Launching a successful startup is hard. This is especially true for new products in new markets. Following a structured approach to developing and testing your business model increases your chances of success.
The Business Model Canvas
The Business Model Canvas is a tool developed based on the experience of thousands of successful entrepreneurs from around the world. It dissects a business into nine core parts that, whey they click, lead to a successful endeavor.
1. Value Propositions
Successful startups offer value to their customers. A value proposition describes the problem(s) the company is organizing to solve and what product(s) will solve that problem. It should be narrowly focused, based on the customer segment. Keep in mind, that a value proposition is not the same as a feature.
2. Customer Segment
Who cares about the problem you’re trying to solve? That person is your potential customer. When modeling your business, you want to map value propositions to customer segments. These segments should be as specific as possible; for instance ‘everyone who…’ is not typically enough specificity. ‘Account managers at mid-sized manufacturing companies with at least $10 million in revenue’ is much clearer.
Once you’ve identified a customer segment for whom you want to solve a problem, you need to know how you’re going to reach them. SEO? Cold calling? Inbound marketing? You can have a great value proposition, but if you can’t reach your segment, you can’t grow your business.
4. Customer Relationships
What kind of relationship does your customer expect to have with your company? Are you offering full-service? Self-service? Will customers be expected to do their own installs, but want resources from you? Thinking about how to maintain an ongoing relationship with your customers ensures you’re continuing to deliver the right value. In many cases, too, it’s cheaper to keep and upsell existing customers than to acquire new ones.
I’m surprised at how many people I talk to about their startups that don’t have a revenue model. This is a really big oversight; there is no business if there is no money coming in the door. A key part of the business model is knowing how you will make money; that is, who will pay for you to offer your value proposition.
6. Key Partners
In many cases, you won’t be able to execute your value proposition alone. You’ll need help, whether it’s channel partners, vendors, or even your customers themselves…it’s important to think about whose help you need. It’s equally important to think about what you offer your partners that incentives them to want to work with you.
7. Key Resources
What resources do you need to execute your value proposition? If you’re building a platform, do you need developers? If you’re building a new data model, do you need data? If you’re building hardware, do you need suppliers or transportation accounts? Every business has inputs, what are yours?
8. Key Activities
What activities do you need to execute to realize your value propositions? Is it daily blogging? Is it cold calling? Is it training predictive models? Is it manufacturing? While your key resources guide what materials you need, the key activities guide how you will spend your time.
9. Cost Structure
To entice partners, procure resources, and executive activities, you need money. Your cost structure describes how much money will be spent and on what partners, resources, or activities. In the long run, your costs should be lower than your revenue, creating a profit. And the profit is the part that allows you to buy a villa in Italy.
Launching a successful startup is difficult. Successful companies figure out how to address these nine issues in a way that allows them to be profitable over time. As you prepare to launch your own startup, make sure you take each of these components into account.
Business Model Breakfast
Interesting in launching your own startup? Have a business idea you want to bat around? Then join the Lansing area Business Model Breakfast each Thursday and join other folks in the area interested in doing the same.
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