At the core of every startup is a business model that must be profitable enough to ensure success. Most startups begin with bright ideas that are innovative but fail to address realistic concerns of scale, competitive edge, target audience, profitability and market fit.
The marketplace provides the platform to attract a target market but beyond that attraction, a solid framework is required to take an idea from being just an idea to a profit generating enterprise. This framework will guide and influence your choice of channels, strategy and marketing efforts in order to transform your new venture into a success.
These few questions will enable you determine which framework to adopt for your business.
1. Target Market – Are You Filling a Need?
Is your idea wholesome enough to satisfy a consumer need? Another way to determine this is to find out if there’s a direct or indirect connection between a problem that exists in the marketplace and your business idea. This is an important first step because it establishes whether there’s a need for your product/service and thereafter, gives a glimpse of your market size and how many people face this problem on a daily/weekly/monthly/yearly basis? This will ultimately help you gauge the significance of the market size to cater to.
2. Competition – How Many Other People Are Offering the Same Solution?
How many other people will you have to face off against in the quest to deliver this solution? This requires you to delve into research on what currently obtains in the marketplace. On the one hand, having competitors is a good thing because it proves that your idea has merit and that there’s demand for your product/service. On the other hand, understanding how much of the marketplace is already being served by your competitors, allows you determine how much potential share of market you can gain.
The results of your research should include your competitor’s strengths and weaknesses; what contributes to their successes or failures, so that you can formulate ways to add better value and stand out. This value add can be the differentiating factor for your business and therefore, your unique selling proposition (USP).
3. Potential Customers – The Ideal Persona
Do you know who your ideal customer is? Can you identify them in your circle – family, friends, acquaintances, former colleagues? How much do you know about their daily lives? Spend some time thinking about the exact profile of the customer you want to serve. What is the persona of your ideal customer? What are his/her demographics, interests, daily pain points, aspirations and life-long goals? What systemic or societal challenges are they facing that you can identify with?
Once you have a clear image of who your potential customers are, it becomes simpler to determine the best way to approach them. Your tone of voice, communication, offerings, channels, time and place will align not only to attract but engage your target audience, to deliver profitable conversions.
4. Revenue Streams – What Else Can you Offer?
Is your business idea versatile enough to create spin-offs or cross-sells? Can you add affiliate products to your offers and generate additional income through commissions? Having a main source of revenue is good but may not be sustainable in the long run. Exploring all other possibilities that can add multiple revenue streams, is thinking long term to help secure your business for the future. Don’t just focus on selling one product or service. Think diversity. Think flexibility.
Examples of Successful Business Models
Some start-ups have gone on to become quite lucrative as a result of the business models they defined for themselves. While there are many proven models to go by, you have to carefully review the various options that exist, gauge their functionality and compare the advantages each model provides, to select the best fit for your business idea.
To help you get started, here are some examples of profitable, sustainable startup business models:
1. Product/Service Model:
Theoretically, you can create whichever product or service you want, and promote it through any marketing channel of your choice to sell directly to final customers. The word “business” creates a mental picture of a company selling products or services. Thus, for most people, creating and selling your own products is the approach to lean towards. This model is actually quite broad, and in reality, can encompass one or more other business models. The main advantage of this model is the flexibility, or rather — lack of constraints. Highly effective marketing campaigns and advertising activities are required to retain customers.
2. Advertising Model:
The advertising business model is highly effective but to be successful and profitable, you must have a large audience/customer base. At the core of this model is the idea of providing a free product or service and relying on ad revenue for profits. Profits come from advertising services you provide to other companies/brands. These companies/brands are companies who deal with you because they want to get their products and services in front of your audience, by having their ads placed on your website. The more people you can reach, the higher your profits will be.
Examples: Facebook, Google.
Typically, when you have a product that sells in a physical store, you would usually have to work through a series of middlemen to get those products from the factory to the store shelf.
Disintermediation is when you cut off everyone in the supply chain and sell directly to consumers, allowing you to potentially lower costs to your customers and also have a direct relationship with them.
Examples: Casper, Dell.
4. Subscription-Based Model:
While magazine and newspaper subscriptions have been around for a long time, the model has now spread to software and online services and is even showing up in service industries.
This model is mostly employed by software companies and app-based businesses. Instead of one-off purchases, companies using this model enjoy recurring revenues in the form of monthly payments. Another advantage of this model is easy customer acquisition and retention. Instead of asking for a substantial up-front investment, this model facilitates the buying decision with a relatively low initial cost.
As for the customer retention – if the customers enjoy the service you’re providing, they won’t need to be convinced to renew their subscription. Subscription business models are becoming more and more common.
Examples: Netflix, Salesforce, IrokoTv.
There are many other business models in existence. Some companies use a combination of models for their various product/service lines. Whichever model you adopt, ensure that you have critically considered the rudiments of building a successful business and continue to fine-tune, because consumer behaviours change, and markets evolve.