This used to mean, show me a prototype; something that runs, works, or I can touch. I can remember being shown plans of an innovative hovercraft many years ago, and sending the inventor away with, “show me a working model”
Today, this means “show me a business model that works”.
The key to having a business model that works is paying customers, who pay to buy or use your product or service. And these customers need to pay enough so you can make a profit. I’ve been called in to help companies with lots of customers who are losing money! So it’s important to discover up front what your customers are willing to pay for your product or service.
Also, there are business models today where it’s not obvious who the paying customers are, as different from those that actually use the product; think about those who pay for data, based on those that use the product for free!
I can hear you saying…. this is so obvious…… yet proofing your business model before launching your business (or even writing a business plan) is still the number one thing I see “not” being done when I am called into to help a small biz or early stage company.
Before we build that first hovercraft, let’s find out if anyone will even use it; and of those who are interested, how much will they pay to use it? Are we solving a problem, like ‘how do we get to the other side of the river’? Is there a need to cross the river in the first place, and would a hovercraft be good for that, especially in winter? Will this be repeatable….in other words will people want to cross the river often; are we dealing with regular commuters or seasonal tourists? Will we be the entity that owns the craft and runs the business (with multiple users who are the paying customers), or will we just build it and sell or lease the craft to someone who has a transportation business model? You see where this is going already….
The best resource I have found which clearly illustrates “searching for your business model”, is the free Udacity online course “How To Build A Startup” by Steve Blank.
If you only have limited time, I recommend Lesson 1.A. and 1.B. Disclosure: everyone I have suggested watch these lessons has taken the entire course! It’s that good, and it shows the difference between the old way we did things, and how we do them today; searching for the business model before we even create the business plan, and most assuredly before we open for business (put our money or yours on the line).
Investors want to know you have gone through the process of customer development, and created a working business model (admittedly one that might change to meet customers needs). But way before you call in an investor you should consider doing this for yourself, your own small business or startup, or any company you are helping to increase business and become profitable!
Even though the inventor might actually have come back with a working hovercraft as I asked years ago, that still would not have answered the question whether it solved a pain or need, or that customers would actually have paid good money to use it!
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