business-model

How To Design Winning Business Model

A business model is a holistic approach, to understanding how businesses work, and also to building a viable, and scalable business, from scratch. Business modeling, indeed, is about experimenting with the underlying assumptions around a business to make it viable quickly, thus reducing the chances of failure.

Step 1: Define the problem to solve

One of the most common mistakes, when building a business model from scratch, is to fall into the trap of looking for possible solutions, without guessing a problem.

Indeed, the first step is about finding a problem, worth solving.

customer-problem quadrant
A great simple tool, for guessing the problem, is Ash Maurya’s Leaner Canvas.

Once you find a problem, the next step is about guessing if there is a minimum viable audience around that problem.

Step 2: Find a minimum viable audience

Once you figured out what problem to solve.

The next question is about making sure there is an audience for that problem. It doesn’t have to be a big audience, quite the opposite.

minimum-viable-audience
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people whose needs are unmet by existing players.

Initially, you want to keep it very small, why?

First, it’s easier to test, and get feedback. Second, you get less competition. Third, you are able to build a personal relationship, which helps create positive feedback loops in the product.

Once you got a minimum viable audience, it’s time to test whether they are really interested.

Step 3: Sell first, then build

When building something from scratch, it’s easy to fall into the trap of asking around people what they think.

For the sake of building a business, asking around, is not a good idea.

You need to sell. Indeed, the sale of your product carries way more information about the customer’s preferences, than anything else.

This is the basic premise of revealed preferences.

You want to cut through the noise, and only look for a signal. If you’re able to pre-sell a product, then you know, customers want it.

Step 4: Build, launch and iterate fast

Once you got to pre-sell the product, you can start building it.

The first version needs to be extremely simple. As the main aim is to keep testing the market, rather than getting bogged down in technical details.

There is always time to make a product more sophisticated and complex.

Yet, at this stage, your business advantage comes from understanding your market, fast.

Thus, you want to build a first version, which is good enough, for your audience to be happy with that and start giving you valuable feedback.

Step 5: Refine, and test your assumptions, keep tweaking

The main point of building a viable business model is about testing your assumptions fast.

To remove them, and remove the limiting beliefs about your business model.

In many cases, you’ll be surprised about the things that might work and those that don’t.

Indeed, you’ll notice that ideas that seemed ingenious and destined to work, won’t. And those you might have thought wouldn’t have worked will.

Also, you’ll learn the difference between fake feedback (compliments, likes) vs. real feedback (sales, engagement, community).

This is at the core of business model experimentation.

business-experimentation
Business experiments help entrepreneurs test their hypotheses. Rather than define the problem by making too many hypotheses, a digital entrepreneur can formulate a few assumptions, design experiments, and check them against the actions of potential customers. Once measured, the impact, the entrepreneur, will be closer to defining the problem.

Key Highlights of Building a Business Model from Scratch:

  • Holistic Approach: A business model provides a comprehensive framework for understanding how businesses function and creating a viable and scalable business from the ground up.
  • Experimentation and Viability: Business modeling involves experimenting with underlying assumptions to quickly establish a viable business, thereby reducing the risk of failure.
  • Step 1: Define the Problem:
    • Identify a problem worth solving before seeking solutions.
    • Tools like Ash Maurya’s Leaner Canvas can aid in defining the problem.
    • Validate the problem’s significance before proceeding.
  • Step 2: Find a Minimum Viable Audience (MVA):
    • Identify a small, niche audience that your business can sustain initially.
    • Focus on individuals whose needs are not met by existing players.
    • Benefits of MVA: easier testing, less competition, personalized relationships.
  • Step 3: Sell First, Then Build:
    • Instead of seeking opinions, focus on making sales.
    • Sales reveal customer preferences through revealed preferences.
    • Pre-selling demonstrates genuine customer interest in your product.
  • Step 4: Build, Launch, and Iterate Fast:
    • Begin building with a simple first version.
    • Prioritize testing the market and gathering feedback over technical complexity.
    • Business advantage comes from market understanding.
  • Step 5: Refine and Test Assumptions:
    • Continuously test assumptions and hypotheses.
    • Challenge limiting beliefs and refine your model based on results.
    • Ideas that appear promising may not work, and vice versa.
    • Distinguish between fake feedback (compliments) and real feedback (sales, engagement).
  • Business Experiments:
    • Entrepreneurs use experiments to test hypotheses and assumptions.
    • Formulate a few assumptions, design experiments, and measure customer responses.
    • Genuine engagement, sales, and community involvement provide more valuable feedback than superficial indicators.
  • Problem Definition through Experimentation:
    • Instead of prematurely defining the problem, entrepreneurs use experiments to validate assumptions and adjust their understanding of the problem.
    • Experiment results guide entrepreneurs towards accurate problem definition.

Read Next: Business Model, Minimum Viable Audience, Lean Startup.

FourWeekMBA Business Toolbox

Business Engineering

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Tech Business Model Template

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A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Web3 Business Model Template

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Business Competition

business-competition
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.

Technological Modeling

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Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Transitional Business Models

transitional-business-models
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.

Minimum Viable Audience

minimum-viable-audience
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.

Business Scaling

business-scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.

Market Expansion Theory

market-expansion
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.

Speed-Reversibility

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Asymmetric Betting

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Growth Matrix

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In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Revenue Streams Matrix

revenue-streams-model-matrix
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

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