The term “business model” has become very trendy these days with the advent of startups. However, it is difficult to find the right business model at the first attempt. As a result, startup founders want to know the ideal time to iterate their business model.
The business model: what’s the point?
The business model, also known as the economic model, is a way of mapping out the company’s strategy for creating value. In other words, the business model indicates how the company plans to generate revenue and the operational factors that will enable it to achieve and maintain healthy profitability.
“The only goal of an entrepreneur is to find his business model” – Oussama Ammar, Co-Founder at TheFamily
The usefulness of the business model :
- Answer the essential questions: what to sell, to whom, how, etc,
- Identify market and customer segments,
- Highlight the differentiating and innovative factor compared to the existing market,
- Highlight the revenue generators and the resulting profitability,
- Provides a clear and synthetic presentation without technical details.
Startups use a “business model canva”. The goal is to have both a synthetic and visual content to mobilize the teams. It is also a document that can be used to communicate effectively with potential partners and investors. The canva business model was developed by Alexander Osterwalder in 2004.
The business model: a perpetual evolution
“A good business model is essential to every organization that wants to succeed, whether it’s a startup or an established company.” – Joan Magretta, senior associate at Harvard Business School’s Institute for Strategy and Competitiveness.
Early ideas do not necessarily lead to the best opportunities for startups. Indeed, entrepreneurs make assumptions. These hypotheses are the result of brainstorming ideas that they believe would be potentially successful. The business model makes it possible to contain these assumptions before being tested. The entrepreneur must have an open mind and not get attached to certain ideas, as it is likely that he or she will have to iterate or pivot the business model.
With new technologies and the emergence of new competitors, companies must constantly evolve their business model. We have all heard of Kodak. The business model of this company had become obsolete. For startups, the question doesn’t even arise, because you have to adapt very quickly to survive.
“In the current climate, it is best to assume that most business models, even successful ones, will have a short life span. – Alexander Osterwalder
The difference between “iteration” and “pivot
- Iteration refers to a minor adjustment in the business model. In this case, the entrepreneur decides to reorient the business model and value proposition, but the new models are still closely tied to the basic idea.
- A pivot occurs when a company decides to substantially change one or more components of its business model.
Eric Ries, through his book ” The Lean Startup “, defines the act of pivoting one’s business model. The destination (the company’s vision) does not change: it is simply the means it uses to get there that evolves (the pivot).
“A pivot is a change of strategy, but keeping the same vision” – Eric Ries.
Entrepreneurs and intrapreneurs easily iterate on their ideas, however, they find it difficult to pivot to a radically different business model and value proposition. This phenomenon usually occurs because entrepreneurs :
- Get attached to an idea and take too long to kill an idea they like,
- Are too slow to realize that substantial changes are needed.
Killing an idea
To be successful in business, sometimes you have to put your emotions aside. Indeed, it is difficult for entrepreneurs to pivot their business model, because they have spent time on it. Over time, this idea and the resulting business model took root. It is difficult to give up this business model for a new one. Here are a few situations that could push startups to pivot their business model:
- Potential prospects are not convinced of the value proposition,
- Potential prospects find the proposed price excessive, and cannot afford it,
- The financial equation is flawed. Revenues are not high enough to support operational costs,
- External factors are affecting the market.
Making the business model part of the Mauritian way of life
In Mauritius, more and more young entrepreneurs are embarking on this great adventure by incorporating their company. The business plan, also known as the business plan, is still perceived as the most important document for a startup. To approach potential investors and local banks for financing, a business plan is mandatory. However, the chances are minimal for a startup to get an investment without first having a sound business model and a customer portfolio.
The business plan can be done in parallel. Like the business model, the business plan must be regularly updated. The challenge is to raise awareness about the usefulness of the business model for Mauritian startups.
And you, have you found the right formula for your business model?