The business Entity refers to how you generate sales and profits. So the business entity model includes key decisions on the legal and tax structures, as well as:
- strategic relationships
- core activities
- value proposition
- customer relationships
- customer segment, market niche, target customer
- cost structure
- revenue sources.
Building a Business Model
As you plan your business, you will be making decisions on the legal and tax structure, which will influence your business entity model – the how you make money.
The business model is built on your business Concept, the market Opportunity you have identified, the Resources you have and need, and the “how” you plan to do business. The how includes answers to operational questions like:
- Virtual or brick and mortar or both
- Lease/rent office space or work from home
- Use office suites or a fully private space
- One location or two
- E-commerce or storefront or both
- What you sell — Sales assumptions – price, quantity
- Cost of sales/goods — Operational costs
- Salaries and wages
- Advertising, marketing, and
The Business Plan — The Business Entity Model Defined
The business model is the process of doing business. Because you include in the business plan the details of your assumptions on how the business will operate (how you get and use resources) and generate sales, cash and profits, you will have answers to critical questions that stakeholders will ask. Therefore, think of the business plan as a virtual start-up of your business. It is the who does what, what do they do, how do they do it, when do they do it, where, and how much does it cost.
Also, if you plan to use OPM (other people’s money (investors and lenders), you will need a well-defined, description of how you do business, your assumptions should be documented, sources of your information (market research, prices, etc.), and operational practices should be addressed. These are the key areas:
- Business concept/executive summary
- Market Analysis and Target Market
- Customer Avatar – identifying the ideal customer Operations
- Sales Model
- Competitive Advantages
- Financial Pro formas (forecasted financial statements)
- Go-to-market strategy
- Risk and Opportunity assessment.
Viable, Capable, Credible and Visible — Four Factors that Impact Success
So, the more you think through and quantify your ideas, the more opportunity you have to refine your ideas. The stronger your business concept, the easier it si to develop your business Entity model. The business planning process enables you to work out some of the bugs before you begin spending and investing in the actual business. While your business will not be exactly as planned, you cannot underestimate the importance of going through the process of planning. Because you work out key elements and think through your assumptions before your doors open, you can avoid some costly mistakes.
In the long run, the business plan saves time and money. Therefore, you have greater credibility when talking with potential investors and lenders. Your confidence grows as a result of thinking through your assumptions, resource needs, identification of the customer, etc. You have answers to key questions and that increases your capability and credibility with those you seek to do business with. The business model, the how you make money, is important to gaining access to the capital you need through operational results (sales and profits) or from other sources (equity and debt).
Articles and Podcasts
- 10 Elements of Successful Businesses (5/3/2016) - While every business has elements that are unique to it. Every successful business shares common characteristics with other successful businesses. Concept The first element of a successful business is a clear concept of what the business is and does. This concept is more than the idea for a product or service or technology. It includes and understanding that there is a market need and opportunity that seems to have the potential for profit. In the initial stage of defining your business concept you may not know the true market potential, but you have identified through observation, trends, or personal experience ...
- Get Out of the Cubicle and Into (Your Own) Business (9/18/2015) - Listen to interview of author Lea Strickland by Tony Trupiano about the book Out of the Cubicle and Into Business. Strategic Leaders A Good Story, A Great Business From Ideas to Business
- Think B.I.G.™ (Bold Innovative Growth) Business! (7/31/2014) - Innovation is the new quality initiative. Everyone is “into” innovation. It is the new revolution that is going to revolutionize declining industries, markets, and businesses. And it can—if it is more than rhetoric and becomes an integrated systemic capability in the organizations that are “talking the talk.” However, like quality in decades past, the initial attempts at “innovation” have had more a resemblance to an elementary school play than an understanding and absorption of the underlying concepts, behaviors, tools, techniques, methods, and systemic process changes that characterize real world innovation in action. Throwing Money and Sameness at Innovation If traditional ...
- Small Business, Competitive Markets (7/31/2014) - While big businesses (especially those traded on public stock exchanges) get the press, the real news—and arguably the differences in day-to-day life and the economy—rest in the small business, in this country and around the world. The majority of existing and new jobs are in small businesses. Innovation and new technologies most often come from small businesses. Why are small businesses uniquely capable of creating the responsiveness needed by their customer, the marketplace, and doing so with the least amount of resources? Because they are small and have limited resources to use. Small size becomes the competitive advantage that ...
- Commercialization Components: Technology/Product and Business Model (7/31/2014) - Commercialization always involves two components – the technology or product AND the business model. The road to commercialization, however, differs for each business due to many factors: Type or nature of the product/technology/service (the “product”) Experience of founders and leadership team Market demographics Competition Alternatives Business skills, experience, and abilities Funding Proof of concept – business and product Product development – time, capital, etc. For a business to achieve commercial success (profits, cash, revenues, market share), both the process of making money and the technology have to work. Furthermore, the ways in which commercial success is achieved can vary: Sale ...
- Business Plans Are Not Academic Exercises (7/30/2014) - Under the current economic conditions, saying that funding is tight for early stage companies is the epitome of understatement. Yes funding is tight, but it is available for sound ideas with well-thought out businesses and experienced business people developing them. In fact in the February 2009 issue of Condé Nast Portfolio magazine, Kevin Maney writes that “companies that begin during bad times tend to be more purposeful and solid and have more potential to make a lasting impact than the tsunami of businesses that form during boom times.”[i] Businesses starting today must be of the stalwart and well-thought out nature. ...
- Building a Better Business (7/30/2014) - The better business is as much about the business itself as it is the product, service, or technology provided. Without a sound business model, the ability to produce, sell, and deliver the product to the customer—consistently and with quality—competing against other product offerings and other businesses is an uphill battle at best. The successful business, the better business, has to be able to distinguish itself from the multitude of other offerings, not only with its products, but also by how it does business and serves the customer. Profitable and with a Competitive Advantage From product design to customer ...
- The Business Plan “Audience” (7/29/2014) - Previous articles focused on considering a business of your own, defining the elements, planning for the business, and then developing the business plan. Last month's article ended by asking you to capture some of the questions and answers that you would ask of someone else if they came to you as a supplier, business partner, investor, or customer. Those questions and answers are key to understanding how to define and communicate with the target audience of your business plan. The level of detail in your business plan and the processes you undertake to write it are a result of who ...
- The Business Plan – More than Planning the Business (7/29/2014) - In a previous article, "Planning Your Business," the introduction included the basic elements to consider when starting your own business. This article delves into differences between “planning your business” and a “business plan.” Business plans presents every aspect of a business - what it is and does; how it markets, sells and delivers products or services; and the financial results of those activities. It includes staffing, spending, equipment, and other strategic and operational information. There are several options to get you started on basic elements of your plan - books, on-line resources, and courses. Most of these options expose you to introductory ...
- Planning Your Business (7/29/2014) - Three months ago, you were asked to think about the kind of business you wanted. In subsequent articles, you’ve been asked to gather information and understand some of what it takes to get a business started. Now it is time to take that step further and begin to plan the actual business. Each year many businesses are started, and many more fail. Sometimes, it is the "product" that doesn’t work. It is more common that the business model fails. The business model is the who, what, when, where, how much, and at what price of the why (product). Everyone has ...