Developing a Business Model for Your Startup

By: Billy Vrbensky, Altitude Accelerator Communications Intern

Meet Nick. Nick dreamed of attending a university where he could progress his skills in software development but his parents couldn’t afford it. They worked long hours to make rent every month. His father forced him to go to community college to take automotive repair so he could join the family business at the local repair shop in town. Nick began to take on increasingly complex web development projects over time and eventually dropped out of college to pursue his passion. His business rapidly expanded. Nick couldn’t handle the demand for his services on his own. He hired a consultant to help him create a viable business plan to effectively grow the business. The business model became an important component of his plan, helping the business take off and sustain itself in the future.

Business enthusiasts often throw around the term business model when talking about startups. The business model explains which problem your startup solves, why your solution works better than competing alternatives and how you will monetize your customers at a higher level than their cost of acquisition. Did you know that a weak business model is a common reason that some startups fail?

Alexander Osterwalder, business theorist and consultant, developed the famous Business Model Canvas to help entrepreneurs build custom business models catered to their specific market. He defines a business model as:

“A description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, to generate profits and sustainable revenue streams.”

Here are the nine building blocks for developing a business model:

1. Customer Segments: Which customers are you serving and what are you really trying to accomplish for your market segments?
2. Value Proposition: What problem do you solve and how do you differentiate yourself from the competition?
3. Channels: How do you get your product into the hands of the consumer and how do each customer segment want to be reached?
4. Customer Relationships: What kind of relationships are you establishing with each segment and how do you plan to grow them in the future?
5. Revenue Streams: What are customers really willing to pay for? Do you generate transactional or recurring revenue?
6. Key Resources: What resources do you need to perform your activities and which reinforce your business model?
7. Key Activities: How do you attract consumers and present your value? Which activities do you need to perform well in your business model?
8. Key Partners: Who are your key partners and key suppliers? Which key resources are you acquiring from partners and which key activities do your partners perform? Who do you need to rely on?
9. Cost Structure: How much does it cost to operate the model and which key elements drive your costs?

Have you constructed a business model canvas recently? Could it use some professional adjustment from experienced business experts?

Altitude Accelerator presents Starting Lean: Business Model, the free Entrepreneur’s Toolkit Workshop on October 13 and 20th to help you create a business model. Learn from experienced facilitators who can help you design and validate your business model in two interactive hands-on sessions. Click here to learn more about the event and watch your ideas grow into a healthy and profitable business!