Last week I wrote about stress testing your business idea and the key issues you need to research and test to discover whether your concept is business worthy. If your idea passes the test, your next step is to take all the knowledge and data gathered and use it to get ‘business ready”.
Rather than preparing a business plan, becoming business ready means developing and refining your business and corporate model and putting it to test under market conditions. At the start-up stage, your business model is largely made up of guesses, estimates and assumptions.
The sole objective of the start-up is to refine and validate the business model to a point where it can be easily scaled and replicated. It’s when you arrive at this point that you have a business.
Your business model is the framework for how your organisation will create and deliver value to its customers and to the business owners. Put simply, it is how you are going to make money.
The business model consists of six key building blocks:
Customer segments – Which customer segments will you be targeting? What problem will you be solving for those customers?
Distribution channels – How will you reach your customers? Eg. online, distributors, direct sales force.
Value proposition – What value will you deliver to your targeted customers? What package of products and services will we deliver? Why will customers buy from us?
Revenue streams – What will customers pay for? How much will they pay? How will they pay?
Resources and activities – What are the key resources and activities required, to deliver and execute your value proposition? Who will be your suppliers and partners?
Cost structure – What are the costs of your business model? Which resources and activities are the most expensive? Are your costs less than your revenue?
Under each of the building blocks, document your key assumptions and targets. Then using the discovery driven planning methodology we’ve previously written about, test, refine and validate your assumptions.
As well as a business model, you need to make some decisions about the corporate model you will operate under.
The corporate model describes how the business will be structured, funded and managed. It is the foundation on which the business model is built and provides the key resources and skills to execute the business model activities.
The key components of your corporate model are:
Your legal business structure – What entity or combination of entities will your business operate under? What financial and commercial needs must your structure support?
Choosing your legal business structure is a complex decision with many factors that need to be taken into account, so it’s important to seek advice to understand and choose the best structure for your needs.
Funding – How much cash will you need and when? Where will you get it from? Eg. savings, angel investors, venture capital equity, debt or reinvest profits?
Management team – What skills and experience do you already have? Which ones do you need to acquire? Who will be responsible for what? How will you manage the business?
There are many decisions that need to be made when setting up your business and corporate model. It’s important to take the time early on, while things are of a manageable size, to prepare, make your business ready and put your best foot forward for a full-scale assault on the market.
Marc Peskett is a partner of MPR Group, a Melbourne-based firm that provides business advisory services as well as tax, outsourced accounting, grants support and financial services to fast-growing small to medium enterprises.