dollarbreedersThe start of a new year often drives the start of new business. As we move forward in 2020 and the economy is strengthening, you may think it’s time to implement the ideas that have been swirling around in your head for the past few years.
Or, you may have just spent time with a bad boss and a stifling job and think now is the time to take action. Whatever motivates you, you probably know that in order to do business, you need to have a plan.
But even before you sit down to write that business plan, your first step needs to be to create a viable business model. A business model is basically a visual representation of your business. It describes the value exchange between you and your customers, and it is the key to testing the viability of your business.
Your business model describes the value exchange between you and your customers. The definition may seem short, but it is rich in content, so I will break it down for you. So, how exactly do you start a successful business fast? Please start here!
Value
Value is a two-way street. It’s what your business offers in the marketplace and what you expect from your customers in return.
What does your business offer to your customers? This is your value proposition. On the surface, this is what your business does, but it is also much more than that. It’s the difference you make to your customers; the value you provide to them. A value proposition is more than just a product or service. It’s the reason you offer those specific products or services.
Think of your favorite store that is the first choice when you need something to wear on date night or for a job interview. I’m a preppy, so mine is J. Crew. their value proposition is a personality that comes from timeless style. How about a service-oriented business like Uber? A simple, stress-free way to get from one place to another. Simply put, it’s your “why”.
Clichés are real. If you don’t understand your “why” (your value proposition), then your business won’t succeed. Define your value proposition first so that your products and pricing reflect it.
Once you have clarified your value proposition, you can move to the other side of the road: the value you get from your customers. In most cases, this describes your revenue stream. What will your customers give up to get the change you promise? Keeping traffic balanced on both sides of the road, or if there is an imbalance, it’s because your business provides so much value but asks for relatively little in return.
Customers
Who are they? My law firm specializes in working with entrepreneurs, and when I ask this question of my clients, 90% of the time the answer I get is, “Anyone with money!” . But often, failure to define your customer base will result in ineffective marketing, pricing that doesn’t generate the revenue needed, and products that don’t sell. Think of it this way: You have to know who to talk to in order to craft a message, and marketing is about delivering the right message.
The specificity of your customer base does not necessarily mean excluding the majority of the population. In fact, your customer base may represent a large percentage of the population, such as Dollar Shaue Club (DSC).
Their ideal customer is the typical male in his 20s, which according to the last U.S. Census was approximately 21,600,000 in 2010. This ideal customer has something in common, needing a razor and generally being unhappy with the high price of replacement razor blade racks sold at drugstores.
However, since women also need razors and don’t like paying more than we do, DSC is also generating sales for women and has been reviewed and recommended by sites that cater to women such as POPSUGAR and blogher.
The key really is to focus on your customer base by clearly defining at least one common characteristic. As you develop products, set pricing and create marketing, you will leverage that characteristic so that your business appeals to your customer base. dsc knows that men in their 20s don’t have a lot of cash to spend on razors, so they set their prices accordingly. dsc also uses their understanding of millennial men to create marketing content that resonates with their target audience.
Instead of focusing on traditional marketing channels such as TV and print, they launched a subscription service with an ironic twist on the short-form video platform. It quickly went viral and has garnered nearly 24,000,000 views since its release in 2012.
Ways to exchange
The final element of our business model definition is the exchange of value with your customers. It’s the way you reach them, the way they accept your value proposition, and the way they provide value to you in return. It covers every element of the relationship: from where your customers first learn of your business’ existence to where they buy your value proposition to the way you deliver value to the subsequent relationship.
This is where it’s especially important for business owners to be highly self-aware. If you hate staring at a computer screen all day, then running an Internet-based business may not be the right choice for you. Does interacting with different people every day make you want to keep your eyes open? You may want to rethink your new brick-and-mortar retail store. On the other hand, if you play to your strengths, your business will have a higher likelihood of success.
Needless to say, this is an extremely simplified explanation of the business model. There are countless possibilities for your business, each as unique as you are. For more detailed information on business models in general, check out Alexander Osterwalder and Yves Pigneur’s business model example.
The art of business building is to create a viable model and then turn it into a plan to get you through your first year. Nothing is easy with self-employment, but by building a solid foundation, you will create the best possible opportunity for your dream. All that’s left is to stick with it and execute.
