31 Aug 2016

What is a sound business model for startups?

Startups should be focused on what they can have competitive edge and differentiation from other competitors after looking into the value chain structure of their target segments.
By Kelvin Chan

A business model is how a company creates, delivers and captures value. The first and most fundamental thing before you carry on your business is to ask yourself whether your products or services can provide value to your target customers. So, do not overlook in doing your market research and fix the appropriate strategies (e.g. competitive strategies, pricing strategies, development strategies, etc.) after determining your target market.

Once you have positioned your market and the user value to be generated from your business, you can then think about your revenue model. For this step, you have to investigate into the value chain structure of your target segment and make sure that your strategies are in line with it. For example, when you are offering some free services to customers, but if you cannot charge them money at the end. The users or customers will be happy but it is meaningless to a business if it cannot make reasonable profit. On the contrary, if you can disrupt a certain level of value chain with free service, but at the same time, you can then capture a big market share in another layer within the chain or even charge a higher price, then, it is probably worth doing that.

The greatest value with lowest costs being incurred in your business will give you a greater chance of success and profitability, and vice versa. Said is always easier than done. In real business world, you can easily fail if you have no competitive edge or differentiation from other competitors, in particular if you have lack of resources to sustain. Even if you have investors to support you in fund-raising, they may be able to help you in startup stage, if your business model and revenue model cannot survive from market competition and if you cannot deliver the value, your business can also run out of cash and disappear. So, during startup stage, it is better to make your business being focused on some or even a single segment that can help you to leverage your upcoming growth on that segment. Except if you can leverage on other partners’ resources to broaden your services. Keep in mind to focus your resources to enhance the chance of success of a particular segment. For most businesses, differentiation on your products and services with unique features and strengths is often better than offering a lot of unrelated features. Laser can drill through a wall but light can only make the wall bright. Try to enhance the quality of your revenue (i.e. sustainable revenue source with competitive pricing) and minimize your costs. For startups, we do require a super CEO as it is usually very difficult to have many “Cs” to assist the CEO as they probably demand for a higher salary, except when they are also trustable and capable shareholders who can charge with minimal salary and fight for the upside. At this startup stage, partnerships or outsourcing services should be considered to absorb your costs and strengthen your available resources.

Said is always easier than done. But if you overlook the basic elements of the above, you will probably fail! Only those entrepreneurs who have passions, courage, wisdom with open-minded spirit have greater chance of success!


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