For any startup, a business model is a necessary tool to define its concept and lay out a road map for creating and growing the business. It is a visual way to show the company’s story with figures and assumptions. However, a business model must be tested in the marketplace before it becomes successful.
Here are some critical tips for creating and testing a business model.
Show an appealing story
A business model shows how a company creates, delivers and captures value, which is how it sells and monetizes benefits to customers. The business model identifies three elements: resources, transactions and value creation. Resources are the people, assets, and capital required to create, deliver and capture value, while transactions describe the activities necessary to make and sell benefits. Value creation explains the value propositions and the selling price and cost.
There are various business models, depending on the level of comprehension and progress stage of the venture. For early-stage ventures, any information available may be limited, so a simple business model that explains resources, transactions and value creation is applicable.
For startups looking to test a new product, a business model tests the problem-solution fit, while capturing value by identifying the customer segment and mix, value proposition and the revenue streams. For startups looking for growth, the Business Model Canvas provides details on nine business blocks, which include customer segment, value proposition, channels, customer relationship, revenue streams, partnership, activities, resources, and cost structure.
Carry out three critical tests
Validating a business model shows the approval of customers. Early validation of a business model enables market testing with the least resources and mitigates risks. The reasons for validation are to help a business understand what customers want and ensure the desirability, feasibility, and viability of the new business.
The desirability test demonstrates the ability of the new business to meet customer needs. The feasibility test demonstrates the ability of a new business to create, deliver and capture value for customers. While the viability test explains the ability of a new business to sell value and make a profit.
Any startup will go through three distinct tests, namely the concept, selling and growing tests. The concept test examines the problem-solution fit, and the selling test examines the product-market fit. while the growing test examines the potential growth of the startup.
Innovation is practical and makes new ideas useful, while creativity is thinking, feeling and focusing differently. Innovation can involve the product, process or system and aims to create new value. It enables a firm to stand out from the crowd in the market and strengthens its competitive advantages.
Innovation is a challenging process that requires an enabling business culture to motivate the creation of useful ideas, as well as effective leadership, systems, and resources. Entrepreneurs must have the mindset of innovation to extract new ideas and transform them into values that customers want. It can be incremental or disruptive. Incremental change is the improvement of a product or process, while disruptive innovation is creating a product that can create a new market and bring in new customers.