Seth Godin has a great definition of business model:
A business model is the architecture of a business or project. It has four elements:
- What compelling reason exists for people to give you money? (or votes or donations)
- How do you acquire what you’re selling for less than it costs to sell it?
- What structural insulation do you have from relentless commoditization and a price war?
- How will strangers find out about the business and decide to become customers?
I think Seth’s definition is essential when you are launching a startup. If you haven’t filtered your startup through this definition of a business model, you probably aren’t ready to launch yet (unless you don’t care about generating revenue).
Let’s turn this definition into a checklist:
- Do I have a compelling solution that solves a painful enough problem that will cause someone to part with their hard-earned money in exchange for my product or service?
- If I sell 25% of what I think I will sell in the next year, will I still have enough money to live, pay my bills, and continue to develop the startup?
- If someone comes out with the same product tomorrow (they probably will) at a lower price (they probably will), do I have a good reason for my customers to stay with my startup?
- Do I have a plan to obtain and retain customers (not website visitors) no later than the go-live date of my startup?
If you don’t have reasonably solid answers to this checklist, you probably don’t have a viable business model yet. This doesn’t mean your startup won’t ever be ready, it just means you need to spend more time reworking your business model (and possibly your product offering).