Customer benefit, profit model, available resources: these are not the only important aspects that are often neglected when you and your friends come up with the new Facebook. Nonetheless, social media accounts with the new company names are set up first. Often, there’s a lack of a larger perspective – a business model can help with that.
Two new domains were secured, Facebook and Twitter profiles, as well as a YouTube channel, were created. The search for license-free images for the future website had already started. What happened? In the evening, after the workout, a group of friends drank some beer together, and came up with “the best idea ever”!
Sadly, most of the time, it stays an idea, and the hot flame of motivation turns into a cold lump of disappointment.
Risk: Having an Idea and Just Doing it
Often, between a good idea and getting started, there’s only one intermediate step missing – but it’s an important one. If the action is not taken, there’s a risk of the entire project freezing up. An example: the idea “online shop for t-shirts with cute cats” may seem like a way to make money off of the cat video hype. And friend 1 watches a lot of YouTube videos so that he can start an own channel tomorrow – a compilation of the best videos. Friend 2 was pretty good at drawing in college, so he’ll do the graphics. There’s also a ton of cat images on the internet so that you could print these. Friend 3 is a social media connoisseur and knows that cat content does great. Visitors will get to the online shop via Facebook and Youtube, and the t-shirts will sell like hot cakes!
But is all of that enough for three people to at least make some decent money on the side? Were the resources evaluated properly, was the market observed, the unique added value underlined?
No. Chances of this project getting stuck and given up are very high.
The decisive step before starting is missing: the idea has to be turned into a sustainable business model.
Necessary: Viable Business Model
A good idea has to be embedded in a good business model. That’s the ideal. A common witticism on the topic goes like this: “It’s easier to realize a bad idea with a good business model than the best idea without one.” Unfortunately, the author is unknown but deserves a flower bouquet.
Four Main Elements of Business Models According to Stähler
Patrick Stähler, author of “Founding the Right Thing. Toolbox for Entrepreneurs.”, says that a good business model addresses four key elements. Here, all of them are equally important and closely connected to each other.
- The value proposition, the promise to the customer, to solve an individual problem. Also: what impresses the client? This is where the added value is.
- The business structure – here’s where the product comes in, but marketing channels, production, and advertisement belong to this element.
- The profit model that shows, how exactly money is made, as well as
- the entrepreneurship.
Stähler talks about the promise to the customer, the added value. Without it, there won’t be any success, because who buys a product without expecting anything from it? In the cat example, the added value could already be that the customer gets a great gift idea directly while watching the cat video. He’s also able to order said idea in just a few clicks, as a gift, for instance. Everyone has already gotten clothing as a gift: a giant market? You can find that out. But to do so, the added value has to be clear. Only those that know which needs are covered by their product can pull the according levers in distribution and marketing. He fully understands his supply.
Solution: Filling Business Model Canvas
Alexander Osterwalder and his Professor Yves Pigneur have released the well-known book Business Model Generation” in 2010. In there, he shows how the business model’s elements are summarized in the form of a building kit. He called it the “Business Model Canvas,” which has become one of the most popular portrayals of the business model.
The canvas’ intention is to be able to display the own business idea, embedded in a valid business model, on a single piece of paper. To do so, Osterwalder defined so-called key factors – primarily the most important areas of the business, like customers, distribution channels, partners, and so on.
Here, you can clearly see how close it is to Stähler’s comprehension. The neat thing about Osterwalder’s template is, that it is licensed under a creative commons license, meaning everyone can download, print, and use it (here, for example).
By the way: the limited space on the canvas is not a coincidence. The founder is forced to only note the most important keywords in every area. The business plan is later created on the basis of the filled out Business Model Canvas.
Additionally, the key factors can not be altered. “Normally,” as by now, there is software out there that moved that model into the web browser. There, adjustments to the original template were made, which does make sense for individual branches.
Conclusion: Dash Off, But Only With a Solid Plan
Those carrying around an exciting business idea, and already see themselves on an island with a bag of money, be advised: first, sit down, develop a business model, then dash off. The idea can only be turned into something true with a solid business model. Next up is hard work, and maybe the bag of money can actually fill at that point. Best of luck!