Business Model Design
Have you determined how your company can “make money” in a startup venture?
The journey down the commercialization path begins with a vision of a strategic plan, which frames the information needed to assess the market opportunity for a particular innovation. Incorporated into this process is the search for an appropriate business model.
The simplest definition of a business model is a detailed description of how you will “make money” in your new business venture…
Once confirmed your product features satisfy target customer needs, that your projected cost of goods will allow competitive pricing, and that your “value proposition” confers an overall competitive advantage, all must now be translated through a sustainable, money-making business model.
The business model can be seen as a blueprint for the company’s cost structure, its selection of target customers and distribution channel, its core capabilities and outsource partners, as well as its revenue and profit model. An appropriate organizational structure and business operations are then designed and aligned to support it.
Literature provides examples of many well-known business model templates:
- “Razor & Blades”
- “Bait & Hook”
- “Bricks & Clicks”
- “Plug & Play”
- “Cutting-out Middlemen”
- “Value-added Reseller”
- “Freemium” Web Services
- “Direct Sales”
You can search the internet for a description of these business models.
Commercial Opportunity Documentation
Professional investors will want to be convinced that you and your team have invested adequate work in the evaluation, characterization, and reasonable definition of the various elements of your proposed commercial opportunity. Tools have been provided in other sections of this website to assist you in the analysis and documentation of Customer Needs Assessment, as well as the analysis of competition, value proposition, market segmentation, pricing and sales projections found in Commercial Opportunity Assessment and Market & Sales Projections. You will also need to document a similar level of evaluation into the selection of a sustainable business model that can extract the value you believe exists in your proposed product solution.
Business Model Canvas
The “Business Model Canvas” (depicted above) was initially proposed by Alexander Osterwalder as a strategic management template to assist in the evaluation and development of new business models.
Osterwalder described a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances. This brief, entertaining video by Strategyzer® explains how the planning tool is utilized. There are many versions of this “hands-on” planning guide available on the internet. Some can be printed on large surfaces for groups to jointly sketch and discuss business model elements, fostering an understanding of the process and encouraging creativity in analysis. Here is one depiction of this tool, with examples of information that would be relevant to each section of the canvas. Click on the image to enlarge the view.
The Business Model Canvas is also available in web-based software formats, as is found in this free application.
The Business Model Canvas concept was further popularized by Eric Ries in his book entitled The Lean Startup, where the phrases “minimally viable product” and “agile development” were also coined to describe the process of efficiently developing and launching new products
Steve Blank, in his Lean LaunchPad course, incorporates an additional concept into the search process for a sustainable startup business model — he refers to it as “customer discovery and development”. In its simplest form, the concept is to take an idea for a product or service and share it (early) with what you believe would be prospective customers. Getting feedback from the real world, possibly in parallel with early-stage prototyping, helps to better define your target customer and “shapes” your product concept toward a closer market fit.
In addition to his Lean Startup ventures, Eric Ries is an entrepreneur-in-residence at Harvard Business School, and Steve Blank is a serial entrepreneur and lecturer at Stanford University and UC Berkely.