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Burn Your Business Model: You Need a Profit Model to Succeed

August 6, 2012

Featured, Startups

Business Plan

Thanks to juhansonin on flickr

It is time, my friends, to light a fire under your business plan, and let rise from the ashes a new plan. A plan to succeed.

Fire

Thanks to Creativity103 on flickr


Does your mind buzz with new businesss ideas? Do your friends approach you with ideas for a new venture? Did you make a business plan and then spend time, a lot of time, polishing your ideas, drawing work-flow models and updating prototypes?

Stop. Right now.

Why a Profit Model? Because a business without customers is a hobby.
Before your work the kinks out of your business model, make sure you have a business in the first place. That means getting down to the business of a profit model.

Run the Numbers
Product development, even for a minimum viable product, is time consuming. It can also eat up a lot of cash. Before you pour a lot of precious resources into product development, make sure there is a viable market. Products all have costs of production. Make sure you have a handle on the cost of goods sold (COGS) which includes labor, computer supplies, shipping, hosting expenses, sales and marketing and the like. Add in your fixed costs such as office rent, taxes and utilities, as well. You need to know your costs to make your product whether it is a service or a good.

Catch Some Clients
Go in search of customers and keep at it until you have some. If your product cannot get customers, it is not viable as a business. Once it does, you can then begin to focus on the business model. run a customer acquisition test for say 90 days. Take the costs to make your product and divide it by the number of new customers to get your acquisition cost.

Remember The Customer

What new technology does is create new opportunities to do a job that customers want done. – Tim O’Reilly Tweet This

Once you know what it takes, as well as what it costs, to get a new customer, you can begin to refine. Customer acquisition costs too high? Tweek your pitch to attract more prospects or switch to lower cost advertising. Customer retention too low? Contact your former customers and find out from them why they left. Do this right and they might even come back. Product costs too high given what you charge? Strip out nonessential features until your costs are under control. Pay attention to customer acquisition costs ant they will lead to to a profit formula. Once you have that, it is time to SCALE!

Last Words
A great idea is the foundation of every successful business. Sure, love your idea all you want. Just remember that a viable profit model is not only worth loving, it will love you back. Only actual customers can provide you with customer feedback, cash flow and market direction signals. All the things to make a business grow and prosper.

Your Thoughts
Hey, join in!
Do you have experience working through a profit model? Have you worked hard on a project only to find you couldn’t make it profitable? Leave a comment below and let us know. Remember to be as specific as possible in your comment as your wisdom and experience helps us all.


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