You’re likely to change your business model several times, so you don’t have to make the right decision initially. However, starting a discussion of this topic is essential because it puts everyone in a money-making mindset. All employees should understand that a startup either makes money or dies. Website Development Silverdale believes that a good business model forces you to answer two questions:
Who has your money in their pockets?
How are you going to get it into your pocket?
These questions may lack subtlety, but making money isn’t a subtle process. More elegantly stated, the first question involves identifying your customer and the need that she feels. The second question creates a sales mechanism to ensure that your revenues exceed your costs.
The best list of business models that we at the website Development Silverdale has found is in a book called The Art of Profitability by Adrian Slywotzky. Here are our favorites from his book:
INDIVIDUALIZED SOLUTION. This involves a deep dive into customers’ problems and doing what it takes to make them happy. Over time a startup can add deep relationships with other entities to reach significant total sales, but each new customer involves hand-to-hand combat. (Slywotzsky calls this the customer solution.)
MULTICOMPONENT. Coca-Cola embodies this model, according to Slywotzsky. Coca-Cola sells in supermarkets, convenience stores, restaurants, and vending machines. The same product is sold in different business settings and at different prices per ounce.
MARKET LEADER. Apple embodies the market-leader business model. A market leader creates the most innovative and coolest products. Attaining this position enables a startup to charge a premium for its products, but it must work brutally hard to achieve and then maintain this position.
VALUABLE COMPONENT. Intel and Dolby don’t sell products directly to consumers, but their products are useful components in the devices they use. Intel supplies the computer chip for many hardware companies; Dolby provides audio-compression and noise-reduction technology for audio and video manufacturers.
SWITCHBOARD. Slywotzsky applies this term to describe an organization like De Beers when it controlled the supply of diamonds. This business model involves several challenges: achieving control of supply and convincing people that contain is desirable and not subject to antitrust issues.
PRINTER AND TONER. This business model involves selling a product that needs refilling. Whether it’s an HP printer, a Keurig coffee maker, or a SodaStream soda maker, a sale is not an event but a stream of revenue for the course of the product’s life. This can also apply to a startup that sells software and then charges for upgrades, service, and support. Slywotzky calls this the after-sale model.
There are a few other business models that are attractive too:
FREEMIUM. The freemium model involves giving away services, up to a point: when customers want more features or capacity or to remove advertising, then they have to pay. For example, Evernote enables people to store information in the cloud for free. However, if they want more storage space and more functionality, the fee is forty-five dollars a year.
EYEBALLS. The eyeballs business model involves providing a platform to create or share content that attracts viewers. The concept here is that certain brands would like to reach these same eyeballs to sell advertising and sponsorships on the platform. Facebook and Huffington post are examples of this business model.
VIRTUAL GOODS. Imagine selling digital codes for items that had near-zero cost of goods and inventory holding costs• —stuff like virtual flowers, swords, and badges for community members. That’s the digital-goods business.
CRAFTSMAN. Thomas Moser furniture is an example of the craftsman business model. This is the kind of startup that places the highest priority on quality and craftsmanship. It may never get large, but it’s the finest in its sector, although you never know with a marketplace like Etsy.
You’ll tweak your business model always—in fact; it’s scary if you don’t change your model or do some significant tweaking along the way. Here are some additional tips by Website Development Silverdale to help you during the process:
TARGET A SPECIFIC NICHE. The more precisely you can describe your customer, the better. Many entrepreneurs are afraid of too narrow and specific a focus because it won’t lead to worldwide dominance. However, most successful companies started off targeting a market or two and growing (often unexpectedly) to a large size by addressing other needs.
KEEP IT SIMPLE. If you can’t describe your business model in ten words or fewer, you don’t have a business model. Avoid whatever business jargon is hip (strategic, mission-critical, world-class, synergistic, first-mover, scalable, enterprise-class, etc.).* Business language does not make a business model. Think of eBay’s business model: charge a listing fee plus a commission. End of discussion.
COPY OTHERS. Commerce has been around a long time, so people have pretty much invented every possible business model by now. You can innovate in technology, marketing, and distribution, but attempting to develop a new business model is a lousy bet. Try to relate your business model to one that’s already successful and understood. You have plenty of other battles to fight.
EXPANSIVE. Business models involving creating a bigger pie rather than grabbing more of the same pie work better for startups. This is because customers expect to discover innovative and cool products and are less interested in me-too, better sameness from startups.
For more information on creating an effective marketing plan for your business, contact HyperEffects. We help enhance your customer service while building a sense of community, by getting a customer forum added to your company’s website. HyperEffects also helps companies get extravagant and enticing videos that could attract potential clients.