Startup Lessons
5 mins

Why you need a business model

If you want your business to be profitable, you need a working business model.

What is a business model?

A business model explains how a business will generate profit.  If you want  your business to be profitable, you need a working business model.  A good business model will explain how you will create value for your customers, and how that value will create revenue for your business.  You can’t get to profit without revenue and you can’t get to revenue without value creation.

Love the problem

When you decide to start a business, you need to make sure you have a problem worth solving - ie one that a customer will pay money for because it solves a problem they want solved.  This solution to a real customer problem is the value your business provides.  

The key to a working business model is to create value for your customers which they can then share with you.  By solving your customers problem, you provide them with value - in the form of time saved, money saved etc.  Your customer will then give some of this value back to you as revenue.

For your business model to work, you need to create more value for your customers than you capture back (what you charge them).  

“A business model describes how you create, deliver, and capture value from your customers”-Saul Kaplan  

Using Lean to iterate your business model

Lean Canvas offers a 1 page template adapted by Ash Maurya from Alex Osterwalder’s Business Model Canvas and is used by businesses and startups worldwide to capture their business model.  It deconstructs a business idea into assumptions and describes how it will create value, deliver value and capture value.  It can take under an hour to create your initial business model using Lean Canvas.  By clarifying who your customers are and the problem they face, you can then iterate through your unique value proposition, unfair advantage and cost structure.

The Lean Methodology encourages an iterative approach to business development, so once your initial business model has been created you can iterate through the challenges it hightlights to create a Minimum Viable Product (MVP)

What is the difference between a business model and a business plan?

Your one page business model will show you how your business will generate profit. It fits on one page, takes less than an hour to create a first iteration and will be referred to regularly.

By comparison, a business plan  sets out your business’s strategy and expected financial performance for the next 3-5 years.  It is often tedious and time consuming to write and most business owners put it away in a drawer and forgotten about until it is very out of date.  

At Cow-Shed Startup we help business owners to create a Lean Canvas Business Model to create profit for their business.  Contact us to book a 3 hour private Business Model workshop.

If you are still tempted to write a business plan, you might want to have a look at this Forbes article : Why Business Plans are a Waste of Time

Find out how the Lean Startup Methodology is essential for any business.

December 19, 2019

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