Be stubborn about your goals, and flexible about your methods.
It was famously once said that 'those who fail to plan, plan to fail' and the same is right for business.
Every business needs a plan. But, it doesn't have to be a 50-page detailed plan, a one-page plan can be just as effective and useful. The key is to be able to answer the questions for the main elements that are critical to a successful buisness.
In this module we look at the 3 big questions of business, but also we dive into more detail around how we answer all those questions in detail to fully understand what your plan is for your business.
How will you do it? - Building the business mdel
How will you sell it? - Testing the market
How will you look after the money? - Building your revenue model
A business model is how a company creates value for itself while delivering products or services for its customers, and is this section we will look at the one-page Business Model Canvas which looks at all the key elements and questions you need to consider at the start.
And then you're going to do customer validation and actually see if your proposed solution actually matches what you think the customer problem was. We're trying to understand did the results match the ideas in your business model canvas? And if not, what do you need to add/change?
You want to identify who your customers and markets are, and you have, but you now want to size the market, look at competitors, and figure out whether this market could grow, and how you attract customers.
We will look at figuring out how do you actually make money from your product and service being sold to customers? How are you going to sell it to them? And what value are they getting.
By the end of this module you should be able to complete all the essentials of a business plan, no matter how big or small you want it. And you will understand the need to be flexible in your business and your model, in order to adapt to customers and changing markets.
A business model is how a company creates value for itself while delivering products or services for its customers.
One of the most valuable and revolutionary developments in the start-up space has been the development of the Business Model Canvas.
The 9 building blocks of the Business Model Canvas are:
who are your customers?
what are your key activities?
what value do you add?
what communication and sales channels do you use?
what relationship do you want with your customers?
what revenue streams are you creating?
what resources have you got?
what key partnerships have you got?
what do you spend your money on?
For detail on each section of the Business Model Canvas watch the short video below, and download your Business Model Template to complete your own plan.
Business Model Canvas - Video Module
Business Model Canvas
The first step of any Market Testing is customer discovery. This is where you construct your assumptions and plans of what you think your customers will want, and you get out of the building and start testing your assumption about whether other people have the same problem or need you think they have. And then you're going to do customer validation and actually see if your proposed solution actually matches what you think the customer problem was.
We're trying to understand did the results match the ideas in your business model canvas? And if not, what do you need to add/change?
Do people agree that you're solving a high value problem or need, and do you understand your business model enough to start test selling, which is the next step in customer validation.
What people say they want, and what they actually want are not always the same thing. Your job is to pay close attention and to figure out the difference.
One of the things you need to remember to think about is how big is this opportunity? That's just a fancy word for saying when you're all done and you're spending the next couple years in the startup are you going to make a few thousand, or are you going to make a million? That is, how potentially large is the opportunity? And so what we really want to do is do what we call a market and opportunity analysis.
You want to identify who your customers and markets are, and you have, but you also want to size the market, look at competitors, and figure out whether this market could grow.
Market Testing - Video Module
Profit is the difference between how much is costs you and how much you sell it for.
The next thing to consider after you have a interesting product that fits a need, is revenue streams. How do you actually make money from your product and service being sold to customers? You know revenue streams basically ask the question what value is the customer paying for and then actually as you think about what's the strategy of how I'm going to capture that value. Is it I'm going to just have a direct sale or it's a complete transaction based on price? Is it a freemium model where I'm going to give away the product for free and hope that some portion convert later. Is it a license or subscription model? That revenue model is different than the pricing tactics, which we will cover below. Again the only way to figure this out is being able to interact with tens or hundreds of customers so you finally understand what the right revenue streams and revenue model is.
A common startup error is for businesses to straight away say 'let's price on cost. We know how much it takes to build our product. We'll just add a markup that is a profit, and therefore we have a price.'
This is typically not a strategic way to price. Whilest it can often work, there is sometimes a lot more value on the table. What you really want to think about is not just your internal economics, but the customer insight that you actually have. Because the alternative to pricing on cost is pricing on value. As we learnt earlier in the Business Model Canvas, you know your value proposition and your customers perceptions. Is it about time saved? New efficiency created? Now, customers don't necessarily feel that they want to pay this way, but smart marketeers and smart startup leaders can convince customers that instead of paying on cost they really ought to be thinking about that your company is unique and providing the most value—not just the cheapest product.
In the video module below we will outline more the considerations that need to be considered when developing your revenue streams, and also how you can strategically set your pricing.
There is also the Income Diversification Tool and the Chargable Rate Tool to help you through both of these process.
After you have reviewed your revenue model, always remember to update your business model canvas with what you've learned.