Many people make the mistake of starting businesses without understanding the model first. They then get surprised when they realize how hard it is to actually run it. They might find out that margins are much thinner than they expected or that there’s less demand for their products and services than they thought. Understanding a business model will allow you to get a better idea of whether you’re cut out for it and if you have a true chance at succeeding. It will also allow you to better prepare for the obstacles that might stand in your way. Let’s take a look at a few things you should consider when choosing a business model.
What’s the Value Proposition?
This is probably the single most important question that needs to be answered when starting a business. In short, the value proposition is the reason why your business exists and what needs it aims to fill. More broadly, the value proposition is what separates your business from others and why customers should choose your business over the competition.
For some people, the value proposition will be lower prices. Others will focus on faster delivery and more convenience, or they will emphasize the fact that they use local workers or suppliers. Once you’ve found your value proposition, we suggest that you use a business model canvas and make the value proposition central to it. Here’s a business model canvas example you could use. This will allow you to stick to your business’s mission and identity while having a clear view of all its moving parts.
How Are You Going to Make Money?
This is the second question you should ask when looking at a business model. This might seem like a simple question at first glance, but it isn’t. If you want to build an app, for instance, then you could decide to go for a freemium model or a subscription. However, you can’t just assume that one or the other will work for you. If most of the competing apps are already doing what you’re doing for free and you expect to make money through subscriptions, you might be disappointed with the results.
You also have to be careful to not hurt your customers’ experience with your monetization model. You shouldn’t ask them to pay for a subscription and try to make money through ads as well, for instance. Another thing you have to think about is whether you will have to rely on return business or if you’ll be getting a lot of one-and-done purchases. This will affect how much time, money, and attention you’ll need to give to nurturing and monitoring customer relationships.
Is the Business Model Proven?
You should think twice about going for a business model that hasn’t been proven yet. You probably don’t have the resources to perform the kind of market analysis needed to tell whether there’s an actual need for your product or service. The better option would be to go into a niche that has proven demand with little competition. You’ll then be able to look at how other businesses in that space are generating revenue, replicate their model, and improve on certain aspects so you can stand your business apart.
These are all things you need to pay special attention to when looking at a business model. Doing so will greatly increase your chances of success and help you avoid unpleasant surprises.