5 Business Model Components Every Entrepreneur Needs

1) Your Revenue Model

In a nutshell, this is your strategy to generate revenue. What you plan to sell, and what will convince people to buy. Value propositions, positioning, effective messaging, product/market fit.

2) Your Gross Margin Model

It is important for you to know how much of the pie you get to keep from each sale. Do you know your piece of the pie? For example, Walmart and Costco know they run low gross margins. Their value game is one of low pricing, so they can’t mark up their products by an exorbitant amount and still play the value card. However, let’s look at the legal service industry. It has, on average, a gross margin of 93.22 percent, according to Butler Consultants.

3) Your Operating Model

If you’re Costco, it’s slash and burn the expenses. Which is why they operate out of huge bare warehouses with pallets stacked high of goods. No thrills, no frills, stack ‘em high, watch ‘em fly. However, if you’re in the legal service industry, it’s all about high style and lavish surroundings. Ever visited big law firm on the top floor of a downtown New York highrise where both the views and service is breathtaking? Both businesses operate and make decisions based on the knowledge of their operating model. Do you have a clear understanding of yours?

4) Your Working Capital Model

Indeed, ‘cash is king’. Do you understand your cash flow requirements? As you may or may not know, cash flow is significantly different than ‘revenue’. For example, if you operate a bricks-n-mortar retail store on the main street in your town, you experience first hand the need for cash. You must spend cash to fill your store with product so it’s available when a customer walks in ready to buy. 

5) Your Financing (or Investment) Model

Number one roadblock I hear business owners complain about is lack of capital. Yes, it sometimes does take money to make money. But not always. So to understand the difference is key. For example, say you want to build a better hotel chain than Marriott or Hilton. Well, I can tell you this you are going to need some serious upfront financing to even stand a chance to pull it off.