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Profitable and sustainable: Explore the keys to building a business model that can stand the test of time.
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MSME business models (BM)
MSME business models (BM)Click to read
Sidenote: there are also so-called ‘social enterprises’. Their primary goal is to have a social impact, and not to maximize profit for the sake of owners – yet they also have to have a good business/operational plan that allows them to be sustainable (see RESTART Training Module 5. Sustainable, social, and green entrepreneurship)
Basic modelsClick to read
The basic model differentiates between fix and variable costs:
Fix costs: that need to be paid regardless of how much product or service you sell.
One-time, set-up costs include legal fees for creating the company, logo and web design, etc.
Calculate all costs! Use online tools if needed. Consider cost-efficient solutions.
The basic model must be built on a preliminary market research that investigates in details:
Rules of thumbsClick to read
A business model is a general framework, a main and general approach to running your business. The business plan builds on this, with a more detailed and structured set of information, tailor-made for your business. In a slightly different approach, the business model establishes your revenue-making process while the business plan defines your goals and strategies. In all concepts, the business plan is derived from the business model.
When setting up your business plan:
Calculate costs and revenues on at least a yearly basis, better on a 3-year basis in order to:
Look at issues from all angles to find hidden costs and potential for additional revenues.
Differentiate between costs and investments! (in other terms: expenses and expenditures). Be motivated to cut costs where it does not hurt, but:
Typical ways to financing an enterpriseClick to read
Typical ways to financing an enterprise:
Traditional business models (BM)
Traditional business models (BM)Click to read
We call “traditional business models” the models defining our economies before they were completely disrupted by the emergence of transformative IT solutions – first the internet, then mobility, and nowadays ML and AI (machine learning and artificial intelligence).
In other words, the traditional models characterize the typical business behaviours we see throughout the 20th century.
Sidenote on industrial revolutions: throughout economic history, major innovations have forced existing business models to transform and adapt to new possibilities and conditions. Historians credit the emergence of farming, later the emergence of manufacturing responsible for a complete shift in existing “business models”. The first industrial revolution (due to the steam engine and mechanization), the second (due to the invention of electricity and division of labor in industries), the third (by establishing global production chains in the 2nd half of the 20th century), and the fourth (supported by IT and robotization) all forced economic actors to re-think their strategies and business models. The 5th revolution, driven by new IT developments and artificial intelligence, is at our doorstep – we are experiencing the shift to new models in our everyday.
B2CClick to read
In a B2C business model, the entrepreneur has to plan for….
B2BClick to read
In a B2B business model, the entrepreneur has to plan for….
FranchiseClick to read
In the franchise model, the entrepreneur has to plan for….
MSMEs in a domestic economyClick to read
When an MSME operates in a specific local environment - in its city, county, region, or country – it has to meet specific requirements:
Operating only on or below a domestic market also has advantages, compared to being an international/global economic player:
Business models of the 21st century
Business models of the 21st centuryClick to read
European and global marketsClick to read
The globalization of media and business in the 2nd half of the 20th century paved the way for the global production and innovation chains that surfaced at the end of the 20th century. This global economic model was built on optimizing cost-effectiveness (often neglecting the negative human, democratic and environmental aspects also associated with low-cost production).
While several events in the 21st century have slowed down or even turned back globalization trends (such as geopolitical events, the rise of China’s independent research, development, and innovation (R&D&I) capacities, the COVID-19 crisis, the realization of the effect of global transport on climate change, the current energy crisis and oil/gas dependency, etc.) several other factors further enhanced global production and distribution of products and services (such as wider and wider availability of broadband internet connections, the development of remote working and global, virtual teamwork (RESTART Training Module 1), overcoming several language barriers via machine learning technologies, etc.).
The European Union has made it a key priority to increase European economic competitiveness by creating the Single European Market, which is built on a common set of regulations and standards that allow European companies to relatively easily operate across borders, offer products and services, use banking, legal, taxing and consultancy services without the necessity of opening up daughter companies in each of the other countries.
To operate on the European market, familiarize yourself with the respective regulations, require an EU VAT number, and make a detailed market analysis of whether it is worth it for your company to invest in internationalization.
Not all new companies must directly compete on the global market, but the economic milieu, the availability of options, and general trends must make each new company aware of their position not only in the domestic but in the European and global markets as well.
Start-upsClick to read
Most businesses start as micro- and small businesses (though there are examples of the opposite as well, large companies created by mergers, acquisitions, or larger holdings breaking up). Yet, at a very early point, they can be set on one of two significantly different tracks: they either become a small business or a start-up.
What is the difference?
Start-ups build their business model on technology that allows them not only to duplicate or triple their economic performance but to multiply by tens, hundreds, or thousands in just under a short period of a couple of months/years.
Successful start-ups are often “born-global” – even from the start, they offer products – but much more often, services – that are demanded across the globe, maybe with minor localization efforts.
Start-ups are always very innovative and include a high-risk factor. Just a small share of start-ups succeed on the international, and an even smaller share on the global scale.
Start-up funding must include risk-friendly capital involvement at the early stages. A typical cycle:
Other new business modelsClick to read
The new business models described below are sometimes working independently, but sometimes as a combination of the models below. In each case, a unique decision must be made about the ideal combination of these elements.
The sharing economy as a business model is built on sharing resources, existing goods, and services among potential users. It is almost always built on the use of technology as a tool for sharing. Sharing may include the creation, production, distribution, sale, or use of the given products and services. The sharing economy can also be B2C (for example Airbnb) or B2B (e.g. coworking offices).
Promoters of the sharing economy often claim that it is a resource-efficient and environment-friendly solution. Others point out that the sharing economy often allows tax evasion and neglects otherwise existing industrial regulations.
Platform economy is similar to the sharing economy but emphasizes the role of the technological platform that connects the different small economic agents operating under the platform. Let it be Amazon or Uber, the platform economy allows individuals otherwise not capable of reaching a wide circle of customers to reach out and offer their products/services. The business model is also characterized by serious imbalances of power (between the platform and the individual players).
The on-demand model is also connected to technological developments. It offers a unique chance for the client to time the consummation of the product/service exactly to their preference. Modern food delivery services (foodpanda, Wolt) and streaming media (Spotify, Netflix, etc.) are built on this model.
Servitization and subscription model:
The servitization is built on the concept of re-interpreting traditional products and one-time services as a continuously provided series of services, usually by supporting ongoing improvements, updates, upgrades, maintenance, and customer service. They can be charged monthly, bi-annual, or annual subscription fees. Learn more about servitization in RESTART Training Module 6.
The freemium model offers a simplified construction of the services for a free subscription, but more advanced – premium – features are priced. This helps the branding, marketing, and communication of the service by getting it to a large set of customers while generating income from professional clients. Such examples are Spotify, LinkedIn or Evernote and many others.
Localization is built on the idea of a general product/service being adapted to the local environment, to the given specific societal-economic conditions (language, preferences, cultural values, purchasing power, etc.) In this case, you have to make sure that you have the legal rights to adapt the original product/service.
Setting up your own business model
Setting up your own business modelClick to read