You have a brilliant idea. But do you have a business model?
Check out,”Your Business Model: More Than a Pitch“ by Gwen C. Edwards, who used to run a $400 million networking division of SBC Communications (now AT&T). She explains that a business model must answer four critical questions:
- How do you plan to engage the market?
- How do you plan to make money?
- Do you plan to sell your product directly or through other channels?
- Do you plan to provide services or manufacture product? Do you plan to charge users, advertisers, or some other party who gains value from your offering?
Edward also points out how a business model refers to more than how you make money, but where you are positioned in your industry by answering three additional questions:
- How do you fit in?
- Are you disruptive?
- Are you creating a new way of doing business?
Business Model Affects Everything In Your Business
Edwards also explains why your business model affects everything about your business:
Know that your choice of business model has profound implications on your rate of revenue, the amount of capital you will need, and the competition you will face. You may be tempted to choose more than one business model, but you’ll be pushed to pick just one, the model you think is most likely to succeed, and give you and your investors a home run! Know that your choice of business model will affect your capital requirements, competition, resources required, types of skills you’ll need, and just about everything else about your business. Your decision also tests just how clearly and thoroughly you’ve thought about your business.
Are You Sure Your Business Model Is What It’s Supposed To Be?
There’s nothing worse than realizing that the business model you thought you had wasn’t what you intended to built. Mistakes like this can cause your burn rate to accelerate, forcing you into more funding. The actual business model’s not compelling, possibly threatening to force you out of business.
Edwards’ article is a reminder for entrepreneurs to define, check, and recheck your business model, since it’s mission critical for survival. She uses Starbucks and Salesforce.com as examples of the business model itself being the essence of the breakthrough idea. Edwards offers recommendations to entrepreneurs on testing and refining your business model. If you think you have the next big thing, then read her article to avoid blind spots in your business model.
Recommended Reading on Business Models
- Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Wiley Desktop Editions)
- Seizing the White Space: Business Model Innovation for Growth and Renewal
- Not for Free: Revenue Strategies for a New World
- Open Business Models: How to Thrive in the New Innovation Landscape
- The Essential Advantage: How to Win with a Capabilities-Driven Strategy