Creating a Business Model

In my last article, we discussed the 3 key principles of a Lean startup. Now let’s focus on creating a business model.

I prefer the business model over the business plan because, business plans are about writing a book on your business which includes executive summary, revenue forecast for 3-5 years and many other things which are not a priority for now. Instead a business model is just 1 page and is more than enough and effective. The think part of this is that both the ways are based on assumptions. So why do you want to invest a lot of time creating a lengthy business plan. Create a business model instead.

I think the Alex Osterwalder business model canvas is the best way to create your business model, but as the market changes, there are a few changes of my own which I made to it which can be implemented once you have your MVP already in with the beta customers.

See below:

Business Model Canvas
Business Model Canvas

 

Now, let’s discuss each aspect of the model assuming that you already have your MVP (Minimum Viable Product) in the market with your beta customers.

  1. Customer Feedback: Your beta customers are the ones who are using your product and their feedback is the most worthy in knowing what the problems in your product are. A constant customer feedback is required to find out problems in your product and then you can analyze what are the key or priority problems you need to focus on.
  2. Resolution: Once you have determined the key problems, you have to find a resolution to fix them. Majorly the problems will be solved by adding some features to the product which are the requirement by the market. Remember, even after resolving problems and adding features, a constant customer feedback is always required to constantly find problems and resolve.
  3. Constant Innovation: The changes you make to your product by adding new features is a part of constant innovation. This is a progressive and constant phase running into the same cycle: Feedback -> Resolve -> Innovate -> Feedback -> Resolve -> Innovate and so on.
  4. Value Proposition: By constant innovation, the value of your product becomes unique in all its senses. By this time, you will not have to tell to the market how strong or unique your product is.
  5. Customer Relationship: By taking constant feedback and making constant innovation, you have already started building customer relationship with your beta customers. Now it’s the time to build new customers.
  6. Channels: These are the ways to find your customers and acquire them. Find which channels you can get your customers from.
  7. Customer Segment: Once you have the channels, you need to target your potential customers. Targeting all the customers is not an option as if you focus and identify only the customers who needs your product, that will help you grow with your product.
  8. Cost Structure: Now that you have entered the market and acquired customers, you need to restructure your costs and create a model for your costs. The costs may include; human resource, distribution, payroll, other administrative costs, acquisitions etc.
  9. Revenue Streams: Include your revenue model here, put down all about your financials here. I prefer to measure financial performance on gross margin instead of operating profit. Measuring Gross Margin and then comparing it with operating profit will give you a scope where you can save costs to add up to the net profits.

Steve Blank has a vast library which may interest you to get all your help on start-up. Here’s a link to his site: Startup Tools by Steve Blank

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The Lean startup

Now that you have an insanely great idea, you have a definition and a great team to build a great product; I will discuss about the latest and the most effective methodology: “The Lean Start-up”

“The Lean Startup method teaches you how to drive a startup-how to steer, when to turn, and when to persevere-and grow a business with maximum acceleration”

The Lean Startup Process
The Lean Startup Process

Many startups begin with an idea and start building a product they think the people want. Without even showing the initial product to the probable customers the startup keeps on perfecting the product for a long time and never try to show it to the customer. It is most likely that the product is not required by your customers. Later when customers come back and show indifference in the product, the startup fails.

To counter all the challenges by following the conventional way and putting everything at risk, a new way has emerged that can make the startup less risky. Yes, it’s the Lean Startup method. What Lean startup counters against the conventional way is its experimentation over elaborate planning, customer feedbacks over assumptions and iterative design over the conventional up front design in line with the Bplan.

The Lean method have 3 important principles:

1. Instead of getting into a chaotic transactions of business planning, putting tremendous efforts in research and at the same time investing a considerable amount of money, entrepreneurs accept that they have a bunch of untested hypothesis which they consider good guesses, this hypothesis is put down together and we call it a Business model.

Continuous Innovation
Continuous Innovation

2. The customer development approach is implemented to validate the hypothesis or the business model. The entrepreneurs go out in the market to the probable customers and partners for a feedback on every segment of the business model. Once this is in place, a minimum viable product is introduced to the customers and looks for customer feedback. Then, using the customers inputs, the assumptions are revised and the product undergoes small iterations and pivots to the things that are not working.

Learn when its time to Pivot
Learn when its time to Pivot

3. Lean start-ups practice agile development. Agile development works hand-in-hand with customer development. Unlike traditional lengthy product development cycles that assumes customers’ needs and problems, agile development eliminates wastage of time and money by developing the product using the iterative and incremental method. Following this process, a minimum viable product is created and put to test.

In the future posts, we will discuss more about the Lean Startup methodology.

It’s time to Start!

I described in my early posts, what attitude it takes to say Just Do It! And what are the key traits to successful entrepreneurship. Today, let’s start building you, as an entrepreneur. It’s the time to Start!

