Category: Business Model

When is a Failed Concept a Success?

A student come up to me before class the week before their business plans were due this past semester looking very dejected.  

“My concept just can’t work,” she said.  The more she tried to pivot the business model, the more she uncovered evidence that convinced her that she had reached a dead end.

This is what is known as a teachable moment.

Aspiring entrepreneurs go through an arduous process between the initial spark of an idea to the eventual launch of a business.  

They start by sifting through the various ideas they have to find the one that has the most promise.  Many ideas may appear promising at a first glance, but careful assessment helps to sort out those that have little promise. Eventually, the entrepreneur selects a product or service they hope will be accepted by the market.

The next step is for the entrepreneur to take the idea and begin to build a business model.   

The primary goal of business modeling is not to try and rationalize starting a business based on your idea.  Instead, the objective is to discover all of the challenges, flaws, and gaps that need to be addressed if you have any hope of moving from a good idea to a successful business.  Business modeling is a process of finding problems and fixing them by altering and expanding the operating framework needed to launch the business and, when necessary, pivoting the concept based on what is learned about your customers and what they really want.   

When developing a business model, you may reach a point where you realize that no matter what you do, it just won’t work.  This realization can happen very late in the process even at the point when you are developing a written business plan based on the business model.  If that happens, no matter how much time and effort you have put into the project, you need to be decisive and abandon it.  

But this is much easier said than done.  You have spent countless hours talking about the business with friends and family.  You have shared your idea with advisors and mentors.  You may have even pitched the idea in business plan competitions and to investor groups.  It feels like your reputation is riding on getting the business launched.  There is a sense of inevitability that launching the business is what you are going to do.

But do not ignore the evidence.  Have the fortitude to walk away.  The fact that you have spent countless hours getting your idea to this point is not a reason to keep moving ahead.  

So back to that teachable moment….  

As class started that morning I asked the student to share her story with her classmates. I then looked her in the eyes and emphatically said, “You did a great job!  You stayed true to the process and had the courage to acknowledge that your concept just won’t work.  Congratulations!”

The end of this story is that while her initial idea did not work out, the process helped her discover several new ideas and gave her the opportunity to make several new connections with people to add to her network.  She learned the lesson that while her idea may have failed, she was successful.

Kopecky Family Band Named Top Live Act

One of our recent alums, Gabe Simon, is a member of the Kopecky Family Band.

The key to their business model, which Gabe worked on in our program, is to build a strong, loyal following that has a sense of community with the band.  A key aspect of delivering that value is through live performance.

I ran into Gabe yesterday at Bongo Java (my favorite local coffee shop).  It seems they are executing on their business model.  Paste Magazine named them as 18th on the 25 Best Live Acts of 2011.

Check out “Howlin’ at the Moon” in the clip below (Gabe is singing the lead in this song):

Pivot with Purpose

Business models are developed
by visualizing all of the “working parts” that make up a business.  A traditional business plan, on the other
hand, is most often a formal, written document that provides details about how
an entrepreneur intends the business to operate. 

Learning to develop a sound
business model helps ensure that everything that is critical to the success of
the business is in place and working in harmony. 

Developing the business model
depends fundamentally on engaging real customers very early in the creation of
the business so we have a better chance of offering what the market really
wants. 

One of the biggest benefits I
have seen from using business modeling over writing a traditional business plan
is that it allows for adaptation.  We use
what we learn from the very beginning of the start-up to make changes in our
business model as we uncover who our customers really are, what they really
want, and how best to put everything in place to ensure that we deliver what we
promise to them.

This process is known as
“pivoting” the business model. 

We all start with a clear plan
in mind of what our business will be. 
The problem is, most of the time our plan is either only partially right
or just plain wrong.  Successful start-ups
become a series of pivots to the business model we started with as we learn
more and more about where our business really fits best in the marketplace.

“As a founder, keeping your
company alive requires you to think creatively and independently because more
often than not, conditions on the ground will change so rapidly that any
original well-thought-out plan quickly becomes irrelevant,” explains
business model guru Steve Blanks.

