One of the first decisions you’ll make

       Thinking through and deciding on your business model is critical, because it’s fundamental to your company’s viability. Even the best concept will have a hard time succeeding if it’s not supported by the right business model.

What Is Your Business Model?

      Now that you’ve articulated a vision for your business idea, you need to consider a number of other factors as you begin to ground your vision in reality. These real, practical, nuts-and-bolts aspects of running a business will ultimately determine your success. No matter how brilliant the idea, execution in business is everything!

      One of the first things you will do is identify your business model.

      The term “business model” describes what your company does and how you make money. For example, will you make a product? If so, how will you sell it? To wholesalers? To consumers? If to consumers, will you sell directly or use intermediaries? If you use intermediaries, will you use distributors or retailers to reach consumers, or will you open your own brick-and-mortar storefront or e-commerce website? Or perhaps you won’t sell your product to consumers at all, but lease it to them. And how will you make your product? Will you design and manufacture it yourself, or will you outsource manufacture and then assemble components?

      If you sell a service, will it be for a flat fee, on an hourly or time-and-materials basis, or perhaps via a subscription? Will you provide the service yourself or engage others to work for you? Or perhaps you won’t sell a product or service at all, but be an intermediary—a broker of some type between buyers and sellers.

      In other words, what structure are you putting in place to make your money? What’s your business model?

      Thinking through and deciding on your business model is critical, because it’s fundamental to your company’s viability. Even the best concept will have a hard time succeeding if it’s not supported by the right business model.

      You have many different types of business models to choose from. By figuring out your own best model, you’ll begin providing more definition and structure to your business concept.

      Understanding your business model thoroughly is critical for planning the activities of your business. You have to know how you intend to make money to determine who your real customer is, how to set prices, what kinds of profit margins you can reasonably expect, what kind (if any) of customer service to provide, and the like.

      For example, many online companies make money the traditional way: by selling something directly to customers at a profit—a conventional e-commerce company. Other companies behave more like “land-based” media companies, making money through advertising. Some online companies bring people together, acting as brokers, such as online dating or vacation rental sites. Subscription-based software applications that operate in the cloud, such as customer relationship management (CRM) software, are yet another model.

      ENTREPRENEUR’S WORKSHEET

       Business Opportunities

       Answer the following questions to come up with possible business opportunities. Use both common and unconventional ideas. Use the business idea(s) you come up with here as a basis for some of the other exercises throughout this book.

      ENTREPRENEUR’S WORKSHEET

       Your Bright Idea

       Use this space to record your initial business ideas. This will become a starting point for defining your business concept.

      ENTREPRENEUR’S WORKSHEET

       Basic Business concept

       Using this worksheet as a guide, outline your business concept as you presently conceive it.

      While most business models have been around for a long time—selling products directly to customers, for instance—business models continuously evolve. This is particularly true as new technologies, especially those spawned by the Internet, create new ways to bring customers and people together. And new business models will certainly yet develop. Perhaps you’ll invent one for your business!

       Barriers to entry

       Certain obstacles will stand in the way of a company—either yours or a competitor’s—attempting to enter a given market. Significant barriers to entry make it harder to succeed in an entrepreneurial venture. But once you’re established, these same barriers to entry stand in the way of competitors coming after you:

      ■ Substantial initial investment required

      ■ Limited distribution channels

      ■ Entrenched customer loyalty to existing offerings

      ■ High “switching costs” for customers to move to new offerings

      ■ Aggressively low prices from competitors

      ■ Intellectual property protections, such as patents

      ■ Government regulations, tariffs, trade restrictions

      ■ Language or cultural differences

      ■ Market saturation and oversupply

       For more on barriers to entry, see pages 132–134.

       Types of business models

       WHAT YOU DO

      ■ Design physical products/merchandise

      ■ Manufacture physical products/merchandise

      ■ Sell physical products/merchandise

      ■ Create information/content/data

      ■ Aggregate or distribute information/content/data

      ■ Provide personal or business services

      ■ Provide expert advice/consultation

      ■ Provide money/financing

      ■ Provide labor/human resources

      ■ Transport products/people

      ■ Provide infrastructure/telecommunications

      ■ Provide a marketplace—physical or online—for others to sell goods or services

      You will very likely employ more than one business model. For instance, let’s say you have an e-commerce, transaction-based website that sells

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