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Business Model

Being full of enthusiasm, resources and energy and deciding to launch a startup is a great challenge. Arming yourself with dreams and willingness can be the right initial push, but it is definitely not enough! The business model is the key factor that can guide you to success! It provides the strategic logic that makes it possible for you to maximize your profits, and the sooner it is implemented, the sooner your startup has a chance to climb to the top; below you will find out what it is, what it is for, why it is important and above all who to contact for the best business model for your startup.

 

What is a business model?

What is a business model is a question that we hear every day from those who are involved in startups.

Below we will analyze the concept, its definition, the fundamental aspects, its origin and developments.

 

What a business model is: definition

A business model describes the logic by which an organization creates, distributes and collects value. Thanks to specific techniques of visual thinking, it provides a clear and complete map of the organizational and strategic aspects within the phase of the conception of a startup, in order to obtain a competitive advantage. In particular, the business model makes it possible to develop a common figurative language capable of linking together the ideas that the mind finds scattered here and there, providing precise guidelines for transforming the conceived innovation into an organized value proposition.

 

Business model: definition

The concept of the business model is not a recent one. Although the term appeared for the first time in 1957 it was only in the 2000s that it assumed its true importance, registering a growing interest from the scientific and economic community.

In 2009 Alexander Osterwalder & Yves Pigneur, by publishing the volume “Business Model Generation”, brought the definition of a business model to a turning point.

Osterwalder & Pigneur’s approach has two main merits; it defines the concept in a simple way suitable for anyone, providing a visual and immediate tool for the definition, sharing and innovation of business models, namely the Business Model Canvas.

 

Business model: contents

Although the one given above is the most commonly shared definition, to date there is no universally accepted one. What most communicators agree on is that, in general, a business model should consist of the following elements:

  • What: the company’s value proposition;
  • Who: the customer segmentation it targets, the channels and relationships;
  • How: the infrastructure of its value chain;
  • How much: the structure of costs and proceeds;

In a nutshell, therefore, the business model of a company should illustrate its value proposition (what) by identifying the customer segmentation which the proposition targets, the channels through which the proposition reaches customers, and the relationships to be established with them (who), the key resources, key activities, and key partners without whom the value proposition could not work (how) and the related flow of proceeds and cost structure (how much); all this in a flexible and extremely dynamic perspective. In fact, it would be unthinkable to believe that a business model is forever, no matter how successful it may be: in order for it to continue to create value, it must change and adapt to the changes in the external and internal environment.

 

The Visual Thinking

As you already know, the visual and immediate tool for the definition, sharing, and innovation of business models is Visual Thinking.

Visual thinking is a cognitive technique based on figurative language that makes it possible for you to organize, represent, share, structure, and de-structure ideas, concepts, and thoughts through images, signs, and symbols, facilitating learning, understanding, analysis, and deduction.

In a world that is overloaded with information, this technique is becoming a fundamental tool of business management especially for startups, as it simplifies the organizational and decision-making processes, improves learning and memory, and, above all, prepares for transformation and change.

Visual thinking exploits the visual intelligence (one of the eight intelligences that human beings possess) which consists of the ability to see with the eyes and the mind, allowing ideas to emerge that would otherwise remain hidden and allowing one to develop them intuitively and share them with others.

All this necessarily takes thinking to a higher level, from the abstract to the concrete, and facilitates the process of understanding even the most complex and structured information and concepts.

Visual Thinking is an engaging and interactive technique focused on exploring, building, validating, destroying, and recreating new and innovative ideas, brainstorming, stimulating critical thinking, and preparing the mind for change and problem-solving; for this reason, it is becoming increasingly popular in the field of business models of startups and innovative startups, as it offers numerous advantages that facilitate team-building, the exchange of ideas and stimulate creativity, reasoning, innovation, change and transformation.

Finally, since people can only keep a limited number of ideas in their short-term memory, it follows that outlining the business model in a visual way is essential in order to be able to annotate and connect them 100 per cent.

