The be-all and end-all of every start-up: a creative business model
For a long time I underestimated how important it is to develop a creative and innovative business concept. If I could turn back time, I would focus on it from the start. Because the goal should not be to work in the long term in the company, but to work in the company from the beginning and to shape it.
For financial reasons I did many things myself for years. The important thing is that this is not the long-term motivation. It is by no means only something for startups with growth capital and dynamic teams to develop a viable business concept. On the contrary: an after-work startup also needs this concept. Make it a priority to develop one.
High competition, tough distribution battles
The competition among the existing business concepts is immensely high, which means low profits and tough distribution battles. Most startups or start-ups do not survive in the environment of established players. The niche should be big enough to enable good growth, but at the same time too small to be of interest to established companies in the market.
Let's say you want to start selling tickets on the side. Your competitors not only include local sales outlets, but also established providers such as Eventim or Eventbrite. But what if you concentrate exclusively on tickets for selected satirical events? With this specialization you have the chance to occupy a niche and to be perceived as a provider by your target group.
As a after-work founder, exist in a niche
All communication knows only one topic: live satire. Since the market is small, there is no need to fear competition from Eventim or Eventbrite: The profit is not enough to sustain a large company. An after-work startup, on the other hand, could live excellently on a profit of 150.000 euros.
It's an excellent strategy when you're growing out of a niche with simple but creative business ideas. This strategy was also preferred by Peter Thiel, PayPal founder and first-time investor in Facebook and Uber. He describes them in his book “Zero to One. How innovation saves our society ”.
Not every idea is really good
Don't make the same mistake as I did and start immediately to implement the first ideas. It is better to take the time to critically question your business concept, to discuss it with other people, to adapt and test it again and again.
If you internalize this, you can save yourself years of unsuccessful work. I understand a business concept as a specific sequence of processes that has to be designed. How is this represented exactly?
Find a scalable idea
Ask yourself whether you want to become an entrepreneur or whether you simply want to be self-employed. If you choose the latter, you will always be exchanging money for time. Let's take classic self-employed persons such as lawyers, notaries and tax consultants who take certain hourly rates. Income stops flowing the moment these people are sick, on vacation or simply do not feel like working.
Self-employment is difficult to scale because we are all only available 24 hours a day and our energy reserves are limited. Scaling means being able to adapt the means of production and capital to demand. If the business model is not scalable, the increasing demand cannot be met and sales slip away.
Beware of the competition
A competitor may build an organization that scales better and drives you out of the market. In addition, you shouldn't neglect your main job. If you try to trade money for time with a limited amount of time, it is very likely that the results will be sobering.
Incidentally, most startups give up because the earning potential turns out to be worse than expected. As a self-employed person, you can ask for more money through further training and specializations. As a result, notaries and auditors sometimes achieve considerable hourly rates. But even if you're a notary and have a beautiful office, you probably don't see your life's work in being there every day reading contracts. That being said, the likelihood of becoming a notary is extremely low and depends on many factors that cannot be influenced.
6 business models you should know
There are a number of business models that you as a founder should be aware of. Here is an overview:
- The long-tail business model: With a long-tail business model, a large number of niche products are sold. These are just as attractive as bestsellers, provided that large and strong platforms are available. Examples are Netflix, Ebay, iTunes or Amazon. In a conventional sales store - unlike on the Internet - this would lead to high costs, since retailers only have a limited space available for displaying goods and have to pay enormous storage fees for the so-called slow-moving goods. The exact opposite is the blockbuster strategy. Here, for example, publishing houses choose the best from several thousand titles in order to push selected copies.
