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Online Business Models - Let the Fun Begin!

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Once you have generated some ideas for your new business, you need to use those ideas to develop online business models for each of your business ideas. Only then can you do the analysis and compare each model to determine which one will result in the most viable business.

creating an online home business

Simply put, online business models describe what problem a business intends to solve or the value that will be provided for customers and how it will do so profitably. In the first instance, a business model is a clear concise statement of what your business intends to do.

But it is much more than that.

Your business model defines your business. It describes what your business will provide (goods and or services), and it specifies who your customers will be and why they buy from you. It also outlines the methods you intend to use to sell to those customers.

In your enthusiasm to get started you may be tempted to skip this step - DON'T - online business models matter!.

By working your way through the process of developing your business model, you will gain a far better understanding of of what you are trying to achieve and how to go about it!

Developing Your Online Business Models...

As defined previously, a business model describes what problem a business intends to solve (the value provided for customers) and how it does so profitably.

Osterwalder, Pigneur and Tucci (2005, p.4) offer the following definition of a business model:

      "A business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm.

      It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams."

Developing a comprehensive business model is an iterative process, where you start with a basic idea, which is clarified, redefined and expanded as you do the work to fully investigate the potential of your model.

You generally start the investigation of your business idea with a relatively simple description of your business model, which should include:

  • What you plan to sell,
  • Who you will sell it to, and
  • How and where you will sell it.

For example:

    "My business sells coaching sessions to middle level managers in the private sector looking to improve their skills to enable them to advance their careers.

    The sessions will be delivered once a week for a twelve week period using the telephone, and will be supplemented with email communication between sessions on a just-in-time basis."

A Few Things to Consider When Developing Your Online Business Models... 

Once you have settled on one or two ideas for your small business, the next step is to develop those ideas into a (hopefully) viable online business models.

But bear in mind, your business model is really just a starting point. Once you have a clear idea of what you want to do, it its time to put in a little bit of sweat and tears to evaluate the business potential of your model.  Nicholas Humphrey (2004, p. 16) recommends a five step business model analysis process to systematically evaluate new business ideas to develop your start up concept.

Step One: Personal Considerations

Even before you can decide whether or not your business idea is a good one, you have to ask yourself three questions.

1) Do you have the necessary skills?

There is no point in developing a business start up concept that involves designing purpose built beach houses if you do not have skills of an Architect.  Before you jump into creating your online business, and you are really committed to your idea it might be a good idea to investigate how to accumulate any skills that you will need but don't currently possess.  

In the case or architecture that might mean going back to Uni to earn a degree, but not all skill shortages related to business ideas need such a long time commitment.

Once you have identified any skill shortages, check with in your local area for training or short  courses that could help you learn new skills quickly.

2) Will the business hold your interest?

Even if you are a qualified architect, there is little point in developing this particular business start up concept if the main reason you are developing a business concept because you are already working as an architect and you don't actually like designing houses!

This one is really important.  If you are take the risk of going out on your own, and please don't kid yourself here - it is a huge risk especially if you are giving up your day job to do it - and most of the time you will have to bear that risk on your own - then it needs to be a business that you can embrace wholeheartedly.  It needs to be something you can be passionate about, so that you can still get up in the morning and get to work especially when things are not going smoothly.

3) Do your friends and family think it is a good idea, i.e., will they support you?

A brand new small business will eat up your waking hours and chew through your cash. Are your friends and family going to be able to put up with that?

Not to mention that your new business is an online business.  How many of your friends and family members are going to understand what you are trying to do?  Many of them are going to assume that you have been caught up in a scam or a get right quick scheme, and almost none of them will understand how you can expect to make money writing about a hobby!  It can be a very lonely time as you are building your online business.  

The traffic and social interactions that will be to core of your business will take time to build up to noticeable levels. It will seem like you are putting in an awful lot of effort for very little return and the doubting Thomas'es in your social set will be gleeful as they point it out to you.

See, I told you it was a waste of time...

It was never going to work...

What makes you think you could be an online entrepreneur...

Heard it all.  Proved them all wrong.  And you can too, providing you have the determination and the self-discipline to stick with it until it all clicks together.  

My advice, in the early stages at least, be selective about what you tell the people in your life.  Look for one or two that will "get it" and use them as sounding boards, but stay very vague with the rest about your online business.  They are unlikely to trip over your business pages unless they are looking for them - they are probably not your target demographic and they are unlikely to know what to look for anyway - and you can do without them seeding doubts in your mind about what you are trying to do.

Step Two: SWOT Analysis

Strengths, Weaknesses, Opportunities and Threats. Sounds good, but what does that actually mean?

In a nutshell, SWOT Analysis involves identifying the strengths and weaknesses of your proposed business (internal factors) and the threats and opportunities in the environment (external factors).

The idea being that you should take advantage of your strengths and any opportunities in the market.

Fix or minimize any weaknesses, while doing everything possible to counter potential threats.

Step Three: Is There a Market?

This one is important.  Unless there is someone out there (many, many someones actually) who is prepared to buy the product or service you are offering there is no point in opening your doors.

Market research involves looking at your customer base. You need to know about their behaviours, wants and needs and you need to look at the industry to see how your future competitors are currently serving the market.  

Your will also look at the conditions in the market (and the wider economy), and attempt to forecast future trends and identifies how your new business might fit within the market.  Market Research really is critical when evaluating your business model prior to startup!

Step Four: Financial Viability

So you have found a gap in the market (or are duplicating a existing business idea, or have created an innovative new twist), and you know who your customers are and why they will be prepared to buy off you instead of Bill Bloggs.

Looks good, but will you actually make any money doing it?

To answer this question you need to know whether or not the business will generate enough revenue to cover costs and return a profit.

Step Five: Let's Compare!

This step involves comparing the online business models you have generated, to select the best one for further business model analysis. Of course, it only applies if you are trying to decide between two or more models.

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