Startups create jobs, new products and disruption. Agreed. We all love startups and we know that many in Iraq work hard to make ideas ‘happen’, with stories of Iraqi entrepreneurs inspiring us everyday. At the same time, around the world and particularly in Iraq, the process is far from easy.
Our Startup from Scratch articles are a new series written for entrepreneurs looking to start a venture, or for those already in the process of building one. We will be summarising resources and providing food for thought in the hope of being a part of your startup learning journey. We’re far from knowing all the answers but we know that this series will provoke thinking on important aspects of your business and help avoid obstacles. A work in progress, we’re always curious to know your thoughts and experiences too, what you find helpful or what you may simply disagree with.
Business models are a popular topic in any introduction to business since the 90s. Almost any organisation or startup you talk to will have a business model to talk about. However, the key to developing a successful business model for your startup is to not only develop a business model as a standalone element, but also consider how a business model can be used to determine competitive advantage and succeed.
We’ve already looked at how your startup will enter the market by identifying a problem to solve and developing a value proposition for your customer to solve their problem. A business model canvas will help bring those elements together and think about how the startup will actually operate when launched in the real world. To do this, an effective business model has nine building blocks. Mapping these onto a business model canvas helps to discuss the operation of your startup.
1. Customer Segments
These are your end users and paying customers who you are delivering value to. When mapping this, think about who your customer is (remember Laila from Ziyouna?), what their relevant customer journey is like (“her daily routine of going to work and back in Baghdad”) and the problem they often face (“the excruciating pain of relying on unreliable taxis”).
2. Value Proposition
This is what you’re coming to the rescue for. What was the problem your customer segment was facing and how will your product or service solve that? Remember that this should address a pain point that the customer faces (thus, the provision of a reliable female driver taxi service for Laila to enjoy her commutes and arrive on time without her boss or parents panicking at home).
So you have your customer segment and your value proposition; the channel is how your service or product will reach your customer segment and deliver value. If this is a physical product, it may be a courier service or delivery, but for most services today, channels include mobile applications that make a selection of desired services or products smart and easy. What’s important here is to think about the right channels for your customer segment. If your customer segment includes a group of people who find smartphone use intimidating or daunting, you may need to rethink the app you’ve created for the service to reach them.
4. Customer Relationships
Sometimes we get so engrossed in fancy apps and platforms, that we forget to think about what users will do when all of it goes wrong. They may love your product or service on a good day, but how you deal with them on rainy days is what will determine whether they come back or not. There are lots of awesome products and services out there, but let’s be honest, the ones you remember are those who gave you a refund without having to fight for it, or made sure to quickly find a solution when your hoover didn’t work the day your friends said they’re coming over for chai uninvited.
5. Revenue Streams
This is all about how you’ll make sure this startup will pay your bills. This is important for the business to be sustainable. You may not break even in the early days but ensuring the revenue stream works is how your community will react to your choice to start a business rather than go for the safe traditional route of a government job.
6. Key Resources
This describes the infrastructure and resources needed to develop, create and deliver your value proposition. These are core to the business and should be super reliable for your startup to keep running. Want to provide a service but not sure if you have the right resources? Just don’t provide that service. We said this in an earlier article, the best entrepreneurs provide solutions out of their secured resources, rather than look for resources after they’ve developed a solution.
7. Key Activities
This identifies what your day job will be. What will you need to be doing in your office (or bedroom) to keep the startup going? The early days won’t be pretty and will involve getting your hands dirty. Some admin tasks will make you scream, but without perseverance in doing literally everything in the beginning, your startup will simply not survive. Many startups in Iraq and around the world often fail because entrepreneurs fail to understand this.
8. Key Partnerships
When it is not possible to perform all key activities yourself or get all the key resources yourself, partnerships are essential to startups. At different stages of the startup, a key decision to make will be what to outsource and what to do in-house.
9. Cost Structure
The boring bits that you need to get to to understand exactly what it costs to run your startup.
The great thing about the business model canvas is that it works for your startup when it’s a startup all the way to when you’re a larger, established firm. Most important is not to see the business model canvas as a one-off activity but one that is dynamic and requires continuous updating and rethinking.
Rethinking a business model does not mean you’re going back to square one, it’s part of your journey as an agile startup.