A
note of caution: Pivot with purpose

One of the flaws of the old
business planning approach to start-ups was that many entrepreneurs got so
wrapped up in the process of developing the “perfect business plan” that they
never got to the point where they were able to pull the trigger and actually
start the business.  This became known as
“paralysis by analysis.”

I am beginning to see a similar
problem surface when using the business modeling approach to guiding business
creation.

It seems that people are
beginning to believe that since pivoting is good for a start-up, more pivoting
is somehow better.  When they follow this
logic, we see many entrepreneurs get so wrapped up with pivoting that they
forget the goal is to get the business model right so that you can move
forward.

Adjustments to the business
model are important, but once the market tells us that we are finally offering
the right product to the right customer, it is time to slow down the pivoting
and focus on growing the business.

Never forget that the ultimate
goal is not to develop the perfect business plan or the most elegant business
model, it is to identify a need in the market and build a profitable business
that meets this need.  Business plans and
business models are just tools that help entrepreneurs achieve success. 

Bigger is not Always Better

One long standing aspect of American culture is that bigger is better. 
We seem obsessed with having the biggest city, the tallest building, the busiest airport or the largest house. When I went to business school in the 1970s, we were trained to pursue one goal: maximize market share. 
Even today when students in my classes describe the businesses they want to start, many feel the need to explain, justify, rationalize or even apologize if they do not plan to grow the venture to meet its full market potential. 
However, I always make a point to caution them about what I call the Growth Myth of Entrepreneurship, the myth that the success of a venture is best measured by the size of its revenues. 
The truth is that growth is not always good for an entrepreneurial venture. 
A banker once told my students, “The leading cause of business failure is business success.” 
What he meant by this is that to be successful with a growing business, one must also create systems, build infrastructure, grow the team and secure critical resources to support growth. 
To survive and thrive as a growing venture, entrepreneurs cannot simply run things the same way they did in the start phase of the business. If they don’t change how they run things in the growth phase, the odds of the business surviving the trials and tribulations of growth aren’t very good. 
So how big should an entrepreneur plan to grow the business?
Before answering this buy topiramate and phentermine question, we need to understand what needs to be grown. 
Revenues should never be the primary focus for growth, profits should be. Profits are what allow an entrepreneur to earn a salary and build wealth. Revenues should only be grown if they help grow profits. 
Too often, I see entrepreneurs chase customers just to build sales without making sure that those new sales will actually earn them more profits. 
The goal for growth should be tied to the entrepreneur’s aspirations and financial goals. Some people describe this as simply pursuing a lifestyle business. However, I would argue that every business is a lifestyle business. It all just depends on the lifestyle that you want to pursue. 
If you grow your business deliberately based on your goals and aspirations, you can create a business that is an intentional reflection of the lifestyle you would like to live. Entrepreneurs should always remember that success in life should be so much more that simply growing a company and making money. 
One of my favorite quotes about success comes from someone who grew a very large business. Paul Orfalea grew Kinko’s from a single copy shop into a huge chain of stores that eventually was sold to FedEx. 
When asked after all the things that he had accomplished since he opened his first store, what was his biggest success, Orfalea replied, “Success in life is having kids who want to come back to visit you when they’ve grown up.” 

Good Start, But This App Needs a Few Pivots

The stars all seemed to be converging for me as a fan of the Business Model Canvas.

I am refining the 3.0 version of my syllabus for my planning class that has become largely centered around the Business Model Generation framework.  I have never been more energized going into a new academic year.  My class no longer looks like a traditional old business planning class.  Instead, students learn to develop a business model and pivot until the cows come home.  My old slide decks have been filed away and I have all new PowerPoints with fresh lessons, images, videos, and of course, Dilbert cartoons.

I have organized a group of faculty from across the US and Canada to present how we use the business modeling to teach our students how to successfully launch a venture that is responsive to the market.  We will be offering a pre-conference session at USASBE this coming January. 

