How to define your business: the three key elements you need
How to define your business: the three key elements you need
How to Define Your Business: The Three Key Elements You Need
Over the past few months, we’ve explored various ideas about business. We’ve looked at business plans and why every business needs one. We’ve explored how to write them. We’ve gone further than this and interrogated the questions you should ask yourself when starting a business, and we’ve outlined the different types of businesses one can start in America. It would be safe to say, though, that you can’t do any of that until you actually define your business.
It’s not enough to know what your business does and what it provides. Deeper than that, you need to know why, how and who. Why does your business do what it does? How does it do it? Who does it serve? How do you compare to other businesses in your industry? Where is your business headed? Where will it be in five years’ time?
There are three key elements you need to look at when you define your business. They are your business’s purpose, model and strategy. Without these it’s almost impossible to market your business, particularly in the digital space.
Definition: “an organisation’s meaningful and enduring reason to exist that aligns with long-term financial performance; provides a clear context for daily decision making, and unifies and motivates relevant stakeholders.” This is according to a two-year project in which the Chartered Management Institute (CMI) studied the UK’s top executives, and created their latest white paper, The What, The Why and The How of Purpose: A guide for leaders.
This idea of purpose speaks to five key areas in business:
1. Higher objective
As mentioned, purpose gives a business a meaningful reason to exist. This helps to tie together staff, team members and stakeholders. It also motivates people, like clients and investors, to invest in the business.
A company’s purpose will inform its values, aims, needs, and wants. It shapes how people view and interact with the company, because it behaves in a way that exemplifies its purpose. For example, if a business’s purpose is to provide people with healthy food, it may incorporate sustainability into its purpose, and only use recycled materials.
Purpose and profit go hand-in-hand. If a business isn’t profitable, it has no way of fulfilling its purpose. Similarly, if a business doesn’t have a clear purpose, it’s unlikely that it will make a profit.
A business’s purpose will dictate its values and objectives. It also establishes clear guidelines on how all involved should behave, and what they should be striving for. This means that there can be more autonomy within a company, because there’s clarity around where the collective is going.
Not all people believe in the same things or behave in the same ways. Everyone has a different way of reacting to decisions. When a company has a clear and unwavering purpose, individuals have to align with that. It means that even if they don’t agree with the decisions that are being made, they must protect the purpose above their own interests, beliefs and desires.
Once you have defined your business’s purpose, you need to establish a framework upon which decisions are made. A clear business model will help you to do this. It will also allow you to define your business’s values.
A business model is the conceptual way a business is structured, and it describes the how value will be created and delivered. It’s basically the outline of how your business will make money from its customers in a particular market.
The most common business model is commerce. This when a business sells products to its customers.
There are different types of commerce models:
· B2B – businesses sell to other businesses
· B2C – businesses sell to consumers
· B2G – businesses sell to governments
In e-commerce, another class has emerged, known as C2C. This is when a business creates a platform for consumers to sell to other consumers. Examples of this class of e-commerce are Uber, Etsy and Airbnb.
There are other kinds of business models. They include:
Subscription model – a customer pays a recurring fee for access to a service or a product
Bundling model – a company sells two or more products together as a single unit for a lower price
Razor blade model – companies offer a product, knowing that customers will continue buying expensive accessories
Product to service model – a company provides a result to another company or consumer, through a particular service
Leasing model – a company buys a product from a seller. The company then leases that product to another company
Franchise model – a business blueprint is bought and reproduced by the buyer (franchisee). The franchisee pays the franchiser a percentage of the profits
Distribution model – takes manufactured goods to market
Manufacturer model – converts raw material into a product
Retailer model – these businesses buy goods from the manufacturer and sell them to the consumer for a fee that will cover expenses, and make a profit
How do you choose your model?
There are no rules about the kind of business model you should follow. The one that is right for you will depend on your scope of operations and the costs you incur.
Some good questions to ask yourself include:
· What value does my business bring to the customer?
· How will my business make money?
· Who is my target market?
· What are the start-up costs of my business?
· What will be my fixed and variable costs?
· Do I need investor support?
Simply put, your business strategy is how your business will make money and give value to your consumers in a way that is better than your competitors. There are different strategies you can employ:
· You can sell your services or products at a lower price than your competitors
· You can be unique and sell a specialized product or service
· You can niche down and be the provider of a very specific need to a particular consumer group
Remember, people don’t buy things. They buy brands. You have to be able to articulate why your company exists. Your why is what will define your business, and go on to sell your goods and services. If your competitors can sell their why, their values, and their story then you must be able to as well.
Your products, services, and prices are important, as are your target market. Your model and strategies are also vital but when you have clarity around your purpose, that’s when your business will start to flourish.
If you’d like to find out more about the support we give to business in and around Washington, DC, visit our website.