 

The importance of the business model for your Startup

“Having an idea is a great thing, but it’s even better to know how to develop it”

Henry Ford

We strongly believe that the success of a startup does not come from a good genetic makeup or from being in the right place at the right time; success can be artfully created by following the right startup business model, as entrepreneurship in today’s world, stifled by overabundant products and services, is and must be more and more a form of management based on knowledge. Visionaries, innovators, and lovers of challenges create new ideas, but only “manager” entrepreneurs are able to put them into practice by designing and successfully implementing an innovative business model.

 

How to choose the right business model

As you can imagine, obviously there is no business model that is suitable for all startups and all scenarios, moreover, it is unthinkable that it will last forever, given the continuous innovations placed on the market; therefore, it is essential to periodically re-analyze your model and update it.

So, as it is essential to define it in the startup phase, it is equally vital to question it over the years to update it and keep it in step with the future.

Before analyzing the logic by means of which a startup creates, distributes, and collects value, it is necessary to consider some crucial aspects that will be the ingredients for all the design work of the business model:

 

Answer the investor’s six questions

Before starting to analyze and design your business model, we recommend that you answer what we call the investor’s six questions:

  1. What problem are you thinking of solving?
  2. Are consumers aware that they have the problem you are trying to solve?
  3. If there were a solution, would they buy it?
  4. Would they buy it from you?
  5. Are you able to develop the solution to this problem?
  6. Why are you and your team uniquely positioned to solve it?

 

Do a market analysis for startups

First of all, you have to find out whether your idea actually has a potential end market; therefore, search for and analyze your reference market, through analysis with specialized companies (such as Nielsen, Gartner, and Forrester) or through SEO/SEA analysis or through microdata; in this way, you will be able to obtain a photograph of your potential customers; you will then have to apply the TAM, SAM and SOM technique and, finally, make sure that there is a need that your product or service will be able to satisfy by measuring the Product-Market Fit.

If you find that too few people are interested in your value proposition, you will realize that either people don’t want what you’re offering or it would be better to retrace your steps and do a pivot.

 

Analyze the competition

When you want to build a business model that works to approach a specific market, it is essential to know who you will be up against: your future competitors.

Take a look at how many startups are already offering what you want to offer, analyze their business models and measure their success with an accurate analysis of the competitors.

So, ask yourself if you can do better, if you can add more value to the proposition and if there is something that will make your startup unique; consequently, create your unique selling proposition, that is the message you choose to represent and that differentiates you from your competitors.

Having some competition isn’t actually something to worry about – quite the opposite! It shows that your idea is valuable and that there is a real demand for the type of product you intend to create and it can even give you information about how to implement your business model or how to make it innovative.

However, it is best to avoid overcrowded markets, as competing for each individual customer can be counterproductive, difficult and very expensive.

 

Define your buyer personas

Do you know what one of the main reasons is why startup ideas often fail? Because you don’t treat potential customers as people. And this is an easy and common mistake to make.

Buyer Personas are fictional representations of your ideal customers, based on real data and classified by market segment. When you imagine a composite “person” while creating your value propositions you are more likely to create something that is relevant and meaningful to the people you are trying to attract.

For these buyer personas to be effective, they need to be based on real data, not just on your trust assumption or what you believe is true based on your experience with some people you know in the same demographic segment of your target audience.

But how can you find this information as a startup, without an existing customer pool to study, if you don’t have a large market research budget?

Here’s how:

  1. Start out on a small scale
    Even if you intend to target different market segments, we recommend that, to begin with, you only focus on a few buyer personas. It is better to get to know and understand a few people thoroughly than to have a superficial understanding of a lot.
  1. Put your trust in the interviews
    While interviews take longer than surveys or focus groups, they are less expensive and easier to conduct.
  1. Ask why
    During your interviews, don’t be afraid to dig deeply into the answers people provide. Ask why in order to find out what is behind the answers people give.
  1. Look for things in common
    As you conduct your interviews, you will begin to see overlap in the responses.
  1. Create your composite “persona”
    The final step is to build your persona. Name this imaginary persona and describe who he is and what he cares about. Tell the story in a way that creates the persona.

