The Entrepreneurial Journey Part 3 – Do You Have the Right Business Model?

Wednesday, August 4, 2021, by Dr. Frederick Crane

Even if you have the right venture opportunity (discussed in Part 2 of this series), without the right business model your venture is likely to fail. Once you have identified and screened your opportunity well, the next step is to determine how you will make money from this opportunity. This is where your business model decision comes in. In short, a business model is a framework for making money. It outlines the set of activities that the enterprise will perform, how it will perform them, and when it will perform them to create customer value and earn a profit. I have argued for many years that the right venture opportunity always requires the right business model. 

Your business model is central to the firm’s success. Thus, the right the business model should answer the following questions:

  1. How will the enterprise make money?
  2. How will the enterprise create value?
  3. For whom will the enterprise create value?
  4. What is the enterprise’s internal source of sustainable competitive advantage?
  5. How will the enterprise position itself in the marketplace?

Successful entrepreneurs also ask themselves the following questions with regard to the business model.

  1. Where is the money?
  2. Who has the money?
  3. How do I get the money?
  4. What do I need to provide to get the money?
  5. How do I get it faster than anyone else?
  6. How do I get it time and time again from the same customer?
  7. How can I add other revenue streams later?

A major component of your business model is your revenue model. There are several revenue model options for you to consider including: production model (manufacturing), subscription, licensing/royalty, and franchising. Each has its own strengths and weaknesses, and you should examine which one makes sense to you given your specific opportunity and business context. Voice of consumer is very valuable in determining which revenue model is right for your given the customer you are seeking and how they wish to do business with you.

It is critical for you to target the right customers with the right business model. You must focus your efforts and determine which customers you wish to serve (target market/segment) and how much of each customer’s needs you want to serve. What is also very important for you to consider is not only creating recurring revenue but also obtaining incremental revenue. In fact, many customers can produce more than one source of revenue (e.g., buying a car and having it serviced). Moreover, some customers might wish to buy a product, but others might wish to lease, rent, or rent-to-own a product. An enterprise that only wishes to “sell” its product may be losing out on other potential lucrative revenue streams!

In summary, it is critical that you develop the right business model for your venture. In fact, without one, you are not very likely to attract venture financing. And, just like you would vet your opportunity with your potential customers, you also want feedback from those potential customers about your proposed business model. This input will help you determine how to best configure your venture to create value for your target market as well as select the best strategy for making money and sustaining the growth of your enterprise. 

Author

Frederick Crane serves as a Senior Project Manager for the International Council for Small Business (ICSB).

Dr. Crane is an Executive Professor of Entrepreneurship & Innovation at the College of Business at Northeastern University; Former Editor of the Journal of the Academy of Business Education; and co-founder of Ceilidh Insights LLC – an innovation management training, intellectual property consulting
and consumer insight company. He was formerly a professor of marketing and entrepreneurship at the University of New Hampshire and a Chair and Full professor at Dalhousie University.

At Northeastern, he developed the graduate new venture creation course; the undergraduate innovation course – which is now taught campus-wide; and developed the online MBA course on innovation and enterprise growth. He also serves as the Faculty Advisor for the Private Equity and Venture Capital Club. Every semester at least one of his teams from his new venture creation course goes on to commercialize a business.

Citation of Article:

Crane, F. (2021, August 4). The Entrepreneurial Journey Part 3 – Do You Have the Right Business Model?  The International Council for Small Business, Small Business Gazette. https://icsb.org/the-entrepreneurial-journey-part-3-do-you-have-the-right-business-model/