Free Shark Tank Jump Start Your Business: How to Launch and Grow a Business from Concept to Cash by Michael Parrish DuDell Page A
Authors: Michael Parrish DuDell
work and which ones do not.
In its most basic form, a business model is how a company makes money. More specifically, it describes how an organization creates, delivers, and captures value. Business models can range in detail and complexity, but a study done by the Massachusetts Institute of Technology Sloan School of Management in 2004 discovered that almost every model falls under one of four main archetypes:
Creator: A creator “buys raw materials or components from suppliers and then transforms or assembles them to create a product sold to buyers.” Pretty much any manufacturing operation would fall under this category. EXAMPLE: Daymond John’s company FUBU.
Distributor: A distributor “buys a product and resells essentially the same product to someone else.” While a distributor may add additional value somewhere throughout the distribution cycle, essentially he is selling a product that already exists. EXAMPLE: Any of the products Lori Greiner sells on QVC.
Landlord: The landlord “sells the right to use, but not own, an asset for a specified period of time.” Any rental business operates under this archetype. EXAMPLE: Mark Cuban’s company Magnolia Pictures, which gives movie theaters limited rights to show their films.
Broker: The broker “facilitates sales by matching potential buyers and sellers.” The broker doesn’t actually own anything, rather she facilitates a transaction. EXAMPLE: Barbara Corcoran’s former company The Corcoran Group.
Now that you understand the four basic archetypes, it’s time to start thinking about developing your own business model.
A 2001 study published by Accenture—a highly regarded global consulting firm—examined business models from seventy different companies. The good news (and perhaps also the bad news) is that their study confirmed there isn’t one surefire model guaranteed to bring in cash. From timing to technology, many factors play a role in the success of a business model. They did however uncover three characteristics that were prevalent in every good model.
First,
a solid business model offers unique value
. While this could include the invention of a new product or service, it doesn’t have to. Providing unique value can be about providing a new or different feature that delights the consumer.
Next,
the business model must be difficult to imitate
. When a company finds a creative way to stand out, it creates barriers to entry that prevent other businesses from competing.
“Having the ability to be brutally honest with yourself is the greatest challenge you face when creating a business model. Too often we oversell ourselves on the quality of the idea, service, or product. We don’t provide an honest assessment of how we fit in the market, why customers will buy from us, and at what price. It’s a reason many entrepreneurs fail.”
And finally,
a strong business model should be grounded in reality
. Although they may not admit it, many companies lack awareness about where and how they make their money. This is particularly true in larger organizations. A good business model is grounded in reality and takes into account accurate information about cost, revenue, and consumer behavior.
When creating your business model, don’t forget to fully examine your market size, consumer segment, and competition. The more data you can gather, the better your model will be. When you find a model that works, by all means stick to it! But keep in mind that business models aren’t static; they often evolve and shift as your company does the same.
SETTING YOUR PRICE
Let’s say you’re on vacation and want to buy a bottle of water. Now, you could purchase one at the local drugstore for $1, or at the coffee shop for $3, or the theme park for $5. You’re welcome to take the bottle of water that’s sitting in your hotel room, but that will cost you $7, or you could wait until you go to that fancy restaurant for dinner and order a bottle of sparkling water
In its most basic form, a business model is how a company makes money. More specifically, it describes how an organization creates, delivers, and captures value. Business models can range in detail and complexity, but a study done by the Massachusetts Institute of Technology Sloan School of Management in 2004 discovered that almost every model falls under one of four main archetypes:
Creator: A creator “buys raw materials or components from suppliers and then transforms or assembles them to create a product sold to buyers.” Pretty much any manufacturing operation would fall under this category. EXAMPLE: Daymond John’s company FUBU.
Distributor: A distributor “buys a product and resells essentially the same product to someone else.” While a distributor may add additional value somewhere throughout the distribution cycle, essentially he is selling a product that already exists. EXAMPLE: Any of the products Lori Greiner sells on QVC.
Landlord: The landlord “sells the right to use, but not own, an asset for a specified period of time.” Any rental business operates under this archetype. EXAMPLE: Mark Cuban’s company Magnolia Pictures, which gives movie theaters limited rights to show their films.
Broker: The broker “facilitates sales by matching potential buyers and sellers.” The broker doesn’t actually own anything, rather she facilitates a transaction. EXAMPLE: Barbara Corcoran’s former company The Corcoran Group.
Now that you understand the four basic archetypes, it’s time to start thinking about developing your own business model.
A 2001 study published by Accenture—a highly regarded global consulting firm—examined business models from seventy different companies. The good news (and perhaps also the bad news) is that their study confirmed there isn’t one surefire model guaranteed to bring in cash. From timing to technology, many factors play a role in the success of a business model. They did however uncover three characteristics that were prevalent in every good model.
First,
a solid business model offers unique value
. While this could include the invention of a new product or service, it doesn’t have to. Providing unique value can be about providing a new or different feature that delights the consumer.
Next,
the business model must be difficult to imitate
. When a company finds a creative way to stand out, it creates barriers to entry that prevent other businesses from competing.
“Having the ability to be brutally honest with yourself is the greatest challenge you face when creating a business model. Too often we oversell ourselves on the quality of the idea, service, or product. We don’t provide an honest assessment of how we fit in the market, why customers will buy from us, and at what price. It’s a reason many entrepreneurs fail.”
And finally,
a strong business model should be grounded in reality
. Although they may not admit it, many companies lack awareness about where and how they make their money. This is particularly true in larger organizations. A good business model is grounded in reality and takes into account accurate information about cost, revenue, and consumer behavior.
When creating your business model, don’t forget to fully examine your market size, consumer segment, and competition. The more data you can gather, the better your model will be. When you find a model that works, by all means stick to it! But keep in mind that business models aren’t static; they often evolve and shift as your company does the same.
SETTING YOUR PRICE
Let’s say you’re on vacation and want to buy a bottle of water. Now, you could purchase one at the local drugstore for $1, or at the coffee shop for $3, or the theme park for $5. You’re welcome to take the bottle of water that’s sitting in your hotel room, but that will cost you $7, or you could wait until you go to that fancy restaurant for dinner and order a bottle of sparkling water
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