Business Model–How to Determine Yours
Business model. Ugh! What’s that? You must determine your business model or risk a floundering startup. It’s the way you intend to generate revenue and profits as well as how you plan to deliver your value proposition to your customers.
The business model expresses the logic of your business.
Remember, you are going to need to offer your customers more in use value than in cash value.
Think about it. Of course, there will be payment, but the transaction needs to be a pleasure, not a pain. The whole idea is to increase gains and reduce those pains.
Most of us who start a business are thrilled by the idea, in love with the product and eager to get out there selling it. The trouble that the world we confront is an infinitely complex system and we have to ensure that all the moving parts are working to our advantage.
Defining your business model is how you
- identify your market;
- define and differentiate your products;
- get and keep customers, creating utility for them;
- how you get to market: promotion & distribution;
- how you define what’s to be done;
- the way you will set up your resources;
- how you’re going to do all this at a profit.
Business Model Canvas
The Business Model Canvas, developed by Alexander Osterwalder and Yves Pigneur (see their book, Business Model Generation), is a critical tool for you to use. You can download it as a poster for working with your team to create your ideal business model and be done with outdated ones.
Even better, you can use the free cloud-based Canvas from Canvanizer. It’s a super easy tool for a complex job and you can use it on your own or with others. It’s a snap to use and you be up and running in seconds.
The entrepreneur has a clean sheet on which to design the business model. The choice is almost infinite between adopting a known or proven model used by established firms or what is called in the jargon, a disruptive model, that follows no existing models, or combines elements of existing ones in novel ways.
This process, best done using your team members, is very powerful. I use it with startup clients and entrepreneurship students. I just found this video shot inside a three-bedroom house in San Francisco where 18 entrepreneurs from around the world live and work and use the business model canvas.
Two Vital Books–Must Haves
Alex Osterwalder and his team developed the Business Model Generation concept and the Canvas tool. Now they have produced a sequel in book form: Value Proposition Design, with its own Value Proposition Canvas. Both are invaluable and may be the best single purchase in your pre-startup phase, and probably afterwards, too.
Business Model Help
I use the Business Model Generation concepts and ideas with my MBA entrepreneurship and strategy students. They, too find it extremely useful, not only as an effective tools, especially when they work in teams, but flying solo, too. If you would like me to help you with business model development, all you have to do is ask me!
To guide your thinking, here are several business model dimensions against which you can set your own business. None of these are mutually exclusive or complete. You will decide where you are on the dimensions relevant in your marketplace.
Own Production–Outsourced–Multiple Sourcing
Price Elasticity–Price as Marketing–Commodity Pricing
Single Sale–Repeat Sales_Subscription–Membership
Bait-and-Hook (e.g., printer/ink)–Reusable–Disposable
If you follow the excellent advice in a book called Blue Ocean Strategy by Kim & Mauborgne, you will go for the uncrowded waters, unless you have a product, price or delivery model that cuts through the crowd. The authors and their team at INSEAD business school developed the Buyer Utility Map (shown in the graphic by Zanthus). You can use the map to aid your own strategic thinking.
Given that your business model design may come to you in a blinding flash, chances are high that working it into usable form may turn out to be quite complex. Maps like the one above or other tools can be very helpful in breaking through. Mind mapping may be a way to go. Though not specifically designed for business modeling, you may find that the free mind mapping tool, XMind that offers a brainstorming tool as well and both can be exported to a PDF, Word or Power Point (XMind Pro at a small fee offers even more). Another free option is FreeMind, that will also help you visualize you business. It is particularly useful to those who like working intuitively. You right-brainers will love it.
Business Model Planner: if you are impatient to get on with refining your own business model, help is at hand. You can make direct use of the Startup Owl’s Business Model Planner. And the Startup Owl’s Business Plan Outline Tool sets out the chapters that would be expected in a formal business plan. This may also help you see the logic of spending time figuring out a clear business model.
Help, counsel and support is available: I have knowledge and experience of working business models in many different settings and teach the ‘stuff’ on an MBA, so could probably help you work on refining your own business model, probably using the BM Canvas, among other tools.
Ofter entrepreneurs are so enmeshed in the knitting of their business that an outside mentor can help ask questions irreverently. Such questions may lead to new insights about the distribution channels, market segments, alternative pricing models and other issues that had seemed fixed.
Feel free to try me out by writing to firstname.lastname@example.org.