I have been exploring how we might do some research into business modeling with a few colleagues.

Students and alumni who have been using the business model generation framework have been raving about its power and utility.

And then for Father’s Day, my wonderful family gave me an iPad.  Now I can finally get the Business Model Toolbox App.  I imagined connecting my new iPad to the LCD in the classroom so I had the ability to bring the business model canvas to life for my students.

But alas, even at the hefty price of $30, this app falls well short of what I hoped for. 

Is it a great tool for developing a business model?  Yes, but mostly if you work alone.  It is not easily shared unless you pass around your iPad and cannot be shown live and in motion via and external monitor or better yet LCD projector. (NOTE:  My friends at Aloompa tell me that it can work with an HDMI cable).

The beauty of the business model canvas is that it allows you to create a large visual representation of the business on a whiteboard or on the wall with sticky notes.  Then you, your partners, your team, and your advisers can all look at the same picture and refine it, improve it, or quite often pivot it entirely.

I am glad I bought the app, as it will be a great tool to work with students and alumni one-on-one in my office.  And I know my Apple-minded, shall I call them Apple-zealot, students will likely find it a great tool to learn how to use this incredibly useful tool.

But it has a ways to go to be a true app version of the original.

So for the entrepreneur on a tight budget, bootstrapping your way to launch, I still recommend the paper version and all of the free information available on the web.

The business model for this app needs a few more pivots before I recommend it as an essential tool worth $30.

Enhanced by Zemanta

Business Model Demands Patience

Author and entrepreneur Steve Blank describes the business start-up process as having two phases.

In the first, entrepreneurs learn about their customers and what they want. This can be thought of as a series of experiments with real customers. It eventually leads to a business model that can be used to build a sustainable venture.

Once we learn what our business model needs to be, we can begin the second phase, which includes attracting more and more customers and building a company.

It is essential that we take our time before moving to the second phase to make certain we’re building our company around a business model that can lead to successful growth.

Nashville-based Aloompa is a great example of a business that’s taking its time to get things right.

In a visit to my business school class at Belmont University, two of the founders, Kurt Nelson and Tyler Seymour, told how they developed the business model for this relatively young company.

The original vision was to develop apps that would allow streaming of live videos directly to the iPhones of concertgoers. But this proved to be more difficult than they thought. However, their experimentation with the business model led to recognizing a more promising opportunity that still involves apps for music events.

They approached the Bonnaroo music festival about developing an app for attendees. To prove to Bonnaroo that the app would be something of value, they gave away the first year’s version.

They used that first year to prove that the app had value and to test what features fans at the festival truly wanted.

Their success with Bonnaroo led to the sale of more music festival apps. With each new app they continued to engage the market, all of which helped them learn more about their business model and their customers.

A big, early breakthrough for Aloompa occurred when they were asked to develop a new app for country artist Kenny Chesney. This showed them that their business model could be much broader than just developing apps for music festivals.

They still weren’t finished experimenting with what their emerging app business could become. Recently, they moved into developing apps for the Rally to Restore Sanity staged by comedians Jon Stewart and Stephen Colbert, as well as for the popular conversation game Table Topics.

Nelson said Aloompa isn’t ready to hire a full-time staff and build an organization. The partners are keeping operations lean and flexible because they expect the business model to continue to evolve.

The Aloompa story illustrates that even when the market seems to be accepting a new venture, and sales start to grow, owners still shouldn’t move too quickly to formalize the business. Be patient. Continue to experiment with customers. Tinker with the business model until you’re ready to scale up the venture.

Rethinking Goal Setting

If business plans are marvelous works of fiction — and they most often are — then the specific financial goals that they are tied to are fairy tales.

Don’t take this wrong.  I am a strong advocate of building a business that meets your aspirations.  You need to consciously engineer your financial and non-financial priorities into your business model.  But when I start reading plans with specific multiples of EBITDA tied to an exit event a few years out I cringe. 

