uodated: crafting your business model

Crafting Your Business Model

Marty KaszubowskiPresident, General Ideas

A Startup Is a Temporary Organization Designed to

Search for a Repeatable and Scalable Business Model

• Failure is an Integral Part of the Search for the Business Model

• No Business Plan Survives First Contact with Customers

• Preserve Cash While Searching for a Repeatable Business Model. After It’s Found, Spend

• Communicate and Share Learning

• Startups Demand Comfort with Chaos and Uncertainty

Per Steve Blank, et al

But not all startups are the same!

There are six distinct organizational paths for entrepreneurs:

1. Lifestyle business

2. Small business

3. Scalable startup

4. Buyable startup

5. Large company

6. Social entrepreneurPer Steve Blank, et al

Types of startup ventures

1. Lifestyle Startups: Work to Live their Passion.

Examples: Professional Photographers, Healthclubs, Surf Shops, Ski Instructors, Golf Pros

2. Small Business Startups: Work to Feed the Family.

Examples: Restaurants, Clothing stores, coffee shops, Cleaning Services, Contractors, Taxi Cabs, Consultants

3. Scalable Startups: Born to Be Big:Examples: Google, Facebook, Skype, Apple, Ford, Boeing, Мобильные Телесистемы, SoftServe, etc.

Types of startup ventures

4. Buyable Startups: Born to Flip:Examples: Tumblr (acquired by Yahoo), Instagram (acquired by Facebook), Groupon (should have taken the offer from Google!)

5. Large Company Startups: Innovate or Evaporate:

Examples: Boeing (satelites, rockets), Ford Motor Company (Ford credit), Apple Computer (iPod, iPhone, iPad), Hewlett Packard (printers), Research In Motion (?)

6. Social Startups: Driven to Make a Difference:

Examples: Tom’s (shoes), Ethos (water), Husk Power Systems (electricity generation)

Which type are you planning to build?

1. Lifestyle business

2. Small business

3. Scalable startup

4. Buyable startup

5. Large company

6. Social entrepreneur

The best technology doesn’t always win …

Being first doesn’t always help …

A well-known brand is no guarantee …

Being well-funded won’t solve every problem …

All of the pieces have to fit

Value Proposition(s)

Key Partners

Key Activities

Cost Structures

Customer Relationships

Revenue Streams

Customer Segments

ChannelsKey Resources

What is a Business Model?

A Business Model describes how a business expects to generate revenue and profits.

Your Business Model details your long-term strategy and day-to-day operations.

What is a Business Model?

A Business Model is an opportunity to innovate just as you do in your products.

A Business Model will evolve as you gain experience and as your market changes.

Like your products, it will probably take several versions to get your business model right.

You get better with practice.

Why do you need a Business Model?

You can’t succeed in business without one … Deliver value to

customers at a reasonable price

Maintain costs low enough to make a profit. It’s not enough to have the “coolest”

productIt’s not enough to be “a solution looking

for a problem”Every investor will expect you to be able

to describe how you plan to make a profit!

A Business Model describes the

rationale of how an organization

creates, delivers, and captures

value

Without a viable business model, your startup is just a dream.

You will see many descriptions of Business Models

You will see many descriptions of Business Models …

A Taxonomy of Business Models

Transplanted Real-World Business Models The mail-order

model The advertising

based The subscription

model The free trial model The direct marketing

model The real estate

model Incentive scheme Business to Business

Combinations of the above models

Native Internet Business Models The library model The freeware The information

barter Digital products and

the digital delivery model

The access provision Web site hosting and

other Internet services

A Taxonomy of Internet Commerce, Paul Bambury, 2006

The Business Model Canvas

Business Model Generation, Osterwalder, Alexander & Yves Pigneur, Wiley, 2010

9 Elements of a Business Model

1. Customer Segments are the specific types of customer your product or service helps to solve a problem

2. Value Proposition is a description of the problem you solve, why your solution is unique and why a certain customer segment will care.

3. Channels are the way your product or service is delivered to the customer


4. Customer Relationships describe the specific “feelings” your product or service creates for your customers.

5. Cost Structure describes all the costs incurred to operate the business.

6. Key Resources are the assets (inputs) you need to create and deliver value to your customers.


7. Key Activities are the things you and your team must accomplish to create the value you hope to create.

8. Key Partnerships describe the external organizations you need to align with to help your goals.

9. Revenue Streams are the (many?) ways customers pay for the value your product or service creates.

Focus – The Revenue Model

There are a (seemingly) infinite number of ways a company can make money, but they really all fit into eight categories:

1.Unit sales: Sell a product or service to customers.

2.Advertising fees: Sell others the opportunities to distribute their message on your space.

3.Franchise fees: Sell the right for someone else to operate a version of your business.

4.Utility fees: Sell goods and services on a per-use or as-consumed basis.

Focus – The Revenue Model

5.Subscription fees: Charge a fixed price for access to services for a set period of time.

6.Transaction fees: Charge a fee for referring, enabling, or executing a transaction between parties.

7.Professional fees: Provide professional services on a time-and-materials contract.

8.License fees: Sell the rights to use intellectual property.

Some Business Model Examples

Product or ServiceThe Long Tail Multi-Sided Platforms“Freemium”“Bait & Hook”Open Source

You will see many descriptions of Business Models

Some things to consider

How well does your Value Proposition achieve the result your customer seeks?

How many people or companies are there with a similar need?

How much importance does the customer place on the need and does she have a budget to spend on it?

Some Questions to Ask Yourself

How much do switching costs prevent your customers from leaving?

How scalable is your business model?

Does your business model produce recurring revenues?

Do you earn before you spend?

How much do you get others to do the work?

Does your business model provide built-in protection from competition?

Is your business model based on a game changing cost structure?

A Final Consideration … Simplicity Rules!

The winning model almost always emphasizes simplicity over complexity:How can you take steps out a process?How can you save your customer from having to learn or

remember something?How can you keep your product focused on doing a single

thing very, very well? 1. Go end-to-end. Consider the entire customer

experience, from first contact to final support.2. Cut it. Eliminate features and services that don’t get

used.3. Specialize. Focus on what you know, and outsource

the rest.4. Don’t get distracted. It’s too easy to compromise;

always reduce clicks, messages, prompts, and alerts.5. Measure and Fix it. Constantly ask yourself, can this

be done any simpler?

Questions?