Starting a Company

Constructing a Business Model

Written by James Garvin for Gaebler Ventures

Business models are the foundation and core of what determines your business' success or failure. Using the 7 questions below will help you articulate and analyze what your business model is, how it is constructed, and methods to improve it.

1. What problem are you solving?

Before providing your solution, clearly present and market the problem that you are solving.

Constructing A Business Model

Customers can relate to problems because it frames your solution for them. Jumping straight into a solution makes it difficult to understand exactly what problem you are solving. As an example, don't just go to market saying that you are providing the best shoe out there. Rather, go to market positioning your shoe as the solution sore feet. Customers can relate to it and can now see how your shoe might be the solution for their sore feet.

2. Who are you providing value too?

It is imperative that you define your target market. Be specific and focus on as narrow a market segment as possible. Defining your core market segment will allow you to focus on activities that create the most value for your core customer segments. Focus after all is half the battle with a growing business.

3. What unique value are you providing?

You've stated your problem, and you have your solution, but so what? How is your solution to this problem creating value for your customers? Your value proposition should be clearly defined in one sentence that includes the problem you are solving, why customers will pay for it, and how it is unique. Understand what core activities you will undertake that will separate your solution from the competitors.

4. Who is going to pay you? (not the same as who you are providing value too)

Businesses after all are about profits and creating economic value. Believe, it or not, many businesses start (especially internet based businesses) start with out an understanding of who will be paying their bills. Know who will be writing the checks to you. If you are providing free consumer services or information, are advertisers subsidizing these? If you are charging your customers, why will customers pay you for your solution?

5. How will you provide this value?

Also knows as your value chain, draw a map of the activities that you will engage in to provide your unique value. What are the core activities and what are the support activities? Look for activities that may be redundant or unnecessary to accomplishing your primary objectives. Having too many activities can lead early star-ups astray. Mapping out your activities will help you assess and evaluate opportunities to increase efficiency.

6. What resources do you need?

You can never do it alone, so what resources do you need to get off the ground? Do you have sufficient man power to pursue the required activities you need to start? Analyze what critical resources you need and get them, but analyze the ones that you think you might do with out and prioritize them.

7. What are the costs of starting and running your business?

Revenue is great, but not if it's less than your costs. While pro forma financial statements are often guestimates, they provide a good exercise to help you determine what costs to expect in your business operations and ensure you have the ability to create a sustainable profit.

James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.

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We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

  • Douglas G. Jackson posted on 2/21/2011
    Douglas G. Jackson
    All of this is essential to constructing a business model. However, there is something tangential to constructing a business model that is also necessary to consider. That tangential consideration is the business structure. Generally speaking, entrepreneurs should make sure their companies are structured to have limited liability. Typically, corporations, LLCs, and LLPs offer this protection. You should always consult an licensed attorney before starting your own business because making sure you have limited liability could save you from personal bankruptcy and lawsuit.

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