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The most common misperception of entrepreneurship is that what makes a business successful is the idea of a unique product: that if you have that great idea that no one else has had before, a type of product that no one has created, then you can win . lots of money and the world is at your feet. Entrepreneurship as a great idea is a good story, but it is only as good as a story, because the story is fantasy. And if you trust fantasy rather than reality, chances are you will fail.
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The truth is that what makes a product great is not the idea of it or what it can do, but the way it is positioned . Business positioning is not about the competitive pursuit of a niche, like Michael Porter’s Five Forces or the VRIO framework . It’s about finding the right business model.
A business model describes the rationale for the way the company creates, delivers, and captures value. Simply put, it is the way a business makes money. This includes figuring out what the product is, who your end customer is, and what the business value proposition is. You have to create an engaging story, but you also need the numbers to support that this story makes financial sense.
I have found it very helpful to think of the business model in terms of the product, the customer, and the value. It is an iterative thought process that should lead you to decipher the product you can offer, what is the best customer base for this product and how much they will value it (which implies that you have to figure out what they value about the product). All of this is interrelated, if not one depends on the other, so it is practically impossible to decipher these three points without going back to the first, and then to the second, and then deciphering the third again. But is it worth it.
Having a great business model means that these three points are well aligned. You know the product you are going to offer, which fits almost perfectly with the market segment you identified because these are the people who value the product. And your product offers exactly what they want, nothing more and nothing less. This means that you have a good chance of being successful. But this is almost certain to fail if you don’t have a good business model, or a well thought out one.
The choice should be obvious, because in reality there is no choice: You need to have a good business model. Here are four questions you need to solve to improve yours.
1. Who can I serve?
This doesn’t seem like an easy question for someone who wants to be their own boss, but it should be. The real boss in your startup is your client, because they are the ones who decide if they buy from you or not. The first question after considering the option of starting a business should be: Who can I best serve? Regardless of what your product is, where you are, or if you can offer 24/7 service, what kind of person (market segment) benefits from what you can do?
2. How can I serve you?
You may have a product, or even an entire business, in mind, but erase that idea from your head because it’s not going to work unless you put your customer first and figure out how you can serve them. This means designing and developing a product that corresponds exactly to what they would value having. And or overdo it, offering more features or tools doesn’t mean having more value. Focus on the feature or tool that is most valued.
3. What is the value?
Value is not a monetary amount, but the satisfaction someone feels using your product. Yes, this implies that the value is merely subjective. It is as it is. The fact that we like a product has nothing to do with the way it is produced or the materials with which it is made, but with the experience of using it. It all has to do with what we experience when using it, and we buy something hoping to live that experience. Most importantly, we are willing to pay a price based on that experience . The better the experience, the higher the price can be.
4. Are you doing it for them?
This is probably the most difficult question because it requires you to seriously analyze what is not but could be while imagining yourself in someone else’s shoes. Unless you already know who your customer is and the type of product they might value, there is no way to answer this question. Sometimes seemingly small adjustments can deliver great customer value, like when Netflix went from sending DVDs to streaming online, or when Volvo thought customers would rather subscribe to a car than buy it .
A business model has to do with understanding that your business is your customers, and that you must personalize it for them. To do so, you have to be who they are and what they might want. What are your dreams? What problems do they have? What can you do to make their lives easier? It is not about finding them halfway there, but about giving them an experience that they truly value, one that they cannot resist. And it is the entrepreneur’s job to figure out what that experience would be.