Understand the first step to making your business a successful startup.
Are you an entrepreneur with a great business plan? Do you want your business to be a successful startup? Read on to understand the difference between a business plan and a business model. Learn how you can make the transition from just being good to being the best by having a solid, well thought-out business model.
Many successful startup business’s have a perfect business plan in place, but they fail because of the absence of a business model. A business model defines how you plan to create and deliver value to your customers. The questions hidden behind a business model, which you as an entrepreneur should be able to answer are:
Who are your target customers?
How will you reach and acquire your customers?
What value you will deliver to them?
How do you differentiate your products from others?
How will you deliver value to the customers?
What is your cost structure and profit margin?
There are many types of business models. The three basic business models are:
- Business to business: selling to other businesses rather than the consumer
- Business to customer: selling a product or service directly to the consumer
- Business to government: selling to the government
Any model that a business develops is a variant of these three basic models. What you need to decide is which model will be most suitable to your business and the type of product that you’re trying to sell.
Include a Timeline
One part of your business model is the ‘HOW’, how you expect to make money. The other crucial part is ‘WHEN’, when you expect the money to roll in. Some companies spend cash months before the revenue starts coming in. In order to prevent that from happening, include a timeline in your business model which should include:
- The setting up costs which you will incur, called the upfront costs
- Source of payment for those upfront costs
- A schedule outlaying your expectations of revenue stream
Timing is crucial for the success of any successful startup. Timing eventually decides your business’ fate and compares your expectations with the reality.
Decide a Payment Receivables Structure
There are a number of ways for your customers to pay you; an effective business model should have this detail covered as it will affect your revenue picture. The different options customers have are either to pay in one lump sum amount or to pay in monthly installments. There is also the option to prepay for unlimited use of a service. Sometimes a company may invite customers to finance their purchases or lease the product instead of purchasing it. Consider each option and the alternatives and evaluate the changes.
Testing Your Model
Once you have accomplished making your business model and it seems satisfactory, the next crucial step is to test it. This step is called ‘customer development’. It will help you bounce back and make any changes before you spend a lot of bucks by directly going into the market. Have a customer development team which will go out there and engage with customers. Set a minimum target of sales for them to acquire which will ensure the viability of your business model. If you have the facts, you are all set. Otherwise you need to step back and brainstorm further.
Remember that successful start ups can require changes and only the market will decide their fate. There is no point in having a product if there is no market for it. Have patience and understand that you don’t have to make everyone happy with your idea. There are many resources out there to visualize your business model which makes it easier to conceptualize and analyze the alternatives.
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