Business Model Analysis

Business model analysis will help you to decide which business model is the best choice fo ryour new business.

Once you have settled on one or two ideas for your small business, the next step is to develop those ideas into a (hopefully) viable business model.

But bear in mind, your business model is really just a starting point. Once you have a clear idea of what you want to do, it its time to put in a little bit of sweat and tears to evaluate the business potential of your model.

Nicholas Humphrey (2004, p. 16) recommends a five step business model analysis process to systematically evaluate new business ideas to develop your start up concept.

Step One: Personal Considerations

Even before you can decide whether or not your business idea is a good one, you have to ask yourself three questions.

1) Do you have the necessary skills?

There is no point in developing a business start up concept that involves designing purpose built beach houses if you do not have skills of an Architect.

2) Will the business hold your interest?

Even if you are a qualified architect, there is little point in developing this particular business start up concept if the main reason you are developing a small business concept is that you don't actually like designing houses!

3) Do your friends and family think it is a good idea, i.e., will they support you?

A brand new small business will eat up your waking hours and chew through your cash. Are your friends and family going to be able to put up with that?

Step Two: SWOT Analysis

Strengths, Weaknesses, Opportunities and Threats. Sounds good, but what does that actually mean?

In a nutshell, SWOT Analysis involves identifying the strengths and weaknesses of your proposed business (internal factors) and the threats and opportunities in the environment (external factors). The idea being that you should take advantage of your strengths and any opportunities in the market. Fix or minimize any weaknesses, while doing everything possible to counter potential threats.

Step Three: Is There a Market?

This one is important. Unless there is someone out there (many, many someones actually) who is prepared to buy the product or service you are offering there is no point in opening your doors. Market Research is critical when evaluating your business model prior to startup.

Step Four: Financial Viability

So you have found a gap in the market (or are duplicating a existing business idea, or have created an innovative new twist), and you know who your customers are and why they will be prepared to buy off you instead of Bill Bloggs. Looks good, but will you actually make any money doing it?

To answer this question you need to know whether or not the business will generate enough revenue to cover costs and return a profit.

Step Five: Comparability

This step involves comparing the small business models you have generated, to select the best one for further business model analysis. Of course, it only applies if you are trying to decide between two or more models.

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