Startup By Design — the Business Model

Big Red Car here dreary, rainy day.  Stay inside and watch the shows this morning.

The Boss up very early taking Perfect Daughter to the airport — no top down this morning — to return to NYC.

Why does anyone voluntarily go to NYC when it was in the 80’s here last week and a blizzard there?

So I get to thinking about how one conceptualizes a business when there is a blank canvas upon which to draw the business’s model?

The basics of the business canvas — 13 questions you have to answer

Well, you have to answer a few very basic questions:

1.  What is the basic product or service you intend to supply?  Which of the world’s great problems does it solve?

2.  Who are the customers?  Are there more than one group of customers?

3.  How do you reach those customers?  What are the channels of distribution?

4.  What is the nature of the customer relationship?

5.  What are the revenue streams which result from your relationship with the customers?

6.  What is the nature of these revenue streams?  Are they “one off” sales, membership, subscription, rental?

7.  What critical resources or assets must you possess or employ to provide the product or service?

8.  What are the critical processes you must master to deliver your product or service?

9.  What alliances must be created or maintained in order to serve your customers?

10.  What is the expense structure for you to be able to provide goods or services?

11.  What is the relationship between revenue and cost over time?  Does it scale with decreasing margins with size?

12.  How do you intend to fund this enterprise?

13.  Who owns the business?

Answer these very basic questions and you are ready to start drawing.

Draw the canvas

It is too easy to say but all you have to do, once you have answered these questions is to draw the canvas.

Put the basic product or service in the middle and describe it fully.  Describe the process of developing and delivering the product or service.

Put the customers in the upper left hand corner and define the channels of distribution and nature of the customer relationship between the customers and the business.  This is the revenue quadrant.  It answers questions #2 through #6.

Put the cost structure in the upper right hand quadrant.  This provides the answer to question #11.

Revenue minus cost = operating income.  How does this scale over time.  Does revenue increase and cost not increase at the same rate?  So margins are increasing?

A generic business model in accordance with the 13 questions

The rest of it is self explanatory.  Just keep adding things until you are finished.

Iterative improvement

Continue developing the model by adding a bit more detail — about 5 more iterations should get you where you need to be.

Each time add more and more detail until the business is fully described.

Take a look at the finished product.

You have answered the 13 critical questions and you have an excellent graphical representation of your new startup.  Congratulations.

Go reward yourself by having breakfast at the Waffle House.  Have some cheese scrambled eggs, country ham, raisin toast, grits and hash browns with jalapenos.

The startup breakfast — reward yourself

Who says that startup businesses are not rewarding?

But, hey, what the Hell do I know?  I’m just a Big Red Car.

 

 

 

  • panterosa,

    JLM, your questions are similar to the Business Model Canvas except 12 and 13. I’s add how do they own the business, which becomes a whole new page. Having gotten our Canvas done for class, we now have to tackle ownership – the new people and how they will fit in. That’s what I’d love to hear a post on……

    • JLM

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      I am not sure I understand your question. Please clarify a bit. Thx.

      JLM
      .

  • Parkite

    Everylife in life is about reps. Iterate. Iterate. Iterate. Also on the web design, perhaps show the comments above the fold (like AVC). Awesome day on the slopes today. My youngest daughter (6) did her first double black today.

    • JLM

      .
      She will be out skiing you in a few years.

      But what’s wrong with that?

      JLM
      .

  • Jeff- It’s a great list, but some of these questions aren’t easily answerable for Internet-based startups, at least not initially, for sure.

    • JLM

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      Like any planing tool the challenge is to know what you know when you know it.

      To think what you know when you think it.

      To change your thinking when you begin to realize what you don’t know.

      To change what you know when you realize your thinking was wrong.

      It is the dynamic nature of planning of every sort that has to be continually adjusted.

      That’s why you buy a big pad.

      JLM
      .

  • Yo JLM! I hope your style and tone stay intact for as long as the big red car’s ride lasts. You’re an entertaining read. As a long time lurker of AVC, it was nice to see you spin this up. Keep writing. We’re reading.

    • JLM

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      Hey, Anthony, thanks for your comment. Keep lurking, start commenting.

      After 47 years and 172,000 miles, the Big Red Car is not going anywhere.

      Send the BRC a message and let him know what you want him to talk about.

      Stay safe out there.

      Thanks.

      BRC

      .

      • Thanks for the reply BRC, I’ll be in Austin for MotoGP in April, maybe I’ll bump into you at the Green Mesquite! I will follow up with some elements which could be interesting to hear your wisdom on via email.

        I dug your post on checklists. Useful with a solid example(s). At this stage of my company, it’s all about scale, team building and measurable process development. Different elements of our business are also scaling at different speeds. Your actionable anecdotal posts offer great perspective.

        Best,

        Anthony

        • JLM

          .

          Thanks, Anthony. Make it a point to ping me and we can meet up at Green Mesquite.

          The Checklist Manifesto is revealed truth. Everyone should be documenting, streamlining and training to checklists. They are a real tool and they work.

          Sign up at Voomly and you can work me like a rented mule.

          https://www.voomly.com/jeffreylminch

          Send me a message before you come this way.

          Thanks.

          JLM

          .

          • Rented mule. Ridiculous. Checking out voomly 🙂 Will connect as we get closer if not before.

  • Hi JLM, just a comment – it’s difficult to follow your posts when I read them on the phone as the settings seem to allow the reader only to see the first paragraph.

    is that intentional?

    • JLM

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      Rohan, I bet what you are seeing is the break between the lead in and the body of the post. This is done on purpose to allow more posts to be seen simultaneously on the website and not to have to see the entire individual first post. I will look into this.

      JLM
      .

      • Ah – yes, it’s that. Bit of an issue for me as I often consume such posts on commute after downloading them on G Reader.

        Thanks JLM!

        • JLM

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          May have to get a Nexus 10″ tablet.

          JLM
          .