The ten basic elements of a strong business model
1. Value proposition. What is the need you fillor problem you solve? The value propositionmust clearly define the target customer, thecustomer’s problem and pain, your uniquesolution, and the net benefit of this solutionfrom the customer’s perspective.
2. Target market. Who are you selling to? Atarget market is the group of customers that thestartup plans to attract through marketing andsales their product or service. This segmentshould have specific demographics, and themeans to buy your product.
3. Sales/Marketing. How will you reach yourcustomers? Word-of-mouth and viral marketingare popular terms these days, but are rarelyadequate to initiate a new business. Be specificon sales channels and marketing initiatives.
4. Production. How do you produce yourproduct or service? Common choices includemanufacturing in-house, outsourcing, off-the-shelf parts. The key issues here are time tomarket and cost.
5. Distribution. How do you distribute yourproduct or service? Some products and servicescan be sold and distributed online, othersrequire multi-level distributors, partners, orvalue-added resellers. Decide whether theproduct is local or international.
6. Revenue model. How do you make yourmoney? The goal here is to explain to yourselfand to investors how your pricing and revenuestream will cover all costs and still leave a goodreturn.
7. Cost structure. What are your costs? Newentrepreneurs tend to focus only on productdirect costs, and underestimate marketing andsales costs, overhead costs, and support costs.Test your projections against actual publishedreports from similar companies.
8. Competition. How many competitors do youhave? No competitors probably either meansthere is no market or you have not done enoughresearch. More than ten competitors indicates asaturated market. Think broadly here, likeplanes versus trains. Customers always havealternatives.
9. Unique selling proposition. How will youdifferentiate your product or service? Investorslook for a sustainable competitive advantage.What is protecting you from copycats? Do youhave a patented technology?
10. Market size, growth, and share. How big isyour market in dollars, is it growing or shrinking,and what percent can you capture? Venturecapitalists look for a market with double-digitgrowth, greater than a billion dollars, and adouble-digit penetration plan.