How are you actually going to make money? Way to often I, and others in the innovation field, see entrepreneurs and experienced business owners that do everything right, except ask that fundamental question; How am I going to make money?
Many books and gurus on marketing or entrepreneurship push this idea that you have to follow the needs of your customer, why do they bother to use this product or service? While this is a good question to start with when you have new idea for a business or a product, another question that should be one of the first five you ask yourself is how you are going to make money. This is your business model. That consumers need your product is a good thing, obviously, but are they going to pay for it? How much will they buy? How many will actually buy it? Are there any alternative ways to make money on this? Consider the video below, this is a clip from Southpark in which Tweaks discover the underpant gnomes, the gnomes have a secret plan: they steal underwear, but what are they going to do with it once they stole it?
Clip from: Soutpark season 2 episode 17: Gnomes
As you can see the gnomes got it all figured out, well, to the same extent that most businesses do anyway. Phase 1 is always easy, you figure out a clever product or new technology or a concept for a new nightclub or whatnot, the difficult and often neglected part is part 2, what happens between you steal the underpants and profit? How do you turn underpants (or a nightclub or whatever it is) into profit?
I wish there was a simple answer that I could give you, unfortunately there’s not. But know that no matter what you think of first there’s bound to be a hundred other ways. Underpants for example could be resold, that’s the first idea of course. They could also be remade into cloth and resold; maybe the gnomes should focus on celebrity underpants and market them to creepy stalkers? For this particular example, probably the correct answer, unless someone smarter than me figures out something, well, smarter, is to discontinue this idea and find something that has a viable business model.
The point about considering your business model is that with all the effort that goes into figuring out how to make the perfect product, why don’t take the effort to figure out the perfect business model. Let’s say you want to start a newspaper, what are 10 ways to make money? Think about that for a while, write down your ideas and continue reading.
Ok, good, hopefully you have some ideas, I used a few minutes myself to think about the same thing, at first it’s hard to think about anything but the obvious, like selling the paper at stores and 7-Elleven and so forth, or you could have a subscription obviously. That’s two ways to make money. You could have ads, classifieds is one way to make money, and big display ads from major brands is one way. But now I really started to enter a bit of a pickle, what other six ways can you find? You could let companies pay for editorial content, or product placement (which is by the way highly unethical), you could have people pay to be a journalist for a day, you can use the paperboy to deliver other newspapers in addition to yours, or ads. You could sell the leads you uncover to tv-stations or other media. You could have puzzles, like crosswords with the price of $1 to participate and the lucky winner gets a mug or a t-shirt. You could use the paper to get visitors to your online site, where you really make your money, you can sell lists of customers to data warehouses, or you could sell printing services to others since you already have the facilities and they may not be operational for your purposes all the time anyway. There, ten ideas! Admittedly not all are excellent, but if you keep going I’m sure you can find 10 more and 10 more, and finally you are bound to stumble on to something that may actually work well!
The final issue that I want to address is that you may notice that some of these ways to make money may be mutually exclusive or just hard to combine. Maybe if you charge consumers for the paper they tolerate less ads than if you give them the paper for free, and if you sell ads, the advertisers would certainly be willing to pay more if more people read the paper, which they would if the paper was free. The point here is that when you have lots and lots of ideas on how to make money on your idea you have to start putting together combinations that you think will work. The combination of smart ways to make the most money that you are left with in the end is your business model. The business model that you choose will have a dramatic effect on your business in many effects. Maybe it will require you to change the product in some way, maybe you have to suit your marketing to the model? If you choose to focus on subscriptions you can probably benefit from having a callsenter from which you call prospects and try to sell the paper, however that would be stupid if you sell one paper at a time! If you do wish to sell one paper at a time through stores or Starbucks or whatnot that will affect your organization to, now you have to build relationships with the distribution channels, to ensure your paper gets a good spot as well as so many locations that you reach the desired number of sales each day. In addition you may have to focus your first page in a way that lures consumers to buying it spontaneously, while a subscription may be different. The point here is that the business model affects your business in so many ways that it should be considered as one of the very first questions you ask.
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