 

Define your Value Proposition

A value proposition is a simple statement that summarizes why a customer should choose your product or service. It represents your promise to a customer or a specific market segment, which is the fundamental reason why they should buy from you. A value proposition should clearly explain how your product or service meets a specific need, communicate the characteristics of its added value, and indicate why it is better than similar products on the market. The ideal value proposition is targeted and appeals to the customer’s strongest decision-making factors and should always focus on how they define your value.

But how is the value proposition defined? Through the Value Proposition Canvas

The Value Proposition Canvas is the tool that helps you find the right value propositions in relation to your customers, in order to correctly identify their real needs and relate them to the value that your company can offer them.

With its six blocks, the Value Proposition Canvas focuses on the overview and helps you solve the problems, difficulties, and needs of your customers in the best of ways.

Use this Business Design tool and you will be able to create, design, and test your value proposition towards the customers in a more structured and attentive way.

Finally, the value proposition of a startup, communicating the number one reason why a product or service is best suited to a customer segment, should always be prominently displayed on the website and other points of contact with the consumers. It also needs to be intuitive, so that a customer can read or listen to the proposition and understand the value provided without the need for further explanation.

 

Business models: examples

Here are some of the primary basic models that can serve as inspiration:

 

Add-on

In the add-on business model, while the main offer has a competitive price, numerous extras make the final price increase. At the end, customers pay more than they initially expected but benefit from selecting options that meet their specific needs. Airline tickets are a well-known example: Customers pay a low price for a basic ticket, but the overall cost is increased by extra “add-ons” such as credit card fees, food and luggage charges.

 

Affiliation

In the affiliation business model, the company’s goal lies in supporting other parties in the product market in order to benefit from successful transactions. This way the company gains access to a diverse customer base without additional sales and marketing efforts. Affiliates usually operate on the basis of some form of pay-per-sale or pay-per-display system and are generally online. For example, a website publisher may act as an affiliate by including another company’s banner ads on its website in exchange for commissions on “clicks” or “impressions”. In other cases, affiliates are able to market their products on larger networks and pay a commission on sales to the hosting website.

 

Auction

The Auction business model is based on participatory pricing: in other words, the price of a product is not determined by the seller alone, but buyers actively influence the final price of the goods or services. Finding a price starts with a potential buyer offering a certain amount based on his/her willingness to pay. At the end of the auction, the customer who made the highest bid agrees to purchase the product or service.

 

Cross-selling

Cross-selling involves the offer of complementary products and services beyond a company’s core range of products and services, with the goal of leveraging the existing customer relationships to sell more goods. Cross-selling also offers the opportunity to leverage the existing resources and skills such as sales and marketing.

 

Crowdfunding

The crowdfunding business model involves outsourcing the financing of a project to the general public. Its intention is to limit the influence of professional investors.

 

Customer loyalty

In the Customer Loyalty model, customers are retained and loyalty is achieved by providing value beyond the basic products or services. The goal is to develop a relationship with customers and retain them by rewarding them with special offers or discounts. In this way, customers are voluntarily bound to the company, which dissuades them from opting for competing products and services and thus protects the company’s revenues.

 

Digitalisation

The business model of digitalisation is to transform an existing product or service into a digital variant, thus providing benefits such as eliminating middlemen, reducing overheads, and achieving leaner distribution.

 

Direct Selling

In the Direct Selling business model, a company’s products are made available directly by the manufacturer or service provider, rather than through an intermediary channel such as retail outlets.

 

Double Sided

Double-sided markets facilitate the interaction between two complementary groups in achieving mutual benefit via an intermediary or platform.

 

E-commerce

Within the e-commerce business model, traditional products or services are delivered through online channels, thus eliminating the overhead associated with managing the infrastructure of a physical branch. Customers benefit from researching products and services online, comparing offers, eliminating travel time and costs, and getting lower prices. Businesses benefit from online searching for their products and services and the reduction of intermediaries, retail outlets, and traditional non-targeted advertising.

 

Flat rate

With this business model, customers buy a service or product for a flat rate and then they use it when they want. The main advantage for them is unlimited consumption with full control of their costs.

 

Freemium

The term “freemium” was coined from a combination of “free” and “premium”. As this suggests, the business model involves offering a free basic version of the product or service, while the premium version is made available for an additional payment. The free version of the product is intended to allow the company to establish a large initial customer base, from which it is hoped that a sufficient number of customers will want to upgrade to the premium version at a later time.

 

Leveraging Customer Data

The exploitation of customer data is an important area that benefits from today’s technological progress and the possibilities it offers in the fields of data collection and processing. Companies whose core businesses are focused on data acquisition and analytics are already thriving and illustrate the huge demand in this segment.

 

Long Tail

The Long Tail business model focuses on selling small quantities of a very wide range of products, as opposed to a “blockbuster” model that offers large quantities of a small range. Although Long Tail offers tighter margins and lower sales volumes of individual products, the profits are significant on the wide range sold over the long term.

 

Pay Per Use

In the Pay-Per-Use model, the specific use of a service or product by the customer is measured and charged. It is widely used in the consumer media market and attracts customers who want to benefit from the flexibility.

 

Peer to peer

The term “peer-to-peer” originates in the computer industry, where it refers to two or more equivalent computers that communicate. In terms of business model, Peer-to-Peer normally refers to transactions among private citizens such as the lending of personal items, the offer of specific services and products or the sharing of information and experiences.

 

Razor and Blade

In the Razor and Blades business model, the base product is offered at a rock bottom price or even free. The additional products that customers need in order to use the base product, on the other hand, have a high price and thus become responsible for generating most of the revenue.

 

Subscription

The subscription allows customers to regularly receive products or services. The company stipulates a contract with its customers, defining the frequency and length of service delivery.

 

Business Model: the model and B-PLANNOW® consultancy 

In our opinion, the canvases in circulation are now obsolete and outdated, as they do not take into consideration some key elements that could influence the determination of the right, real and innovative business model for your startup; the world changes rapidly, and with it the right tools to interpret it!

This is why we have concentrated the experience gained over the years with our customers and transformed the canvas into a work table (board) by creating THE B−PLANNOW BOARD®: our shared visual language made up of 23 elements, 19 of which are fundamental, which makes it possible for you to really imagine, describe, share and innovate the business model for your startup.

If it is true that people can only keep a limited number of ideas in their short-term memory, why limit ouselves to the few blocks of the Business Model Canvas or the Lean Model Canvas, risking the possibility of forgetting fundamental parts of our own business model? That’s why our model is made up of 23 blocks that are the result of years and years of testing and validation.

Unfortunately, it cannot be disclosed, being as it is a fundamental asset of our company and an integral part of the one-to-one mentoring that we reserve for the startups we follow.

If you are interested, however, B-PLANNOW® provides you with ad hoc advice based on meetings of visual thinking to identify the company business models and trace the way to identify unexplored ones.

The meetings will be divided into 4 sessions:

 

Organizing:

  • common languages will be introduced, through examples and case studies;
  • objectives will be established;
  • preliminary ideas will be verified
  •  the business process modeling and business model design project will be planned;
  • the team will be created.

 

Understanding:

  • the techniques of THE B-PLANNOW BOARD® (the business model in English), of the Value Proposition Design, of the Lean Startup method, will be analyzed in detail;
  • the 23 system elements will be drawn up;
  • the topics relating to the analysis of the environment, market research, and customers will be introduced;
  • similar patterns will be analyzed;
  • design techniques will be applied.

 

Planning:

  • the most satisfactory business model (s) will be chosen;
  • it will be subjected to SWOT analysis and, if necessary, to Blue Ocean analysis;
  • Implementing
  • the opportunities to create an innovative business model will be analyzed together.

 

Implementing:

  • the opportunities to create an innovative business model will be analyzed together.

 

Now that you know everything about what it is, what it is for and how important it is to have a business model for your startup, all you have to do is contact us, talk to us about your idea and set it up together also in work for equity!

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