourages you to check your progress against pre-defined success metrics.
How have you approached building a business model?