What is a business model and what is it’s relevance for an entrepreneur? Learn it with the help of Joensuu-area examples
Heikki Immonen, Karelia University of Applied Sciences
For a new entrepreneur it is good to stop and really think what is it that you can control and decide when designing your plan. The truth might be surprising to many, because we often don’t realize how much room we have to adjust and control. In fact, there is a lot you can influence, and there exists tools like the business model canvas that can help you in this. Even more, the more room you have to adjust your business variables, the more likely you are to succeed.
You can think of your business model as variables, which if given the right values, will result in success. Compare it to javelin throwing. When you have the right initial speed relative to the initial flight angle, the javelin will hit its target correctly. In business, instead of speed and angle, the values we are interested in are resources, target market, product, price and processes. When these values are balanced with each other and take in to account the limitations and affordances of the broader business environment, you will succeed (assuming that your business model is based on a realistic understanding of reality).
These lessons are not valuable only to new entrepreneurs. A more experienced existing small business owner might also benefit. Especially in situations, where the business is experiencing problems and there seems to be no way out of the trouble.
Business model represent those parts of a business plan that you can control
The term business model was made known to most people with the emergence of a tool called Business Model Canvas (BMC). BMC is a popular tool for defining a business model. It emerged in the early 2010’s and has been adopted by companies, business incubators and educators worldwide (Osterwalder & Pigneur, 2010). A pdf-version of the canvas can be freely downloaded from many websites. With BMC you can brainstorm different versions of your business by focusing on parts of it that you can actually control.
Remember: The more realistic options you see for each element of the business model, the more chances of finding a combination that really works you have.
BMC divides the business model in to 9 elements, which have been reduced to 5 core variables in this article.
BMC use in Joensuu-area:
- Business Joensuu, for example, has been using BMC for years as part of some of their business advising services and programs.
- Likewise, Riveria, Karelian and UEF, all have courses available where business model canvas use is studied
One-page business plan is a tool for quickly sketching out a business plan with business model included. This tool was developed in the Draft Program to help entrepreneur not just to ideate business models, but also to evaluate and implement them by focusing on strengths, weaknesses, uncertainties and schedule. One-page business plan can be expanded in to a full business plan by adding more details and including needed calculations.
- You can download one-page business plan here
Broad business plans, including calculations, are required by financiers such as banks, investors and public business financing organizations. As the core of any business plan is the business model, it is worth spending time getting it right. You can download good business plan and financial calculation templates via many websites. Just remember to check out that the template you are using has the information required by financiers you are hoping to convince.
- Yritystulkki.fi service has business plan templates and guidance used for example by Business Joensuu: https://www.yritystulkki.fi/fi/alue/joe/english/businessplan/
Business model has 5 main things that you can control and you need to define
When we think about new successful business, we often think that they are successful because they have new, different and higher quality products than other companies. This is a misconception. In fact, product (or service) is only one of the variables where a new company can find competitive advantage. An experienced business person sees all these 5 variables as an opportunity to succeed.
Resources describe relevant skills, tools, materials, partners and funding you can and want to use. Some of these resources are so-called consumables, which are consumed with their use. Money is an example of consumable. Others are more like enabling resources, like skills, which are not consumed, at least very quickly, with use. As resources define what you can do, getting new or more resources allow you to do more. Common way to gain more resources is to expand your team or get some external funding. Learning to learn fast is another way to gain more skills and competence resources, and key to entrepreneurial success. Less common way is to creatively re-think what you have and realize that you can use your resources better.
- Plant & Planning Freesie Oy is a great Joensuu-area example where two experienced graphics design professionals are re-purposing their skills creatively by focusing on the plant and interior design retailing.
Target market defines the characteristics, problems & competition of your potential customers. What need are you helping your customer to satisfy? What problem are you helping them solve so that they get what they want? What is the competition you are facing? To which customers are you focusing based on their location or other characteristics? All these you can partially influence by selecting the market you want to serve.
- Nokiakka Oy, a manufacturer of jams and other products, is targeting the whole nation and an eye for the international market. This is convenient for them as their jams and other products have long shelf-life. This means that the quality of the product remains good even though they are distributed far away from Joensuu.
Product (or service) is the description of what you are offering and how it is packaged. What are the specifications and features of your product or service?
- Miway Oy is a travel agency located in Ylämylly, a municipal center in Liperi, close to Joensuu. Miway offers high-quality trips to Armenia and Georgia, and stands out from the competition with their services tailored to customer needs and experienced guides.
Price defines how much your customers have to pay for your product.
- Lietsu Boutique Aparthotel is an example of a very price conscious and successful business strategizing. In the Joensuu market, this hotel has priced itself as one of the most affordable, while offering quality that is considerably higher than their price-level would suggest.
Production and marketing processes describe how you produce and market your product. Production process can be mapped as a value stream, while a marketing process as a sales funnel.
- Sight Insight was a Joensuu-area startup later sold to larger company. Sight Insight’s innovation and competitive advantage was most evident in their production processes. They offered eye-tracking services to website developers more affordably than competition. This was possible because they distributed eye-tracking technology to volunteers who would get paid a little from checking out a customer’s website. Traditionally, people had to come big eye-tracking laboratories for these types of studies, which meant a high price.
About this article
This article was written with the support of project INVEST of Karelia University of Applied Sciences
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers (Vol. 1). John Wiley & Sons.