Even VCs know that only 10% of plans they fund (which can be as few at 1% of plans they receive) will probably meet the goals stated in the business plans for their portfolio companies.  And yet, almost every entrepreneur seems to think their plan will hit its numbers and reach their specific goal.

I think more of us should take the approach of goal setting that Ami Kassar has set for his business MultiFunding.  From his blog:

I often get asked the question “Ami, what is your goal for MultiFunding ?”  People want to know “how big” I want the company to be, who do I think will “buy it” one day, is this a “lifestyle business”, or do I “want to take it public one day.”  My answer is that our goal for the first year was to survive, which we did.  My goal for the second year is to be able to keep the company growing at a pace where we can maintain excellent customer service, and to be able to make a good living while I do it.

Business models evolve as we learn from the market where our business really needs to be and what it can really achieve.  You’ll be a lot happier as an entrepreneur if you set realistic goals, especially for the early stages of the business.

Once you get traction, then you can start to set more specific goals that reflect a growing knowledge about the market and your customers.  And you can more realistically temper these potential goals with your non-financial goals including those shaped by the time you want for your family, friends and community.

New Economic Reality Leads to New Business Models

After developing their business model and forecasting expenses, many aspiring entrepreneurs are suffering from sticker shock. The thought of investing a large amount of money or going into debt is scaring many away from their startup dreams.

Aubree Phillips, who is graduating from the entrepreneurship program at Belmont University this spring, has dreamed of starting a clothing boutique since the day she arrived on campus. She gained experience by working in the campus-based clothing store called Feedback and worked on the plans for her store in every entrepreneurship course she took.

But with graduation looming this spring, the thought of spending more than $100,000 to open her store in a weak economy gave her cold feet. But she did not abandon her dream. Instead, she partnered with her friend Natalie Sawyer, a Lipscomb University alumna, to brainstorm about ways to meet shared goals by bootstrapping.

The biggest single financial commitment was the physical space to house their boutique. So Phillips and Sawyer decided to change their business model from a store to a “traveling boutique” called Fringe and Lace. Rather than setting up in a traditional storefront, they take the clothing directly to their customers’ homes.

“We specialize in clothing, jewelry and accessories,” Phillips said. “All items are trendy and under $100. Our customers find that shopping at home, surrounded by friends, is a fun and relaxing buy topamax online canada alternative way to shop.”

They are able to keep staffing costs down since they do not need employees for a brick-and-mortar store. Phillips and Sawyer staff all of the parties. When the business grows beyond what they can handle, they plan to hire interns and part-time employees to help.

Fringe and Lace has relied on bootstrapping for its marketing. Word-of-mouth has been a big source for securing early customers, which they have encouraged through the use of social media. They have also been using a blog approach to their website, www.fringeandlace.com, to keep their customers current on their new inventory and to help build a community of loyal repeat customers.

Inventory is the final major cost for their business. “After each party, we make an order to update our merchandise,” Phillips said. “This way we do not have too much inventory on hand. It also helps us to continue to offer new and different pieces. We try to be smart about our buying so we don’t end up having too much or excess inventory that we can’t sell.”

They store their inventory in an office at Sawyer’s home.

Rather than letting the economy discourage their dreams, Phillips and Sawyer showed how changing the business model and bootstrapping can make the cost of a startup more affordab

Joint Venture on the Boulevard

Belmont and Lipscomb universities are just a few miles apart along Belmont Boulevard and are both part of the Atlantic-Sun athletic conference.  Over the years and intense rivalry has developed between the schools, which reaches a crescendo each year during basketball season.

While the Battle of the Boulevard — as this rivalry is known — continues between their basketball teams, one group of student athletes has called a truce for the sake of launching a new business.

Two Belmont tennis players have joined forces with a member of the Lipscomb tennis team to start Mydormfood.com, an online grocery store geared toward college students with empty cupboards in their dorm rooms or apartments.

Jonathan Murrell, a sophomore finance major at Belmont University, came up with the idea.

“I kept finding my friends paying three times as much for food on campus compared to what it would cost at bulk stores.”

