At Gro, we talk a lot about great ideas, and how we can best bring those ideas to life by building them into powerful businesses. The reason we focus on great ideas isn’t so much because they’re an exclusive commodity, but instead because so often great ideas are dished to the side because they lack proper execution. The best way to bring your idea to life is to have a business model that takes into account the landscape of your industry.
So What Does a Business Model Really Entail?
In general, a business model can be thought of as a framework for how your product or service is utilized to create a profitable business. The usual point of emphasis within this framework, and indeed what many people are wondering when they ask for your business model, is how you plan to make a profit.
At times, creating a Business Model can be difficult because there are many options that could make your business successful. You may have to try out a few different options before deciding which is best for your business, but luckily there are some good methods to help narrow down which Business Model may work best. Below are nine factors we recommend paying close attention to as you continue to think about how to monetize your business:
1. Understanding Customer Behavior
You should start by interacting as much as you can with your customer via methods such as surveys, pilot testing, and focus groups, so that you can properly understand your customer’s pain points. Using this information, you can organize your customers by their demographic, psychographic, and geographical information to create specific segments that you can use while interacting with your customers.
2. Value Proposition
Once, you have a better idea of what your customer needs are, craft a value proposition that helps you quickly articulate and position your product or service. This should be a clear and concise statement that quickly describes the problems your customers face, your solution, and the premier value of it.
3. Revenue Streams
It’s also important to understand where your money is coming from. Whether it be an affiliate based model where you generate revenue by driving traffic to other businesses, or a leasing business where you rent out your software or equipment in exchange for a one time or recurring fee. Take the time to explore all potential revenue streams and decide what makes the most sense for your business at this time. It’s best to stay simple at first, and focus on securing your first revenue stream so you have capital to invest back into your operations. As your business continues to develop, take note of what is and isn’t working and possibly explore other revenue streams that may make sense for your business.
4. Cost Structure
Define the costs associated with the operation of your business, including the fixed and variable costs. Also, it may be helpful to have some information of the economies of scale associated with your business, and how these initial costs might change as your business continues to grow.
Using Your Business Model to its Potential
The best way to think about your business model in relation to your idea is as if your business model is making the introduction between your idea and the world.
Say that you have an idea for a new book delivery service, that sends users a curated monthly package of five books on a completely random subject matter every month. You name the business Well Reads, and get to work launching the business in your home city.
This idea is great in concept, but so far it has no clear delivery mechanism. Some basic questions that you may want to ask yourself:
- How will my business be monetized?
- Who is my target audience?
- What channels will I distribute my product or service through?
- Where will I market my product or service?
To monetize Well Reads, you might for instance consider a subscription model to be the best method to monetize your product. It makes perfect sense, since your customers can sign up to receive their monthly book package, and forget about it until they get the package in the mail. But maybe when you survey your target market, you discover folks only want to buy packages certain months, and they would rather opt out if the topic of the month was, say, knitting. Perhaps instead they’d rather wait to be notified of each month’s topic, then make their purchases on a case by case basis, known as a pay as you go model. Although you might miss out on consistent purchases, the lifetime value of some purchases is far better than having none at all.
And who is Well Reads target market anyway? Maybe you’d expect the target to be an audience of 45-64 year olds in suburban areas. Perhaps this assumption is correct to an extent, but after conducting more customer discovery, you find that 25-34 year old professionals just entering the workforce also have a demonstrated need for curated book collections. Likewise, there might also be evidence to suggest that some of the older members of your initial target market still prefer to find their books in brick and mortar locations, and your offering isn’t as appealing to them.
There are plenty of options to consider carefully before determining the best direction for your business idea, and even a basic business model can be of tremendous value in helping you narrow down the best option. An important note to keep in mind as a startup is that the contents of your business model are forever changing, and should serve as a guide to help you navigate your next steps, rather than an anchor in keeping you from proceeding.