Choosing a business model: a cash-based approach
Way too often when people make up their mind to start their own business they
try to think in terms of 'business ideas' or 'business concepts'. However, it is
not always clear what is meant by these terms.
While discussing new 'business ideas' with a coworker today, we suddenly
realized that a rational approach is often necessary. Indeed, you might very
well decide to choose a business model and then wonder about the ideas that are
left to exploit with this business model in mind.
Roughly speaking, you can distinguish three major types of business
models:
- direct product sales, that is to say the exchange of a good for money.
Within this business model, you can decide to sell products with a high price or
products with a low price. What are the characteristics of these two
alternatives ?
Well, going for a high price assumes that you target a very specific audience and that you have good marketing skills and customer service, because such products are usually more difficult to sell (especially online, if you plan to develop an online business).
On the other hand, going for a low price assumes that you are generating a high volume of sales, that is to say that you have the ability to launch a massive marketing campaign or that you are the proud owner of a high-traffic website. Examining both alternatives budget-wise, you can clearly realize that the former demands a smaller budget but higher marketing skills, while the latter will do with a large budget and relatively standard marketing skills. In both cases, there's no secret: barriers to entry do exist, they simply take different shapes and forms. - service sales, that is to say the exchange of a service for money. In this case, you still can dissociate between high value added services and low value added services; your choice will be made depending upon the expertise that you can summon and the people you are targeting. However, the volume issue will remain: a low volume strategy will be possible when selling high, but a high volume strategy will be necessary when selling low.
- commissions; they happen to be the most fashionable business model these
days, with major actors such as Google in the online advertising industry or
Clickbank in the affiliate sales industry.
The major stumbling block when dealing with a business type based on commissions is that you generally need to manage a high volume of deals, unless you target very high-key deals, in which case you will need to have a very strong network or expertise. - Some business models, as we just saw, might require a higher budget. Others require higher marketing or engineering skills. The whole point of this article was simply to show you that it might be a good idea to think about your business model before you move on to explore new business ideas for your new venture. Of course, this is not to say that you should drop the great idea you had last night and take it from scratch again ... but if you're still clueless about what your business will all be about, why not follow a rational approach ?
