“All existing business models are wrong. Find a new one.”
– Hugh Macleod
Welcome to Module 4: Business Model
Once the problem has been identified and your solution has been validated by evaluating the market opportunity, the next step in the commercialization process is a review of your business model. In other words, why will customers purchase your product or service and how will you make money? This question can be answered by defining your Value Proposition. The Value Proposition defines how your business satisfies a need and delivers unique and valuable benefit to your target market. Crafting an innovative Business Model and Value Proposition will provide a true differentiator by creating new markets or changing the normal course of business in an existing market. One of the best examples of the power of an innovative business model is Dell Computer. Dell created the made to order PC market and now dominates the industry.
So what is a business model anyway? Technically, it is defined as, “a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.” Practically speaking, we are all in this for the same reason, right? To make money. If you can’t build a solid model that can support profits, you have an idea but not a business. There are many ways think about this topic but if you break it down into a few key areas, the strengths and weaknesses of your model will be clear. Think about how you will generate revenue; the uniqueness of your offering; your costs to achieve this revenue; the cost to reach your customers, profit margins, and how much investment will be needed to launch and execute.
A compelling Business Model addresses the following:
- Can you price your product or service clearly?
- The Value Proposition has been identified.
- Cost of goods (expenses related to building the offering) can be identified and are within boundaries that allow you to price your product or service competitively.
- Expenses related to reaching your customers (awareness and delivery) are reasonable and fit within your revenue projection.
- Once you get rolling and start growing, profit margins are strong.
- Break even (cash flow equals expenses) can be achieved within a reasonable time based on your projections.
- You can access the money required to execute on this plan and reach cash flow break even (internal resources or outside investors).
If you haven’t already downloaded the the StartUp BreakDown template, I recommend you do so right away. This fillable form will allow you to take the lessons from each of our 8 modules and apply them to your business idea. By the end of the course you will have created a customized business summary and analysis for your concept which will put you on the path to success!
— Craig Markovitz
Click to download your very own StartUp BreakDown template. Take the lessons from these 8 modules and apply them to a framework for your business or idea!