In several recent thought posts on vetting a business model concept, I focused on defining the market size and positioning as key elements of a business model concept vetting feasibility analysis. Another key step in the vetting process is to critically think about how you can create/deliver the offered product/service to the identified customer target at a reasonable cost.
In order to evaluate this, identify and understand your most important customer. If there are a bunch of them, focus most of your attention on one. Learn why they buy, what they’re willing to pay, what value they see in the product and when they will see it (also known as the “buying trigger”). It’s the only way you’ll move from answering relatively simple questions (“Are we producing the right product for the customer?”) to even more critical and potentially transformative questions (“Are we actually addressing the right customer?”). Here are some questions you should think about:
- What offerings will the business sell to the customers?
- Who will help in delivering value to the customers.
- What resources might be needed to develop and deliver product/service offerings.
- What channels will the business use to deliver its offerings to the customers. Be sure to read “Vetting A Business Model Concept Using Positioning” which was the previous posted thought.
- What does the business model concept identify as possible cost revenue streams which might include all primary & non-primary revenue streams that the business utilizes…tickets, subscriptions, donations, and school registrations.
Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:
- All prices must cover costs. Keep this in mind if you want to remain sustainable.
- As you continue the vetting iterative process to figuring out the product/service you can offer at a reasonable cost, the best and most effective way of lowering sales prices is to lower costs.
- Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
- Prices must be established to assure sales. Don’t price against a competitive operation alone. Rather, price to sell.
- Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
- Prices must be set to preserve order in the marketplace.
Once you have thought about these pricing considerations, ask yourself if your business model concept will create and deliver the product/service to the target customer at a reasonable cost. In other words, does the value proposition match a “must-have” customer need? If it is not, go back to step 1 of the vetting process and revise business concept to address a different market position opportunity. Remember, vetting a business model concept is an iterative thought process that should lead to figuring out the product/service you can offer at a reasonable cost, what customer is best suited for this product/service and how much they value it (which means you have to figure out what about the product or service they value). The process is iterative because the product/service, target customer and value are interrelated so it is almost impossible to figure out all three without going back to revise the first…and then the second..and then figure out the third again.
Entrepreneurs need resilience. You need to know up-front that your life will be dominated by “structured learning through failure,” ultimately leading to success. If you don’t see failure as learning, you won’t be around long enough to succeed. This defines the iterative vetting process for a business model concept. Having a great business model means the product/service offered, the customer best suited for it, and the value are well aligned and fit your own interests and abilities.
For more thoughts on vetting your business model concept, view the free video entitled How To Vet Your Startup Business Model Concept.
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