Four Key Elements For a Sound Business Model

Eyal Bino

Eyal Bino

by Eyal Bino of the Worldwide Investor Network

Freemium or Premium models? Direct or indirect sales? Riding a big player or trying to become a player? The decision on a business model is one that determines the success rate of startups looking to enter the global market. But, how should you go about it? Incorporating these key elements before deciding on a business model will increase your chances for success, especially when expanding to new markets.

Many international entrepreneurs develop unique products that have the potential to be very well received in their respective target markets. However, many run into difficulty when it comes to forming a coherent business model that will generate sales and early adoption and will be easy to implement. In order to run a successful business, you need a clear understanding of your current business model. Before making a decision on how to sell your product, you must examine very closely the following elements:

Business Model

Business Model

Customer Value Proposition: The stronger your customer value proposition, the more likely you will have customers using it. Your product or service must help to solve a problem or provide a very specific benefit. For instance, Amazon provides a unique yet simple online shopping experience for consumers and companies interested in selling their products on Amazon’s platform. It’s the largest online marketplace and you can find almost everything and everyone there. That’s tough to resist being part of.

While Amazon has a sophisticated offering and platform, it’s customer value proposition is simple. Unfortunately, many companies make the mistake of communicating too many benefits at once, which often clouds the core message, not only for customers but also for employees. This makes it tough to get traction in the marketplace.

Early Adoption: Your customer value proposition is worthless unless you get customer adoption. The cost of customer acquisition today could be high, especially if you are in a crowded market with lots of players. I like the approach of identifying a niche customer segment of early adopters and targeting them initially. These customers like experimenting with new things and can provide valuable feedback that can be used to improve your offering. This was the case with many successful companies like Facebook, Twitter, Gilt and others. Early adopters can also create lots of buzz, which is essentially cheap marketing.

Differentiation: Today, more and more companies understand that they need to be different than their competition and provide consumers with innovative features that set them apart. For example, LinkedIn executives understood that they could not avoid the social networking phenomenon and opened their platform to include third party applications and links to other platforms. Today LinkedIn has more than 80 million registered users, spanning more than 200 countries and territories worldwide, and is by far the most successful business networking platform on the web.

Pricing: Pricing can be another key way to build your customer value proposition. Zynga, the most exciting and talked about casual gaming company today introduced the virtual currency and the micro transaction models, which help bring more and more users to play their games, creating stickiness, while making these users their best sales force. Because their games are developed on a low-cost basis leading to high margins, Zynga became a monster player in just a few years.

These elements make up the core of a powerful business models, even though forming a successful business model can and should take lots of work, and frequently evolve over time. International startups looking to enter the US market must have a clear business plan in place when expanding internationally. It will impress investors, who are becoming more concerned about the viability of new ventures, and help in speeding up the a successful global expansion.

NOTE:  Eyal is also the Founder and Managing Partner of the Worldwide Investor Network, a NY-based funding accelerator focused on helping global early stage technology companies shorten the path to their first round of funding in the US.

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