Business model

Business model

The business model is a description of how the new venture plans to make money. Basically, this involves getting the customer to use a product or service and getting paid for it.

The core concept is to do something that the customer values. The four P’s of marketing provide the framework for constructing the venture’s business model.

Product

The reference for creating a product is the set of needs to be addressed of the target customer.

The key is to recognize that the customer needs a solution. The concept of whole product was introduced by Geoffrey Moore to capture this idea.

“The Whole Product. The whole product is the complete set of products and services needed to fulfill the customer's reason to buy.”[1]

So the key questions for the entrepreneurial team are:

• What are the elements of the whole product and how will the customer get them? If there is an integration step required, who will perform that?
• What is the venture’s proposed piece of the solution — its product?
• Does the venture need partnerships or other business relationships to enable the whole product for the target customer?
• How will the venture produce its product and what are the associated costs?

Industry and firm value chain analysis are useful tools to help answer these questions.

Read more about value chain analysis here.

Promotion

How will potential customers find out about the venture’s product and be persuaded to buy? The venture must decide how it will create demand. These activities

• Communicate the venture’s benefits — its value proposition,
• Establish the firm’s brand,
• Address and mitigate barriers to adoption.

Demand creation activities must align with

• Customers’ interests,
• How they are influenced,
• Where they look for information.

Place

Not only must demand be created, it must be fulfilled. The venture must be able to deliver the product to the customer in a way that is efficient and convenient for the customer. The venture must decide whether it will fulfill demand

• Directly, possibly via the web,
• Through distributors,
• Through partners that add value of some kind,
• Etc.

Price

Finally, the venture must get paid. In order to set a price, the entrepreneur must understand the value of the solution to the customer and the customer’s willingness to pay.