Jonathan developed his business model the right way. Rather than jump directly into writing a formal plan, first he talked with potential customers, some friends and other students to gauge the validity of the concept.

He also assessed what he needed to get the startup launched. What he needed most was help.

He also realized that he needed people with other skills. Jonathan approached his older brother James, a marketing major at Lipscomb University, and Bruno Silva, a teammate on the Belmont tennis team.

After a few planning meetings, the trio decided that this new idea was worth going for. James would take on the shipping and marketing. Bruno would manage the inventory and accounting. Jonathan would oversee the site and customers.

So, the company was born with three tennis players from rival schools coming together.

They soon realized that their original business model was not quite right. Instead of students being the primary target market, they soon learned, most orders were coming from parents.

So, they adjusted their product. They created two options: gift cards so students could shop for themselves, and pre-made care packages delivered directly to customers’ doors.

Bootstrapping is a big part of their startup. Jonathan’s and James’ oldest brother recently moved out of their house to pursue graduate work in history at Oxford. So, their mother agreed to let them use his office as a makeshift warehouse.

“We removed all the old manuscripts from his bookshelves and replaced them with Pop-Tarts and potato chips,” Jonathan said.

They also developed their own website, which saved them thousands of dollars in development costs. They used an online legal site to set up their LLC.

While they have high hopes for their new venture, they took care to protect their downside risk.

“We ended up making our inventory purchasing decisions based on what we would be willing to eat if the business failed. If it doesn’t work out, let’s just say I’ll be eating mac and cheese, cup noodles and Skittles for a very long time.”

But if they succeed, their effort will be known as the Joint Venture of the Boulevard.

Adapting the Business Model Takes Entrepreneur Full Cirle

When entrepreneurs enter the market, it is often with a very clear vision for their business. They know what they want to sell and to whom they want to sell it.

Alecia Venkataraman, who is completing her master of business administration degree at Belmont University, where I teach, launched her nonprofit, Make It Beautiful, to serve a very specific group of people.

Based on her own experience as a young adult who overcame great personal adversity, Alecia wanted to create an organization that would help others facing similar life circumstances. Make It Beautiful would offer services to help inspire these people to pursue their own dreams.

MIB developed programs for children facing terminal illnesses, as well as their families; for single parents and their children; for families trying to start over after tragedies; and for others facing significant adversities.

MIB had a team that offered services in life coaching, wellness counseling, legal issues, career planning and connecting with community resources. From its very beginning, MIB was overwhelmed with potential clients seeking help. Alecia had appeared to identify a need and a solution among her target population.

However, as successful as its programs were, the business model of MIB had a flaw. It relied on donations and sponsorships to fund the revenues it needed for its operations, and Alecia was not able to secure enough funding to sustain the idea.

Alecia had been supplementing operations from her own savings, but that money was running out. It became painfully clear that she’d have to cease operations at MIB.

Along the way, Alecia had sought advice from many different people about the problems she was having with the company. They all believed that the concept she was offering had value — and that people would be willing to pay for it.

Then it dawned on Alecia.

It was time to try to take the services offered at MIB and offer them to a different market that had the ability to pay. Like most entrepreneurs, she had to adapt her business model.

“When failure or loss happens in business, it isn’t necessarily the business model that needs to be revisited, but the market in which the business model is being used,” she says.

So, she launched a new company, Dream It Make It, which offers similar services to aspiring musicians, models, actresses, athletes, authors and entrepreneurs. The new company — such as Alecia’s former one — found immediate success in the market.

But this concept is based on a business model that is able to generate fees from the clients it serves.

“In trying to meet the challenges of an ever-changing economy and business environment, I’ve learned to not only accept but welcome what these changes might require of my business model,” Alecia said.

The epilogue to this story is that Dream It Make It’s success now offers Alecia the chance to reopen the nonprofit Make It Beautiful. Alecia will be using a percentage of the profits of her new company to fund operations of MIB when it reopens next month.

Both of her ventures can now become successful. This became possible only after Alecia adapted and changed her basic business model.