- The multi-sided platform: A multi-sided platform brings together several different but interdependent customer groups. It is crucial that the platform only works if both or more customer groups are there. For example, what would Facebook be without advertising companies and without users? The goals of the multi-sided platform are the interaction of the participants and the exchange of information. The first mover effect is often extremely important. The player who enters the market first has a strategic advantage that can significantly influence and accelerate growth. It is much more difficult for the second mover. The so-called network effect is often used. Since there is only one customer group, it is difficult to lure them away from the existing platform. The network effect is often to be understood in such a way that a critical mass has to be reached among the users for the business model to work. How is it with newspapers? The reader gets information for comparatively little money. However, the publisher earns money by placing advertisements in the second way. It can Sense make to discount a customer group so that they are more attracted and greater network effects can be achieved. The so-called free model even makes the service available to the customer group free of charge. This is the case with Facebook. It's free to use, but the company generates money with advertisements. The more users Facebook has, the greater the reach and the higher the turnover. The best known and most successful multi-sided platform is Google. The search ads are free, but the company makes money showing ads. Both customer groups are attracted by the targeted value proposition. Google enables private customers to search the Internet with specific keywords, while the company gives business customers the opportunity to generate sales with their advertising. I advise against programming a platform for an after-work startup yourself. If you can't afford to outsource the software as a component, don't do it. Often the effort to create a functioning platform is enormously underestimated.
- The freemium model: In the case of a freemium model, a basic service is provided free of charge. Often you first have to build up a huge customer base for the business model to pay off. Why is that? Most of the time, less than ten percent of customers consume the paid premium service. Conversely, this means that this small portion has to finance the entire concept! You have to make customer contact and the service available automatically so that there are no high costs. Kartik Hosanagar, Professor of Wharton School of the University of Pennsylvania, says, "The demand you get at a price of zero is many times greater than the demand you get at a very low price." Please keep these words in mind if you use this Strive for business model. A famous example of a working freemium model is Skype. It was bought by Microsoft in 2012 for $ 8,5 billion. Skype made $ 400 million in revenue with less than ten percent of its customers. Everyone else paid nothing. Browser game providers also follow the freemium model. In technical jargon this is called “pay-to-win”. Most of the time, the company earns money by allowing customers to book specials such as special equipment or time savings to get there faster.
- The bait hook model: The prerequisite for this is a strong brand, as the focus is on the sale of follow-on products. Cheap or free baits attract the customer. A classic are different printer models for the home, which are usually extremely cheap and only slightly more expensive than its cartridges. But with the purchase of the printer, the customer is tied to the company. He has no choice but to buy the cartridges from the printer manufacturer or its licensee. Therefore, a heavily discounted device can be issued here. Companies like Nespresso have also become successful with this strategy. Only a few would have bought a coffee machine for several thousand euros. Consumers prefer to buy a cheap machine and instead spend more money on the coffee capsules. Most of the time a consumer does not work out what the consumption will cost him in the long term. Nespresso is a good example of how crucial a business model can be. However, I am in favor of always seeing the consumer as a friend and not just a customer. I would never deceive or take advantage of a friend. It is important to me to stay fair with my business concepts. Another good example is Ikea. Ikea offers large furnishings at low prices and has high margins on small items such as decorative items. These are usually located in the last 20 meters in front of the cash desk.
- Killing the middleman - take something out of the chain: Long production chains often make products very expensive. Compare the manufacturer price of a kilo of coffee with the retail price. The huge difference is due to the long chains from various middlemen. The coffee is harvested and sent to a collection point. From there the journey goes to the exporter, then to the importer, on to the wholesaler and from there to the retailer. The second big problem is the packaging sizes. If you were to take larger packaging units and omit marketing, the products would be considerably cheaper. That this concept works has Dr. Günter Faltin proved. He imported the highest quality Darjeeling tea directly from the manufacturer and sold it exclusively over the Internet in one-kilo packs. This is how the tea campaign became the world market leader for the sale of Darjeeling.
- Extension of products - adding something to the chain: You can also extend products and business concepts. A classic extension of a product is the design of t-shirts. Individual designs or sayings are then printed on the T-shirts. Most of the time, these are luxury goods for which customers have to dig deeper into their pockets. Take a large luxury hotel. Guests who arrive with their dogs want them to be looked after when they want to go out on their own. A service provider could therefore decide to offer this service for the surrounding hotels and go for a walk with the dogs.
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