Whatever idea you have to start-up a business with is great and you must believe in your idea no matter how many drawbacks you discover or people tell you about your idea. It’s your belief in your idea that will give you the perfect start.

“Whether you think that you can, or that you can’t, you are usually right.” – Henry Ford

Now, you have an idea, an insanely great idea and you believe in it, how do you start building a product?

This is where you have to be very patient and conscious. It’s your enthusiasm and curiosity about your product that is more likely to overpower you and lead you to taking wrong decisions and uncalculated risks. Remember to control your curiosity and enthusiasm, you already know that your product is insanely great, why to get over enthusiastic and curious about it. Keep the enthusiasm and curiosity to help you build a great product.

Let’s now see how we go by building your product in an organized manner.

Sit back and note down the idea in a descriptive way and categorize the idea into segments. Once you have this plotted, take some time and make iterations which you think you can. Once the iterations are made, you will be able to define your product. Following this simple yet critical task, you have defined your product and now have a blueprint to focus on.

Focus on what is defined lies the key here onwards.

Are you an expert on all what it takes to build your product?  No one is. So, the next important task is to divide your blueprint into several categories and find out which experts do you need to work with you on building the product. This is the most challenging part, you have to find great people just like you to work with you. Talk to people you know are great and make them believe in your idea and have them onboard. Thus you build a great team who now have the same vision and focus. Remember, a great team creates great products.

Always remember, the product is yours and you have to be in love with it and have to build it yourself as entrepreneurs, a great product can also be built by hiring people but then if you don’t build your own product, you just become the salesman of the product. If you build your product yourself, you will know what exactly your product is and not what you think your product is.

To sum it up; define your product, build a great team and build the product on your own are the 3 key to get started.

In my future posts I will discuss all the 3 steps to get started in detail.

For now, here is another inspirational video for you. Be inspired, Be an Entrepreneur.

The Success 3

On July 15, I shared the first insight on becoming an entrepreneur. Today let’s go through a few more examples and how the collaborative approach towards incorporating leadership and entrepreneurship skills from these people will help you become a successful entrepreneur.

The people who I am really inspired other than Sir Branson are; Steve Jobs, Mark Zuckerberg and Jordan Belfort and I think that they have left a great blueprint to follow for all of us.

Below are a few traits that are phenomenal amongst all of them and I would suggest be the basics for any entrepreneur. A combination of all of them would make you very successful.

  1. Vision and Imagination (The ability to create a determined and compelling vision for the future)
  2. Focus (The ability to stay away from distractions and focus only on your goals)
  3. Taking calculated Risks and adopting the right strategy.

In line with what keeps you motivated to become an entrepreneur, the next phase is to explore the above mentioned qualities in yourselves.

You all have these qualities in you, make them work for you!

Having a great vision and imagination does not work by itself, it has to be accompanied by Focus on your goals and once these two are in place, you need to learn is to take calculated risks and adopting the right strategy.

Taking calculated risks and adopting the right strategy is the only factor that would differentiate between success and failure in your entrepreneurial venture. Even taking calculated risks but not adopting the right strategy would lead to a failure and vice-versa.

Then comes Leadership,

Leadership is having a vision, being able to articulate that so the people around you can understand it and giving a consensus on a common vision. – Steve Jobs

In my further posts I would be sharing more about Vision and focus and later I would discuss some of the most effective strategies and risk taking attributes. All of these combined learning will help you as a start-up entrepreneur. Keep watching.

Here’s an inspirational video featuring Steve Jobs:

Just Do it!

The first thing, I would say to young aspiring people is start calling yourself an entrepreneur from the day you get your first business idea and you have a faith that your product will make wonders. This way you will be able to overcome all the discouragement that will come when you talk to people about your idea and the obvious answer you will get is: It’s not going to work! People have tried before. Listen to people and then just say this to yourself; “Screw it, just do it!”

Every one of us has an entrepreneur within us, it’s just that only a few have the gut to become one.

Here is a perfect example; Sir. Richard Branson. At the age of 15, Branson dropped out of high school to start his first business, a magazine for young activists titled Student. Four years later, in 1970, Branson began selling records by mail. In 1971, he opened his first record store. In 1972, he opened a recording studio. In 1973, he started his own record label. The Virgin business was scaling very high and if we look Richard was not even 24 that time.

Today, the Virgin Group is a well-regarded global conglomerate of about 350 companies, branching into the entertainment, travel, and mobile industries.

Not all of Richard’s ideas have been successful, Virgin Cola was unsuccessful and finally it shut down. But here is what Branson has about overcoming failures: “If you have enough determination…. It’s more likely that you will succeed because of what you learned from the occasions when you didn’t succeed, the most important thing is to not be put off by failure.”

Here is an advice video from Sir. Richard Branson for you to be motivated: