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How Important is It?

Getting the business model right for startups is crucial. Larger enterprises have more room for failure. Small and medium sized businesses can not afford many mistakes. If you get the business model right, the harder you work, the more money you will make. The opposite is also true- if you get it wrong, the harder you work, the more money you lose. As one senior executive once told me, it doesn't matter how much money you start with (even if your relatives left you a fortune), if you lose money annually, you eventually run out. That is why there is so much emphasis within Entrepreneurialist Culture on getting your cashflow up and stable.

There are trade secrets to every business. There are 'hidden' buttons to push and levers to pull that are the keys to success. From the outside, every other business looks easier to run and more successful than yours. People who are expert in their area often don't even know that there are these hiiden keys to success- they simply do those things, often without much thought, and they lead to success. If you went into their business and you didn't know these crucial pressure points, you will go out of business and you'll never understand why.

Startups are so preoccupied with staying alive that they often don't spend any time in deciding what their business model is. Many don't even know what business they are actually in.

A business model is not the same as a business plan but at the heart of every business plan there should be a business model that works. A business plan is much more formal; it includes financials, competitive analysis, market assessments and much more. A business model instead looks at the key aspects of how a business actually works; how it makes money; it answers the question- "What business are you really in?" It examines a typical 'walk through' of where the customer or client interacts with the company- it doesn't leave any gaps or uncertainties about how the company actually makes a sale; books it and gets paid. You might be surprised at how many startups don't actually know the process of making a sale and getting paid- asking for the deal and asking for the cash!

Assumptions

Who are your customers and clients?
Is this a prototype for a small, hobbyist-type business or is it going to create value beyond providing you with a job.
Ultimately, can this become a scalable business?
Initially, will it be a home-based business with low overheads?
Will customers and clients visit your home or a type of retail presence or an office?
How will customers and clients will learn about you? Will you use flyers distributed to neighborhood homes and businesses, word of mouth, your own web site, links with search engines, a retail presence, by trading links with other sites that can benefit from such reciprocal linkages?
Can you use other guerrilla marketing like 'ten cent' lawn signs that clients put up on their lawns advertising your telephone number and web site?
Will you have access to a VISA (or MC or Amex) merchant account?
What hardware technology will you have access to?
What software will you have access to?

Model

How The Company Makes Money

Will there be an hourly charge for your time?
Are you actually selling any products?
Are there any on going supplies that you can resell?
Are there any other value added services you can sell?
Is there something you can provide a free? Clients and custoemrs love the word 'free'. Can you provide 'free qutoes' for example?
Are there any other corrollary services that you can hook your clients up with and take a.percentage of the fees?
Are there any updates or on going revenues to be had from providing an ASP-like service?

A Walk Through- Here is an example taken from "Instant Web"

A family shows up at the IW market stall. IW rep says: “Hi.”
“Emmachisit?” says Elanor, mother of three.
“Right. We can fix you up with a basic web site in about an hour for 30 bucks. If you want to go live-to-the-web at the end of the hour, we’ll need to get you fixed up with a domain name and a web hosting service too. You’ll then be broadcasting to the web 24/7 in about 60 minutes! You can call the grandparent in Perth tonight and tell her the web address (URL) and she’ll see that nice photo of Suzie here winning the 100 metre dash on her computer this very evening! ”
“No way, mate. What’s the catch?”
“Let me show you a few sites we did for folks earlier today and last weekend.”
“Looks great. Are there any other costs?”
“Well, we can do the site up and I can copy it to a disc for you for an extra ten bucks. If you want to go live today, we’ll reserve a domain name for you- what’s your favourite nickname for Suzie?”
“Well, we call her ‘Sizzle’, for short.”
“Cool. Let’s look right now and see if we can reserve www.sizzle.com.au for your family. Hey, look over my shoulder for a sec. It’s available. How would you like to reserve it right now?”
“Emmachisit?”
I can reserve it for you for $40 for one year or $70 for two years then it’s all yours all over the world, no one else can use it. Anytime you want people to have a look, just send them to sizzle.com.au!”
“Alright. But what about someone seeing pictures of my family on the web?”
“Well, IW does not put any personal street addresses or personal phone numbers on these sites. We’ll set it up so that they can only email you and if you don’t want that we have another free service, which is that you can use our general mailbox at no charge so the emails come to Instant Web and are automatically forwarded on to you by IW. And no one at IW reads them either!”
“Is there anything else I need to know?”
“The only other thing is that if you want to go live to the Web today, no problem- I can set you up with our web hosting service for ten bucks a month. By the way, where do you work?”
“Actually, I am a teacher in the public school system and my husband is a house painter.”
“Does he run his own business?”
“Yea. But most of his clients are repeat customers.”
“Well, sure but while we’re at it why don’t we put a photo of him on the site and something like: ‘For your free quote, call William at …’ We could add a few photos of work that he has done- his portfolio, if you will. And let’s use his cell number so that we are not publishing any home numbers! He can put his web address on all his flyers and his business cards, everyone will be really impressed!”
“What happens if I want to update my site?”
“Well, you can do that in two ways. You can come back and see me anytime- I’ll charge you the same rate to add stuff or change stuff for you- 30 bucks for an hour of my time. Or we can give you a password and we can teach you how to update your site yourself! We run a six hour course on basic web design and after that course, we guarantee that you will be able to edit and change your web personal web site or your money refunded. You can even have Suzie take the course (it’s only $99) then she will be the family’s webmaster! Would you like that Suzie?”
“Yar.”
“May I have your credit card please, Elanor.”

Things to Remember About The Instant Web Example

Your most important requirement in any business is a steady monthly cashflow. And this comes from your web hosting service. When IW reaches a 500 client count, this amounts to al least $5,000 each month coming in with almost no costs and no work attached; and best yet, it recurs ‘forever’. People don’t change web hosts very often and don’t worry too much about a ten dollar monthly VISA debit.
Your other work (web mastering, domain name reservations, doing e-copy backups, etc.) is really a feeder for your web hosting business. So what business are you really in? The web hosting business for personal (and small business) web sites. By aligning IW with a basic web design courseware, you will get your clients to eventually do most of the web design work themselves!

Longer term, you can set up the IW web site so that clients can easily and simply be walked through the process so that they can: a) scan in their own photos, b) add clip art, music and sounds, c) reserve a domain name, d) add a recording, e) do some simple animation, f) add some text, g) get some web hosting from IW. This is called reversing out the work to your clients and it is one of the keys to making money in cyberspace- in simple terms, it means that eventually, IW becomes a scalable enterprise instead of a J.O.B. (short for Journey Of the Broke). Scalable means that IW makes money while you are lying on a beach somewhere relaxing. Scalable means that IW has a value that eventually becomes independent of its founder. The Web is all about automation, reversing the work to your clients, empowering your clients and giving them control over their own material, about building long term relationships with your clients and between your clients too.