5 Steps of Analyzing the Business Model

There are 5 key steps to take when analyzing a business model.  Over the years, we have helped a wide range of small business owners and found these 5 steps to be very helpful.

Defining the Ideal Customer

The key questions to ask yourself:

• Who is the most profitable target?
• What motivates them?
• How do we satisfy both their rational and emotional needs?
• What is best way to identify them?
• After you have identified them, you need to ask yourself how best do we cultivate these relationships?  How do we convert them? Then, finally, what does it cost to acquire, service, and maintain them? That is the first step in analyzing your business model.

Generating Value

What you should ask yourself:

• The second step in evaluating your business model it to understand fully how we create value in the customer's mind differently from everyone else. Here are a few points to consider:
• Identifying & Defining the Value Proposition: What need(s) do we solve, how, etc?
• Outlining Product/Service offering(s): Current & Future
• Customer satisfaction with our current offering(s): Current & Future
• We offer some free tools that might help you with this section.

Delivering Value

This is how you know that you are delivering value:

• The next step in analyzing your business model is to explore in detail how you deliver the value you generate to your customer. This section gets into the nuts and bolts of
• Capturing all the activities required to deliver value
• Outlining all the resources required to deliver value
• Naming the key external partnerships: suppliers, distributors, etc.

Realizing Value

Realizing value is how you monetize your product or service

• The next to last step in analyzing your business model is understand how you turn that value into cash.
• How much does it cost us to manage all the steps of generating and delivering value?
• What are the overhead costs that are not related to generating or delivering value?
• How do our customers pay, and how long does it take for us to receive it?

Financial Analysis

Financial analyses are not usually the most fun, but they are needed

• The final step in analyzing your business model is to conduct a financial analysis of your key documents: the income statement, cash flow, and balance sheet. In conducting this analysis, it is helpful to ask:
• How do our ratios compare to the competition?
• Do we have enough cash flow to deal with short-term surprises?
• What are our trends? Revenue?  Profit?  Costs? Net Worth?

Analyzing your business model can be tough. There are free tools available for SBA and SCORE. It is hard to be impartial, and sometimes our eyes don't see what they don't want to see. It can be helpful to have an outside perspective, who is not so invested.