Vivek Wadwha put a post up on Techcrunch over the weekend title What Excatly is a Business Model? To my mind he didn’t really answer that question (I was expecting a piece about different ways of organising revenues and costs to make a profit) but he does list out seven requirements for a successful business. It is worth every entrepreneur and investor going through this list and making sure they know how they will deliver on each of these points, and the value in frameworks like this is that they throw the spotlight on areas that might have been forgotten. Note that I’m not saying this is an exhaustive list of things that a business needs to think about. That will vary by sector and is difficult to generalise. Rather I think it is helpful to collect a number of frameworks like this and revisit them periodically as sense checks on a business.
Vivek describes this list as ‘seven basic components of a business model’. I prefer ‘seven capabilities of a successful company’. I have paraphrased/re-phrased here, and if this post resonates you would enjoy going back to read Vivek in full.
1. Reaching customers
Having a great product is not enough. You need to figure out who your prospects are and then find a way to get in touch with them. It is amazing how many awesome technology companies get stuck at this point, not least because it is hard work – there is no alternative to grinding away via the internet and email, or the old fashioned way – through broadcast media, telemarketing, references, or cold calling.
2. Differentiating your product
It is never enough to be able to explain to insiders why a product is best in class – rather companies must excel at the much harder task of convincing the outside world with good positioning which comes from a thorough understanding of the customer problem and the competition.
Identifying the optimum price point as a business grows has always been challenging and has got more so with the web. The key is figuring out how to drive initial adoption and then make enough money from customer over time.
Then the customer needs to be be persuaded to buy, and in a process that scales. This requires a clear understanding of what it takes to close a deal, tracking all of the steps that lead up to a purchase, and tweaking the sales process on a continual basis.
Simple for digital goods on the web, but complicated for everything else. Delivery and distribution are science not art and the keys here are clear thinking, discipline and attention to detail, and that applies equally whether you are shipping physical goods from your own warehouse or managing a network of distributors and value added resellers.
6. Supporting customers
A company needs to be able to teach its customers to use its products, to deal with defects and returns, and to answer product questions. That might require a 24/7 operation and/or a team of implementation consultants.
7. Achieving customer satisfaction
This is a bit of a catch all, but as Vivek says “The ultimate success or failure of a business depends on how much it helps customers achieve their objectives. Happy customers will become your best sales people and buy more from you. Unhappy customers will become your biggest liability.”
Note that this list is a little different to how to structure a VC pitch, which is about establishing the attractiveness of an opportunity and should focus on market, product, and team. These capabilities are more the sort of things a VC will want to talk about as they look to understand how a company is working, a process which helps establish that the team really is high quality and will also provide support for the market and product theses.