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Saturday, July 07, 2007

Business Model Blunders

I built my first startup Coola from Boston but traveled to Silicon Valley often for business partnerships and eventually scaled half my team there.

Living in the valley now, I meet someone from my startup days and it brings back nostalgia of the early day entrepreneur in me, and most important, reminds me of mistakes I wish I had avoided :-)

What is amazing is how I got good advice but did not seem to have internalized it then and I just get it these days. I still see entrepreneurs hungry to surround themselves with advisors but not benefiting from their experiences fully. Sometimes it inevitable, because we each have to grow as entrepreneurs from within, sometimes its our attitudes which limits us.

My biggest blunder was my search for our business model. This has helped me find a sweetspot in helping startups scale from a concept to their first customers, but its the same path everytime.

Here is my attempt to capture finding a business model for your startup, please let me know if you have more to add to this or different experiences to share.

Your dream becomes a business only when you find the right business model that brings your revenues.

What is a business model: It simply means knowing who your customers are and how they are going to pay you and why.


Where to start looking at the best business model for an idea?

First, there are lot people who are strategists who can come with lot of possibilities when you present your idea.

It is creative thinking coupled with years of experience looking at different business models that worked or failed for other companies in the past.

Venture Capitalists usually do this well, mostly in pointing a parallel business and how a particular business model failed for someone.

You need to seek friends and advisors who get charged about your idea and can brainstorm wild possibilities of who could use your solution.

Avoid blind spots in finding your business model:

Avoid blind spots of your own or your advisors in following a particular business model by force fitting it into your idea against the competencies of your team.

I have seen the same idea executed as two different businesses because of the passion of the founders for a particular market.

I came across many strategists during my early startup days; most were consultants.

If you look closer, you'll find most of these consultants have certain type of business and business models that they deep down believe, maybe because it worked for some other client or because of their background.

For example, when we came up with Coola technology to make information mobile. Since the founders came from a software background, we first thought of web businesses as our customers and the optimum deployment as a hosted solution. My partner had extensive experience in databases and financial systems, so he built a server to integrate with variety of corporate servers.

We came across a VC who had experience in email market. He was ready to invest in us if we changed our business model to make our technology over email.

Over the years I have come to appreciate the way of coming up with business models for new idea that marries strategy with execution.

Steps to Find your Business Model:

1. Ask yourself "what is my fixed and what is my variable" in my business. This will help to understand what is the core part of your business that you want to build as your core IP and competitive advantage in the long run.

For example, if we look at a photo site like shutterfly.com, is their fixed the technology for sharing, operations of printing quality pictures, or the community they built with loyalty to come back as repeat customers.

If they decide the community is their fixed, that will help decide to be a destination site, focus on user acquisitions, and help plan activities around building loyalty to such a community. If on the other hand they decide their technology and fulfillment is their fixed, they'd work on their site design to lock in visitors and can go about signing partnerships with the portals to do co-branded deals to bring in customers.

2. Insert yourself into the existing eco-system. Find partnerships, technology integrations, co-marketing deals, but make sure it is all revenue generating for both parties.

If you look closely at the news, you can see how Google became famous because Yahoo chose them as their search engine when Yahoo did not have search. Today Yahoo and Google are competing for AOL and every other key players partnership to tie them some sustainability into the web eco-system.

Beware of revenue sharing deals when you cannot clearly calculate where the revenue is coming from. We had a deal with Boston.com but spent a lot of time with web business that wanted to do revenue share deals when either of us could not see where real money came from.

It is easy to get carried away by examples of large players and how they have grown with revenue share deals, but think critically about the customer paying you, for your small business to you or your partner and why.

3. Every idea given to different teams will make different businesses. It depends on what core competencies exist in your team.

Where is your strength? Are you server or client side people? Do you have competency in awesome content creation? You can always hire people with other skills, but where is the core of the top team who are going to drive this?

4. VCs always ask for a rounded team and beam if you have team and advisors from the vertical you are targeting.
You will have to know the nuances of the vertical you are targeting, so experience in that segment will go a long way. So, even if several verticals are possible when you brainstorm and do a blue-sky scenario, focus on the one where you have real experience in your team and can execute.

5. If you know your fixed, its great to dream, don't let it hamper your quick execution in the immediate future.

I love this quote:
" Every morning in the jungle a lion and a gazelle wake up and start running. The lion will survive only when it runs faster than the slowest gazelle gazelle will survive only when it can run faster than the fastest lion"

In the startup world, it is not the greatest idea that wins, it is the one who runs the fastest.

So good luck to finding your winning business model and to run fast to win.

11 comments:

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