How to Choose the Right Business Model for Your Startup?
What Is a Startup?
A startup is a company or project which is started by an entrepreneur to develop and validate a scalable business model effectively. Entrepreneurship is a broader term that covers all the new businesses that are looking to grow abundant beyond the solo founder.
In initial days startups had to face high uncertainty and have a high failure rate, but at the same time, a tiny proportion of them become successful and influential.
Some startups grow so much that after some time, they become unicorns, i.e., privately held companies valued nearly about US$ 1 billion.
What Are the Essential Things to Look at While Choosing a Business Model?
The main focus of many technical startups was have been on building an innovative product. Still, in the meanwhile, they forget that an elegant solution doesn’t always automatically translate into a successful business.
A classic business model with the right price, messaging, and delivery channel to the right target customers to keep the dream alive and to grow is also a necessity of successful business.
The definition of the right business model requires the same amount of diligence as required for designing the right product. Just the approach and skills which are required are different; for this reason, investors regarded that the two co-founders are far better than one.
One will focus on defining and building a suitable business model and other focus on the solution of technical issues.
These two jobs should be done in parallel. This approach of dual leadership is quite beneficial to avoid the frustration, for example, in a startup a few years ago where beta customers loved the software solution as an unpaid prototype.
Still, they can’t be able to sell even one in the first few months at a price which looked reasonable for all workers and customer segment. In the terminology of the business community, all this is known as proving the business model.
Validating a business opportunity is its first step (a large customer segment of customers is willing to pay to solve the real problem).
In the same fashion as your proof of concept or prototype helps you in validating your technical solution.
Given below are the seven steps that one should be kept in mind while choosing the business model for your business.
Scale the Value of Your Solution in the Segment to Be Targeted
Customers often complain that the present approaches are not integrated and innovative, but the old solutions may be familiar and locked in. Costs should be estimated along with a 50% gross margin, as a lower bound on a price.
Such products, which are expensive as compared to market standards, won’t survive for a more extended period, and at the same time, too low prices will leave you exposed. So for survival in the market, you have to compete for the trend of cost and also take care of market demographics.
Make Sure That Your Product or Services Which You Provide Will Solve the Problems of the Customer
Once you have an alpha version or prototype of your product, expose it to the real customers to the response. If you get the same delight and excitement in response that you are feeling, then it means that your product is up to the mark, and you have done your job superbly.
Always welcome any suggestions on how you can make it better and presentable. Even the best of the best business model becomes useless and can’t save your business from becoming bankrupt if your product doesn’t work or relive the pain.
Testify Your Support Strategy and Channel
This the right time when it is quite suitable to pitch the whole business model to a bunch of customers or specially chosen focus groups.
This not be the pitch of the product, but it also has all the elements such as marketing strategies for your startup, pricing model, maintenance, and distribution. It is another chance for you to make the pivots for negligible cost.
Consult with Industry-related Experts and Investors
It is handy to have outside people with expertise in your business domain as a small advisory board because they provide you the honest feedback which you require and also the connections to set up the distribution and sales channels.
Taking opinions from the potential investors for their views can also give you better ideas even if you are bootstrapping this effort.
Planning and Execution of a Pilot and Local Rollout
Better traction based on limited rollout is good for the validation of a business model. It gives you the luxury to analyze the costs, quality of the product, pricing in a single city, or few shops with minimal jeopardy and the maximum speed for corrections and recovery. You should save your viral campaign and significant inventory buildup for later stages.
The Focus Should Be on the Collection of Customer References
Pay a great deal of attention to the first few customers and demand for publishable testimonials and word of mouth support in return. If you aren’t able to win their support even with your potential, then take it as a red flag that the business will not get scaled at a level at the rate at which you have imagined.
Your Target Should Be National-level Trade Shows and Industry Association Groups
Positive feedback, visibility, and credibility form the different organizations are suitable for the final validation of your business model and product model as well, in the context of big competitors.
It might be a good source which acts as a vital portion of the final rollout and for efforts to scale up the business. Your business model can be a better sustainable competitive advantage than the features of your product, or sometimes it can be a significant source of risk exposure for you and your business.
However, it remains light on business model details and innovations. You are only half prepared for the challenges of the real business world of today if you or someone from your team hasn’t spent enough time and effort on the business model.
How Many Startups Are Launched in the World per Year?
Approximately 100 million startups get launched around the globe per year, which is three startups per second. So without any doubt, a strict competition is there in the world for the growth of entrepreneurs, and that’s why you have to make sure the business idea which you are going to launch fits well in the existing market.
It is essential to understand the economic worth of the product, service, or technology before starting it into the market. It helps you to assess the total revenue generated from it and how much profit you will get.
It becomes a lot easier to predict the revenue generation of the business, and it also allows you to remodel and innovate your business plans according to that if the expected revenue is not what you are aiming for.
Factors Which Can Affect Your Business Model
- Designing and manufacturing of the product
- Sale of the product
- Generating money from it
- The customer
- The value proposition
- Nature of the market
- Measure of scalability
- Monetary and non-monetary costs
Basic Business Models
It is a business model in which the owner can make and sell its products and services. It is the most common and frequently used model.
For example, Evernote is a software making company that produces and sells stunning software products.
They use the technique of free up-gradation for its distribution. A marketing consultant sells his consulting engagements and charges per month.
Services and products can also be packed and distributed through various channels and can be delivered in physical form as well. Digital form and as a one-time purchase or continuous subscriptions also feasible in the product service model.
In this model, the owner manufacture or even warehouse the products they sell. They look for the products or become representatives of different well-established brands and make a profit based on the price difference.
One prominent example of this model is (Affiliated Marketers) which are commonly known as VARs (Value Added Resellers). For instance, the partners of the Microsoft Company who sell and install the products and add services like customization and training to value add the first product.
It is a business model which essentially brings seller and buyer together try to make a deal between them and take its transaction fee. They may also provide services that make a transaction completion more smother such as the case of real estate agents.
This category has grown at a rapid rate as the trend of online business platforms has gained popularity. PayPal is an excellent example of this model that provides services between a buyer and a seller, and in this case, money is exchanged actually.
An aggregator startup first builds a community and then take charges for accessing the community. Publications and news websites are an example of this model as they make the subscriber base first and then charge from advertisers to gain access through positioned add to their community. Other examples are Shopzilla and daily deal websites like woot.
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