Business Model
What is your business model? It's a question your likely to hear often from prospective investors and business partners. Answering this question effectively is the most important job of any start-up company. So, just what is a business model? Tom Malone, an MIT professor who researches how business models change, has a simple definition: It's "what a company does and how it makes money doing it." He has catalogued scores of case studies from companies like Dell and Genentech on business models on his website (see below). Understanding what is unique and successful about business models of other companies can help you come up with your own equally successful model. As you craft your strategy, make sure you can answer the questions below.
- What is the business problem/challenge or "pain point" that you are solving?
- Why is this a must have product/service for your clients?
- How could they get by without it?
- Who are your top three ideal customers?
- Who is the main decision maker purchasing your product?
- What budget is the sale coming out of?
- What are the main objections to purchasing your product?
- How do you get past these objections?
- How do you justify the price of your product?
- How long is the sales cycle?
- What are the different stages of making a sale?
- What is the sales compensation model?
- What will it cost to make initial products?
- What do you think customers will anticipate paying per year for the next five years?
- What is the downside risk if the solution does not work properly?
You should incorporate your answers to these questions in your business plan. If these questions give you trouble, see Market Research.
